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Customer needs and behaviour in Latin America

by: Almiro dos Reis Neto, Associate partner of Hofstede Insights

 

Introduction

 

With a population of 570 million inhabitants, the Latin America region is composed of 20 different countries: Argentina, Bolivia, Brasil, Chile, Colombia, Costa Rica, Cuba, Equator, El Salvador, Haiti, Guatemala, Honduras, México, Nicaragua, Panamá, Paraguay, Peru, Dominican Republic, Uruguay and Venezuela. 
The GDP of the region is approximately US $ 9.5 trillion.
 
Be aware that the region is full of contrasts, and, the economy is considered a developing economy. The service sector is the one that has grown the most in almost all Latin American countries.

Meat and mining occupy a prominent place in the region. The industrial sector is divided into traditional and processing industries. They act in the production of raw material from the beneficiation of minerals or agricultural products, including those that produce consumer goods, such as traditional food and textile industries, although some countries have a more diversified industrial sector, ranging from the base to the latest technology - Brazil, Argentina and Mexico show these characteristics. It is worth mentioning that Brazil has such a diversified economy that it is one of the world's largest exporters of meat, iron and airplanes!
While the world economy1 will grow 3.5%, Latin America is expected to grow by 1.6% in 2017, according to ECLAC2, with Mexico growing by 2.1% and Brazil by 0.2%. Bolivia should be the country with the highest growth rate: 4%.

The region's average inflation will be around 10% in the year.

 

Important

 

Five most important things to know about Customer needs and behavior in Latin America (if you only read one thing that is what you should read)
  1. If you are considering one country of this region to start investing, you must know that Brazil, Mexico and Argentina account for over two-thirds of the region's total output;
  2. Although there is a good contingent of rich people in Latin America, most are workers, who are looking for good products with good prices, sold on credit. To succeed with this audience you have to work with volume and efficiency.
  3. Decades of high inflation have strengthen the banking sector, which is one of the best of the world;
  4. Latin Americans are high users of internet, as a way of expanding their need for relationship in all its forms and possibilities;
  5. Franchising goes very well in this region, probably because Latin Americans avoid uncertainty (High UAI);
     

References:

 

  1. https://brasil.elpais.com/brasil/2017/04/18/economia/1492512922_395839.html
  2. https://nacoesunidas.org/america-latina-deve-ter-leve-retomada-do-cresci...

 

 

Internet, e-commerce and e-banking

 

About 60% of the Brazilian population uses internet3, which represents 102 million internet users, while Argentina has about 50% in the United States 80%. US $ 30.9 billion4 should be spent in the region's e-commerce by 2020, only in the three main players, which are Brazil, Argentina and Mexico.
The main categories of online purchases in Brazil are:
·    61% Clothing, Shoes & Accessories
·    57% Electronic equipment’s
·    48% Digital entertainment and education items, such as e-books, applications, digital music and movie files, etc.

Brasil7 represents about 40% of the 348 million internet users in Latin America and is the fifth largest digital market in the world. 
Internet users in Brazil spent 38% more time online than the rest of Latin America. 76% of Brazilian adults have a payment card and purchases with credit cards grow twice as much as the card industry, accounting for more than 20% of credit card spending. This creates an ideal opportunity for international companies to enter this market.
Brazil is the second country with the highest usage of WhatsApp8, behind only South Africa - 76% of mobile subscribers in Brazil make regular use of WhatsApp, the most popular instant communicator in the country. 
Currently, 45% of Latin American e-commerce sales originate in Brazil. The country is expected to generate $ 45 billion in sales of the region's $ 117 billion B2C business by the end of 2018.
More than 60% of the banking transactions carried out in Brazil in 2015 took place through digital platforms. Mobile banking grew 138% over the previous year.
Mobile banking transactions (mobile and tablet) already outperform operations using other customer service channels. Second, comes the internet banking. Self-service terminals accounted for 15% of transactions, followed by sales outlets in branches and bank branches (8%).

 

Franchising

 

The franchise sector grew about 8% in 2016 and should continue to grow at the same pace in 2017, reaching about US $ 45 billion in the year, according to ABF5 - Brazilian Franchising Association. The areas that can generate the most return are those of health, aesthetics, beauty, gymnastics and healthy food, due to the new behaviors of the consumer. The largest segment is the food chain, with brands such as McDonald's, Burger King, China in Box and Bob's
The IFA6 - International Franchise Association explain that the LA Region continues to be a wise choice for expansion for many international franchise concepts. European and Australian brands have recently discovered the benefits of doing business in Latin America and have experienced rapid growth within their respective systems. The franchise model has been well copied and adapted to local flavor making for successful launch of very interesting concepts within the region. 
 

 

References:

 

 

 

Short case study

 

São Paulo, the wealthiest city in Brazil and headquarter of the largest companies in the country, houses luxury brands such as Armani, Cartier, Louis Vuitton, Montblanc, Tiffany and Versace. 

 

The Brazilian luxury market has grown more than 20% a year, on average, in the last five years. This performance is extraordinary, and should improve even more in the next coming years.

 

In these stores, it is possible to take free whiskey, champagne or coffee, while choosing the goods (outside Brazil, these are unusual and the service is considered very cold for Brazilian culture). On top of that, it is possible to pay in several installments!

 

"I do not belong to class A, but I need to look like as if I did”, say one of the clients. “Having a luxury brand object symbolizes that you belong to the elite. It has a taste of victory over your own origins." The client explains her hunger for luxury products. Far from belonging to class "A" (A as Affluence without limits), the only possibility was to buying on credit. For example, it is possible to buy a Cartier gold ring in four equal installments of US $ 500.

 

Tiffany Brazil is the only one in the world that sells in 10 times. It is not just class B or C behavior, but all Brazilians have the habit of paying with credit.
For those customers who do not yet know this world, the sellers of these stores give a helping hand: between two diamonds that lay eyes would consider the same, hide microscopic details that are worth US $ 20,000 and another, $ 60,000. In addition to in-store help, Tiffany, for example, organizes lectures to enable its client to understand what they are buying: teaches the secrets of stoning and its results on the brilliance and sparkle of the diamond. His lectures take place at its headquarters in the city of São Paulo, as well as in Brasília, the capital of the country, or in Rio de Janeiro, each with 50 to 150 participants.

 

In the Ermenegildo Zegna boutique, the classic Italian men's brand, the effort to empower the clientele is not far behind. His courses explain the secrets of high tailoring. From the type of sheep from which the wool is extracted, to how to wear the tailor made suits in the European matrix.

 

What the European customer has learned over decades of conviviality with luxury brands, the Brazilian must learn fast, to consume well.

 

Questions:

 

  1. Class A, from Affluent, wants to appear to be richer and more powerful than it really is. This is important in a high PDI country. Why?
  2. There is a very special kind of service offered to "class A" clients. This is also a heritage of high PDI culture. How can your product or service take advantage of this culture trait?
  3. The credit payment includes interest. How to make this financial transaction?
  4. You have certainly realized that you need to empower the consumer to properly appreciate and value a new product or service. How to do this in your case?

 

* The case described in this text is fictional. The names of the characters and organizations are merely illustrative. Any resemblance to real facts would have been mere coincidence.