Innovating for the Next Three Billion

Overview

The rise of the global middle class – and how to capitalise on it.

Between now and 2030, the number of people in the global middle class will grow from 1.8bn to 4.9bn. The vast majority of these 3bn new consumers, with daily expenditure of between US$10 and US$100, will live in Asia and other rapid-growth markets. Although the majority of these consumers will have expenditure at the lower end of this spectrum and therefore will not be considered middle class by the standards of developed economies, this vast cohort nevertheless has considerable spending power. Between 2009 and 2030, demand from the global middle class could grow from US$21trn to US$56trn.

Against a backdrop of sluggish growth in developed markets, this explosion of new purchasing power is good news for the global economy and the growth prospects of the world's multinational companies. A rise in private consumption among the middle class, particularly in rapid-growth markets, will help to rebalance the global economy and create a vital new revenue stream for companies across a wide range of sectors.

Yet capitalising on demand from the next 3bn will not be straightforward. Many companies will need to rethink their product and service offerings to ensure that these offerings are tailored to the needs of this vast customer base.

In the past, developed-world companies would typically take premium products that sold well in their home market and either sell them unchanged in rapid-growth markets or strip them down to make them more affordable. Neither approach was satisfactory. Premium products may have sold well to the elites in rapid-growth markets, but they were often irrelevant for the vast proportion of the population on lower incomes. And stripped-down products may have been more affordable, but they were not sufficiently tailored to meet the specific needs of local customers.

Reaching the next 3bn will require companies to understand the unmet needs of the new middle-income customers and to create entirely new products and services to fulfil them. This will mean thinking differently about every stage in the product development process. Strong R&D capabilities will be important, but so, too, will be innovative business models, deep customer insight, and a culture and a mindset that support innovation.

The aim of our report, which is based on a survey of 547 executives from around the world and in-depth interviews with some of the world's leading entrepreneurs, senior executives and thinkers, is to examine the capabilities necessary to innovate for the next 3bn. We explore the scale of the opportunity and look at the approaches that companies are taking to develop affordable products that meet the needs of customers on lower incomes. We conclude with a model we feel describes the necessary capabilities for companies seeking to target the next 3bn consumers.