Vijay Mahajan: Understanding the Potential and Power of Arab ConsumersPublished February 19, 2013 in Arabic Knowledge@Wharton
As a scholar, Vijay Mahajan has worked to explain global opportunities to the business world, and his latest work, The Arab World Unbound, examines the potential of the Middle East's markets. Mahajan holds the John P. Harbin Centennial Chair in Business at McCombs School of Business, University of Texas at Austin. He is a former dean of the Indian School of Business in Hyderabad.
Mahajan spoke at length about his travels and experiences in the Middle East that went into the book. In the first of two parts of his interview with Arabic Knowledge@Wharton, he advises any company coming to the region to steer clear of Middle Eastern stereotypes perpetuated by popular media. "Those stereotypes, when you go underneath them, you'll be amazed actually that how smart these consumers are, how well informed these consumers are," he says.
An edited transcript of the conversation follows.
Arabic Knowledge@Wharton: In your book The Arab World Unbound, you quote a young woman from Dubai who said that the Arab world must take back ownership of its image from CNN and Al Jazeera. How have media organizations distorted the Arab world's image?
Vijay Mahajan: This is the [region's] youth now: They're basically feeling that nobody is really trying to capture who they are. And we should really show the reality, which I think is exactly what I learned. Having traveled for almost three years in 18 different countries, the more I traveled, the more I talked to people like her, the more I realized how correct she was, that we in academia and also in the media, we really have not made an effort to really capture the positive energy that this girl was portraying on behalf of most of the youth in the region.
Arabic Knowledge@Wharton: What were some of your misconceptions about the Arab world? And how did they change in the course of researching and writing the book?
Mahajan: The typical things that you hear about this region -- it's very backward and not that educated. When you hear things like that you also think that they probably don't have a hospitality industry. Who would want to travel there? [But] this region gets more than 70 million travelers every year. And some of them are, of course, internal. So even if you think half of that is internal, you still have 35 million travelers in the region. Once you start thinking about that then that number doesn't surprise you. But for anybody to really accommodate so many travelers each year, the infrastructure has to be good. You know that the hospitality industry has to be very well established. Otherwise why would anybody go for a vacation from Europe to any of these countries? So when you look at that you say, "My god, this region is very much globally connected."
I looked at Dubai and I was trying to compare it to Austin. How far can I go from Austin in two hours, three hours, five hours, six hours, or eight hours? And that figure was amazing. From Dubai, within eight hours you touch Shanghai on one side, you touch London on the other side and you touch South Africa. And when you look at the whole world within eight hours you realize [that] billions of people are connected with this region within eight hours. This region actually has understood that and is really taking advantage of that. It's no wonder that some of the airlines in the region are doing quite well.
Arabic Knowledge@Wharton: Could you talk a little bit about the spending power of Arab consumers? How large is the Arab middle class? And what implications do its consumption trends have for global and local brands?
Mahajan: In this region the total buying power, the gross domestic products are close to about US$2 trillion. Much of that is coming from the Gulf countries. Interestingly, when you combine all six Gulf countries, their total economy is smaller than Texas. But it's US$6,000 per capita, bigger than China or India. But the two indicators, which from the marketing point of view really fascinate me, are the percentage of the shadow economy, meaning the economy which is not typically accounted for in the World Bank GDP numbers, and also what percent of the economy is controlled by the consumers.
But for the Arab countries, what you realize is that consumption, or the economy controlled by the consumers, is actually more than China. So that means consumers there actually are more consumer driven than the Chinese. And when you look at per capita consumption power, it's almost twice that of Chinese and almost three times that of Indians. So there's a lot of buying power there among these consumers. Be that be in Morocco or be that be in Bahrain, there is a lot of buying power there, relatively speaking.
Arabic Knowledge@Wharton: You write in your book about the so-called gray market. Can you explain its role in the Arab world, and especially how multinationals like Unilever are dealing with it?
Mahajan: A gray market actually comes in three forms. One is that officially you're not supposed to have certain products, but those products are really available. A second type is when one country bans your products. So some entrepreneurs will buy them from Dubai and other places, and Unilever also knows that these guys are selling their products, but that's a way for them to test their market… The one that really hurts them are the fakes. You look at the real Lipton versus the fake Lipton package, you can't even tell the difference. So that is a huge market. Even here in the U.S. we have the same issues, but the first two really work out in the favor of corporations [in the Middle East].
Arabic Knowledge@Wharton: What is the 'shabab?' And what are global countries doing to try to get to the Arab world's youth market?
