Income Distribution in International Markets

909 words | 4 page(s)

For companies looking to take their products into foreign markets, one of the most important concerns is the ability of consumers in those markets to afford consumer goods. There are many reasons why companies choose to flee their domestic market in order to reach out in the international sense. On one hand, companies are almost always looking for a bigger potential pool of consumers when economies of scale are possible. Simply put, more sales is better than less, so companies seeking higher profits will look to maximize their volume in the international realm. Often, though, companies seek out international markets because those markets have a higher proportion of consumers capable of paying the prices that the company needs in order to maintain higher profit margins.

Marketing professionals have to understand the basic characteristics of their target consumers. While there are lots of things that go into this calculation, one of the most important is the buying power of the consumer in a given country. The willingness of a consumer to buy a product is only tangentially related to taste. Put simply, if an individual does not have disposable income to spend, then it will not matter how good or necessary a product is for that consumer’s life. With that in mind, marketing professionals must understand income distribution in markets, choosing price and placement based upon the ability of individuals to actually afford the company’s goods.

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Over the last couple of years, the United States has seen much more discussion about its own income distribution, and more aptly, income disparities. People at the top are making more money, while people at the bottom are making less and less. Around the world, there are countries where income disparities are greater than in the United States, and there are countries – especially some in Europe and Scandinavia – where the income distribution tends to be more egalitarian and uniform. Either of these things can be important for a marketing or advertising professional depending upon the type of product that the company is trying to introduce in that particular target market.

In a place where the income distribution is relatively uniform, there will be tremendous buying power spread among the different members of the population. There are economic arguments that exist to the contrary, but many in the world of economic academia believe that when more money is concentrated in the hands of a greater number of people, businesses have an opportunity to thrive. Simply put, consumption tends to power companies and the economy at large, so an income arrangement where more people can spend will benefit companies generally by producing a stronger economy overall. This is important, of course, for the long-term prospects in any given market. Short-term concerns are more important and relevant to the decisions that are made by marketing and advertising professionals. For instance, if one is trying to market a product in Denmark, where income distributions tend to be more egalitarian, then low end consumer goods will tend to do much better. More people will have the money to spend on low and medium cost goods. A marketing professional would know that he would be able to appeal to a wide group of potential consumers. This means, then, that a potential marketing or advertising campaign could be very generalized. The market would not be as segmented, and advertisements would not have to be directed to a small portion of the population.

In countries where there is a high concentration of wealth in the hands of the very wealthy, marketing and advertising professionals have to adjust their approach toward both pricing and promotion. Take much of the Middle East, for instance. In countries like Saudi Arabia, where there is a high concentration of income in the hands of the very wealthy, a company’s approach might be geared toward higher-end offerings at higher prices. Other parts of the Middle East, including the United Arab Emirates, feature a high proportion of expatriates. This population tends to have tremendous purchasing power, and marketing professionals might need to gear advertisements not toward the general population, but rather, toward the individuals within a given country that are more likely to consume a certain class of goods.

Overall, the average income in the Middle East is higher, but given the fact that the bulk of wealth is concentrated in the hands of fewer people, it is important for marketing professionals to depend upon a smaller group of consumers. This, of course, creates more risk for a company going into this kind of environment. It also creates more opportunity if marketing professionals are able to target ad campaigns toward the people with buying power. In general, the most important thing is for companies to ensure that their products and their pricing approach match the capabilities of the buyers in whatever market they hope to enter. A good awareness of what type of consumer would be most likely to purchase one’s goods is a very important first step in coming up with the right approach in these nations.

As a professional in international marketing and advertising, awareness of market conditions is the key. Luckily, income distribution trends tend to move very slowly, so advertisers and marketers can plan ahead, choosing a product entry approach that is well-aligned with the ability of consumers in a given nation to purchase those products. This applies equally well in countries with high income stratification and those with low stratification.

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