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FRUGAL – Simply the Best

2015

In 2030, four out of five consumers will live outside Europe and the USA. 95% of cumulative population growth and 70% of real cumulative GDP growth between now and then will take place in emerging countries, whose purchasing power is experiencing a stellar rise. The OECD anticipates a global middle class of 4.8 billion people, a huge market indeed. Frugal products – simple products that meet basic needs – let businesses benefit from new markets and, in the long term, encourage customers to trade up to higher-quality products. Yet not all producers make optimal use of the available potential, as a new Roland Berger Strategy Consultants study shows: "Simply the best. Frugal products are not just for emerging markets: How to profit from servicing new customer needs".

"The market potential that companies can penetrate with frugal products is vast," says Oliver Knapp, Partner at Roland Berger and co-author of the study. Why? Because demand for consumer products driven by rising incomes in emerging markets is only part of the story. Untapped potential also lies waiting in Western industrialized countries' low-end and mid-range market segments. Financial crises, recessions, stagnating household incomes and high unemployment are increasingly shifting patterns of demand. In the USA, for example, only 44% of people still see themselves as middle class – 9% fewer than in 2008. In their own perception, 40% of Americans have slipped into lower income brackets. "When companies meet the needs of these people with frugal products, they could also be pre-empting potential rivals from emerging countries – effectively protecting their established home markets against competition," says Michael Zollenkop, Partner at Roland Berger and another of the study's co-authors.

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