Mahajan: Shabab is the word that they use for young people. In the Arab world, relatively speaking, the fertility rate is very high, and half of the population is less than 25 years old. So the youth market is huge. Secondly, going back to your first question about the middle class, almost 50% of the population in the Arab country actually belongs to the middle class. So you have a huge middle class and you have a huge youth population. Naturally there are very high expectations for this youth population.
The most interesting study that was shared with me was by Coca Cola. [Done out of Morocco], they started tracking people who were born in 1990. The study was finished, I think, in 2007 or 2008. They were trying to find out what these young people have been exposed to. When you review that study what you find out there is that these children are not any different than my daughter and son growing up in Austin, Texas. The young generation probably doesn't have any memories of the colonial days. This young generation is very modern, very contemporary, very ambitious, very well connected with technology, very well connected with the rest of the world. And so their aspirations are very global. And so that's the part that I think the companies that have understood.
But as you know, the youth unemployment rate is quite high. When you talk to these companies, they say it's not that we don't have the opportunities; we don't find the skill set. So there's a huge opportunity for education, the right type of education.
To give you one example, if the region is getting 17 million tourists every year, how come there's not a world class school there actually training its people to take advantage of the hospitality industry? So I think that's probably the soul searching this region has to do. But I happen to be one of those very optimistic persons since I have met a lot of these young people. I think they can.
Arabic Knowledge@Wharton: That's fascinating. So based on what you have just said, what are some of the successful marketing strategies that multinationals have used to tap into the Arab world's consumer base?
Mahajan: Well, I think the best quote that I got was from the chairman of Unilever. He said, "Please don't call us a multinational company, call us a multi-local company." And that really hit me. He said, "Because every place that you go you have to understand the fabric of their society." And after that interview, then that's when I changed my thinking. I also started trying to understand what is the fabric of this society.
This would be like somebody going to China or somebody coming to the United States; if somebody's coming to the United States in the consumer markets, and if they don't understand how much shopping we all do during the Christmas time, they're going to miss the boat. Or, if they do not understand what impact Thanksgiving and the other few holidays that we have on certain types of shopping. This region is also the same way.
It is true that not everybody in the region is Arab. It is also true that not all of the Arabs are Muslim. But the fact still remains that religion does make a difference. In the book I was looking for the capitalistic side of the region, of the religion. So there is a chapter there that says Islam matters. And I was really amazed actually. If you have not understood that basic tenet, you're really going to miss the boat. So you have to respect it, you have to understand it, you have to appreciate it.
I spoke with some of these companies like Sony and Samsung and a whole bunch of others, so they literally told me that Hajj [the Muslim pilgrimage to Mecca] time is like the 13th month. If you don't put your act together to market your products during the Hajj, those four, five days, you literally are going to lose the sales of one extra month. And I think in the book I have mentioned that Sony gets 40% of their sales during that time.
And then you have the companies who also realize that these people are coming from all over the world. So why not follow them? There is an amazing company that I met in Saudi Arabia, and they make perfumes. Many of these people they will buy those perfumes because it is something that the Prophet Muhammad used to use. So they figured, why not follow these pilgrims back home? So this is what I mean when I say you have to really understand the fabric.
[The Islamic] calendar is lunar, so Ramadan doesn't come at the same time of the year every year. And so up to 2019 it's coinciding with the summer. Keep in mind, during the summertime three very interesting things happen. One is that people go on vacation, so the demand for the swimming suits and things like that goes up. Secondly, people do the shopping for back to school. So now imagine that Ramadan is also coming during the summer, and so at the end of the Ramadan when they have their Eid celebrations, they also have to shop for gifts and all that. So now three things are happening. So there's an extra demand on this budget now. So they have to cut it someplace. So either they're going to cut on vacation or they're going to cut on the back to the school. The question is, where are they going to cut? From the retailer point of view, that was one opportunity. So now how do you manage it? For the smart companies, this was not a liability for them. This was really a huge opportunity for them to understand actually how to market their products.
Arabic Knowledge@Wharton: What would be your top three pieces of advice for chief marketing officers who want to succeed in reaching consumers in the Arab world?
Mahajan: I would tell them that a good marketer knows that they have to really win a consumer's heart. And that heart is not an isolated element, that heart belongs to a person who belongs to a culture, who belongs to a society, who belongs to a family. And two cultures are not identical. So in the Arab world, you have to really understand that aspect, that cultural aspect. And so there are special nuances of that region. They have to understand the role of religion, and to understand the role of the family. The second thing is, you can't fool them. They're very globally integrated from all sides. So they understand what's going on there. Integrate that with availability of the media and the satellite technology and social media. Your value proposition has to be strong and very competitive. The third thing that I would say is, don't go there with stereotypes, whatever the media is telling us. Those stereotypes, when you go underneath them, you'll be amazed actually that how smart these consumers are, how well informed these consumers are.