Consumer-facing companies are at a loss. The middle class, long the bread and butter of consumer companies of all kinds, is shrinking as a percentage of the population in mature markets. And in emerging markets, where many consumer companies have been laying their bets for the future, growth has started to slow.
To thrive again, companies need nuanced ways of defining a segment of consumers to focus on. Our research indicates that five questions can help point the way:
- Do they have access to the internet?
- Do they have a significant amount of discretionary income?
- Are they willing to spend a lot of their discretionary income?
- Do they prefer premium goods and services when they can afford them?
- Do they seek to be on the cutting edge of consumer trends?
Consumers who answer yes to all five questions are what we call “connected spenders.” When we look more closely, we see that almost all of them are working-age, and over 30% are 25–34 years old. They are highly urban; nearly 80% of connected spenders live in a city. In emerging markets, that number is even higher, at 90%. While connected spenders are more affluent than the average, not all are high income. And, in turn, not all affluent consumers are connected spenders. Globally, connected spenders make up about one-third of low-income populations and two-thirds of high-income ones.
Today connected spenders count for about 19% of the global population, and that is projected to grow to 37% by 2025. Cumulatively, over this decade they will spend $260 trillion — 46% of the world’s consumer spending. In markets such as the U.S., where internet access is just shy of 90%, only 36% of the population are currently connected spenders, a number that will grow to over 50% by 2025.
Connected spenders are the heaviest purchasers in categories including electronics, travel, and dining out, and they’re likely to be early adopters of new ways to buy in any category. In financial services, for instance, these ways are the newest cashless payment methods or mobile banking products. In media, they will gravitate to multiple devices and to the newest services to stream video and audio. In CPG categories, connected spenders will be drawn to “hot” concepts such as health and wellness, and offerings that combine product and experience, such as subscription services. Shopping experiences such as in-store cooking demonstrations or shopping apps to help them find and select products in more convenient ways will also appeal to them.
How should companies approach the connected spender opportunity?
First, they should recognize that people can only be connected spenders if they are connected. Mature markets already boast close to universal levels of internet access, but we estimate that 2.3 billion more consumers will come online in the next decade, almost all in emerging markets. By 2025 just three mature economies — the United States, Japan, and Germany — will feature in the top 10 countries for connected spenders. That top 10 will include Indonesia, Pakistan, and Nigeria — markets that do not get much attention from Western companies.
Companies therefore need a two-track strategy: woo the connected spenders in mature internet markets now, where they are already deeply invested, and get ready for the new connected spenders as they come online in emerging economies over the next 10 years. This approach fits the financial realities of the world’s markets. Even in 2025 the average mature-market connected spender will spend nearly $40,000 per year, 10 times what the average in an emerging market will be.
In a mature market, consumer companies must get already-connected connected spenders excited about the products and shopping experiences they offer. Connected spenders seek novelty and exciting experiences across all their consumer activities. They prefer cutting-edge products and state-of-the-art technologies. Offerings that bring an imaginative, technology-driven twist to an existing product or that solve a consumer problem with a new digital offering will open connected spenders’ wallets.
Connected spenders are a digitally oriented advertising audience. Online marketing and advertising, particularly on smartphones, will be a good investment to engage these consumers, especially with newer formats, such as online sporting events or sites that combine curated content with online shopping. Connected spenders respond to traditional advertising as well, but they are much more likely to spend time on a manufacturer’s website or to remember an internet ad. Connected spenders will watch an ad if it is educational or highly relevant. The challenge, therefore, is to increase the information-richness of advertising and the personalization of its content and delivery.
What does “getting ready” for emerging markets’ connected spenders mean? Three things:
First, make it easy for consumers to move their consumption behaviors online as access allows, by including safe and convenient access to and education about new digital goods and services. Connected spenders enjoy learning about products. Most companies know they need to make e-commerce easy. They are far less aware of how critical education is in these markets, especially for products and services whose benefits are not immediately obvious, such as insurance or organic personal care products. It may seem that making it easy for consumers to buy the goods is enough, but it isn’t. In many cases, a great deal of explaining needs to go along with access.
Second, design products and shopping experiences to align with the dominant internet access methods of each market, as in the China example above. In many emerging economies it is well-known that consumers are leapfrogging to internet access by smartphone and may never use personal computers. But what is underappreciated is that a mobile-first or mobile-only strategy will not be the same in all markets. In China, smartphones are prevalent among urban consumers and social media sites are used for everything from shopping for groceries to paying credit card bills to buying an insurance policy. In other places, such as Nigeria, traditional trade is more prevalent and smartphone use is less so. Shoppers there will be looking for text-based tools to help them pay for items in local retail stores.
The final imperative is to be flexible in prioritizing markets, because a connected spender in spirit only becomes one in practice when internet access is accompanied by the other elements needed for e-commerce to boom — including market-wide online payment infrastructure and solutions to the logistics of the “last mile.” Companies must monitor the development of communications, transport, and financial services infrastructure.
Connected spenders are naturally engaged and eager; it’s what makes them so attractive. But they are also demanding, and their expectations will need to be satisfied. They are looking for new goods and services, with the latest technology, but with tangible benefits — and they will do the work online to find the best prices. The reward for investing to meet their demand will be significant, as the total annual spending of connected spenders will rise from $15 trillion in 2015, or 35% of global consumer spending, to over half of the annual total in 2025 — $32 trillion.