Estimating Demand in Emerging Markets

Estimating the demand for products or services in emerging markets and developing economies is a challenging task for managers. These countries have unique commercial environments. They may be limited in terms of reliable data, market research firms, and trained interviewers. Consumers in some of these countries may consider surveys an invasion of privacy. Survey respondents may try to please researchers by telling them what they want to hear rather than providing honest answers to their questions.

Three of the largest emerging markets—China, India, and Brazil—have a combined GDP in excess of $15 trillion. In 2018, more than one-third of all residents of Africa (over 450,000,000 people) were active users of the Internet and approximately 180,000,000 Africans were Facebook subscribers. The Middle East and Africa are among the biggest markets for mobile phone sales, with estimates nearing 200 million users. Automakers are doing substantial business selling economy cars throughout Latin America, South Asia, and Eastern Europe. In short, emerging markets and developing economies are huge markets for products and services.

Estimating demand in such countries requires managers to use innovative research methods to gain insights or data. Let's consider two firms trying to estimate the demand for wallpaper and adhesive bandages in Morocco.

In Morocco, wealthy people tend to live in villas and condominiums and are a target market for wallpaper sales. The government usually measures wallpaper imports by weight and value. Such information is little use for estimating wallpaper sales because firms sell wallpaper by the roll and different designs have different weights.

One wallpaper company examined data from various sources to estimate demand. First, managers reviewed a recent study of the number of water heaters purchased in Morocco. From experience, they knew that if households purchased this modern convenience, they would likely buy wallpaper too. Second, managers reviewed government statistics on domestic wallpaper sales, discretionary income by type of household, and home construction data. Third, they studied the lifestyle of a sample of local consumers and found that Moroccans typically shop for wallpaper to complement wall-to-wall carpets. Among married couples, the wife usually decides on decorations for the home. Customers are usually well-off. They include professionals, merchants, and high-ranking administrators. The company made a reasonable estimate of demand for wallpaper by triangulating data from these sources and using its own judgment.

In the case of adhesive bandages, available data revealed that 70 percent of demand for pharmaceutical items, including bandages, was met by wholesalers concentrated in Casablanca, Morocco's largest city. The country imported all its adhesive bandages. Demand was growing quickly, due to rapid population growth, free medication for the needy, and reimbursement programs for medical expenses. Although the government published import statistics, the information was confusing. The data on bandage imports was incomplete and mixed with data about other types of adhesives. Widespread smuggling and gray marketing through unofficial distribution channels complicated demand estimates.

Researchers interviewed bandage salespeople from Curad, Johnson & Johnson, and other firms to gather more information. They visited retail stores to ask about sales, prevailing prices, competitive brands, and consumer attitudes. They found that consumers tend to be price-sensitive and rely on doctors and pharmacists to recommend bandage brands. Researchers also tallied statistics from the United Nations Development Program and other aid agencies that donate medical supplies to developing countries. They eventually arrived at a reasonable estimate of bandage sales by assimilating data from these various sources.

12-1. Why is it challenging to estimate demand in emerging markets?

12-2. What types of products are in greatest demand in emerging markets?

12-3. Why do researchers often need to use innovative approaches to estimate demand in emerging markets?

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