After a remarkable decade of steady growth and economic stability, Brazil has emerged as one of the world’s most important new consumer markets. Millions of families that not long ago struggled for subsistence can now afford such basics as kitchen appliances and mobile phone service. Millions more now earn enough to pay for private school and a second car. And in the years ahead, the ranks of such consumers will swell enormously. By 2020, Brazilian households will represent an annual market of around $1.6 trillion (3.2 trillion Brazilian reais).
To help companies target this important market, The Boston Consulting Group’s Center for Customer Insight has developed a proprietary methodology for segmenting Brazilian households. We compared monthly income with consumption per household for more than 200 product categories.
We then identified the following five income segments on the basis of step changes, or critical shifts, in household consumption: subsister households (with incomes of less than $3,000 per year, or less than 500 reais per month) live in poverty and make purchases only to meet their most essential needs; restricted households ($3,000 to $15,000 per year) are no longer poor and typically increase purchases of basic goods as they can afford them; emergent households ($15,000 to $30,000 per year) have entered the middle class and tend to trade up to higher-value products within those same categories of essential goods; established households ($30,000 to $45,000 per year) increase spending in new product categories; and affluent households (more than $45,000 per year) dramatically increase their consumption of luxury goods.
This analysis yielded several striking insights:
We believe that redefining Brazil’s middle class based on step changes in consumption can lead to more-effective strategies for penetrating one of the world’s most important growth markets. Companies can better anticipate when and where sales of their goods and services are likely to take off—and when they should adjust their product portfolios as households begin to trade up within categories.