Kamakura: more socioeconomic groups in Brazil

Posted: September 18, 2012 by jennroig in English, Interviews
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Wagner Kamakura

Wagner Kamakura is Marketing engineer and Global Marketing professor at the Duke University’s Fuqua School of Business. In collaboration with USP professor José Alfonso Mazzon, he conducted a research to assess how the Brazilian middle class has grown and differentiated, and how the previous group division is no longer enough.

This is the original unedited English version of the interview to Kamakura published by AmericaEconomia on 3 September 2012.

It is said that your research  conducted in Brazil, resulted in a “new model that classifies consumers into social strata”. Could you briefly explain what are the main differences with previous models?

The most popular criterion for socio-economic stratification in Brazil is “Criterio Brasil,” which was developed by ABEP (Brazilian Association of Market Research Agencies) at a time when  attention by most marketers focused on the top strata, because they were a substantial portion of the Brazilian market for consumer goods.  Due to this focus, “Criterio Brasil” discriminates well among the members of this small group, separating this minority from the rest of the population of consumers. Unfortunately, this elitist focus on the richer minority led many firms to overlook the growing mass of Brazilians turning into economically relevant consumers in the past decade or so.  Some multinationals were proud to “compete from high ground,” offering only premium brands for the top strata, thereby ignoring this emerging mass of new consumers (they are now scrambling to extend their brands downwards to reach the new mass of consumers).

Our framework for socio-economic stratification takes a more balanced view, identifying socio-economic strata that are more representative of the current realities of the Brazilian consumer market, providing a better understanding of the emerging new classes of economically relevant consumers.  While “Criterio Brasil” still provides better understanding of the consumption of luxury goods, our criterion produces a better segmentation basis for packaged goods and other product/service categories reaching beyond the wealthy minority.  The Brazilian government is also working on a new criterion solely based on per-capita income to define the so-called “middle-class.” Our criterion is based on the concept of “permanent-income,” which acknowledges that current consumption cannot be fully explained by current income, because most consumers use credit and savings to meet their current needs with past, current and future income.  My co-author (Professor Mazzon from the University of Sao Paulo) and I are working with ABEP to extend our framework towards a version that can be more readily applied in field market surveys.

What is the social group leading the puchasing power in Brazil? (meaning who usually decides what to buy in the household) Are there any significant figures regarding the distribution of types of households? (meaning whether single young mother are significant, or mixed race couples, or if is there any significant change regarding the purchasing power of indiginous people in Brazil, etc.)

Our results for 2003 and 2009 indicate that, all else being equal, Asians are likely to be in higher strata than Caucasian, followed by Afro-Descendants (with a slight advantage for mixed-race households).  Our results indicate that the most likely to be in lower strata are indigenous people. Households headed by a married couple are likely to be in higher strata than those headed by single mothers.  The most likely to be in lower strata are households headed by single males.

Does the model consider internal differences such as the development differences visible between the center and the periphery in Brazil?

Our results show clear differences in socio-economic stratification depending on where the household is located. Families living in state capitals and metropolitan areas tend to be in higher strata, compared to those in smaller cities and rural areas, after correcting for other demographic characteristics.

Brazil is a huge country, with a very ethnically rich population. Did you and your colleague considered the cultural differences that can influence on consumers’ habits from different social, ethnic groups?

The main focus of our study was on creating a framework for socio-economic stratification, rather than studying consumption habits. The only differences in consumption considered in our study were those observed across socio-economic strata.  For example, we find that the top two socio-economic strata (representing 12% of all Brazilian households) which formed the focus of attention of many marketers in the past, accounts for only about 25% of the total market for home care, personal care or packaged foods.  If you want to reach at least 80% of these markets, you need to dig deeper into the top five strata (69% of all households).  On the other hand, if you are selling jewelry, vacation trips, the top two strata would cover more than half of the Brazilian market.

Even if Latin America is commonly referred to as a block, the fact is that there are plenty of differences between each countries, and even inside national borders. Have you addressed how is Brazil different from other neighboring countries with developing economies and big populations such as Mexico, Colombia or Argentina?

We only studied a sample of Brazilian households, and therefore could not compare Brazilians to their neighbors.  That would first require a multinational sample, and a harmonized definition of social strata, along with harmonized data on consumption.

In another research, you found that personal consumption of luxury items reduces during crisis. There is though another research by the Boston Consulting Group (Luxe Redux: Raising the Bar for the Selling of Luxuries, by Jean-Marc Bellaiche, Michelle Eirinberg Kluz, Antonella Mei-Pochtler, and Elmar Wiederin), stating that the generational change may have a lot to do with the reduction of luxury items and the increasing option for luxury experiences. How do you think this relates to Brazilian luxury consumers?

I am not familiar with their study, and therefore cannot comment on its content and conclusions. My own study, published in a recent issue of the Journal of Consumer Research,  focused on American households, over a period of 21 years that included three recessions and several periods of economic expansion.  Throughout these two decades, we identified the “keeping up with the Joneses” effect for certain types of goods and services.  For goods/services that are visible and non-essential (e.g., jewelry, vacation travel), consumers feel less compelled to consume during a recession, even when their income is not directly affected by the recession.   Our theoretical model predicts (and our empirical model supports) that this happens because for these visible luxuries, part of the consumption value is in “showing off” or comparing favorably to others in the same social network. During economic expansions, this pressure is higher and therefore consumption of these goods/services increases beyond what one would expect from income growth. The opposite happens during a recession.

Is there any signs pointing to Brazilians travelling more for tourism? How could tourism agents take advantage of a growing middle class in Brazil who could be able to spend more in trips?

According to our data, the largest growth in leisure traveling between 2003 and 2009 happened among households in the top two strata (representing 10% and 12% of all Brazilian households in 2003 and 2009, respectively), rather than in the so-called “middle class.”  In these two top strata, we saw a growth of approximately 140% in real terms (inflation adjusted).  In contrast, in the next three strata (representing 47& and 57% of all households in 2003 and 2009, respectively) the growth in leisure travel was about 70% in the same period.

However, it is difficult to know the reasons for such a growth.  It might be due to easier consumer credit.  Growth in international travel could also be due to the over-valued Real;  for someone living in Southern Brazil it is more expensive to spend a vacation in the country than to travel to Argentina or Uruguay.

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