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1997
Marketing to Low Class in Brazil
Paul Herbig
Introduction
With the recent economic policy changes in Brazil, inflation has been brought under control and, among other benefits, low-income families now have greatly enhanced disposable income. This pent-up demand and the possibility of economic growth represent a tremendous opportunity in the largest Latin American market.
But selling to low-income families and individuals in Brazil is a tremendous challenge as well. Like the United States, Brazil is one of the few countries that can boast of a truly racially mixed society: the country includes people of Portuguese, African, German, Japanese, Arab, and indigenous descent. While the country is officially 55% Caucasian, the vast number of ethnic people is striking. Sao Paulo, for example, is the largest Japanese city outside of Japan, and it is not unusual to hear German spoken in the southern half of the country. In addition, each region has its own character with, as a rule, the wealthier, white Europeans inhabiting the southern part of the country and the less prosperous, African and indigenous groups inhabiting the north.
The purpose of this paper is to assess the prospect of marketing to low-income Brazilians in light of the recent economic changes. Admittedly, selling to the poor is not suited for everyone--especially when the market is as complicated as the Brazilian one. For those with the right product mix, however, this paper will show why now is the proper time to enter the market and what the proper means are for doing so. But this is only part of the analysis. A country as ethnically diverse as Brazil has low wage earners that span several cultures. It would be impossible to address all of these groups in a single paper. This investigation will focus on the largest segment, however, those with African heritage. It will be shown that, while Brazilian society has a long way to go in the area of social equality, Afro-Brazilians are proud of their heritage, and that this pride is a dynamic source of change in low-income communities. The relevance of this to the profit-seeking company, is that, for long term profitability, the marketer must take an interest in the development of the communities in which they operate.
Economics and Politics
With 160 million people and a GDP of over $500 billion, Brazil accounts for over half of the population and output of South America. By all rights, it should be an economic leader in the western hemisphere. However, a shambolic mix of twenty years of incompetent economic management by a military regime and later half-hearted economic reforms during the late eighties and early nineties lead to a dismal record: the average annual GDP growth rate was only 1.5% over 1980-1993, and inflation was often in the triple digits. The distribution of income, already poor, worsened in the eighties to the worst in the world. These figures, combined with the country’s comic opera political scene, gave Brazil the title: “The country of tomorrow, and always will be.” Economic changes in the last two years, however, have actually lead a good number of Brazilians, as well as outside observers, to harbor some real confidence in the economy--if not in the political situation.
In mid-1994, the government unleashed its umpteenth anti-inflation program, this one known as the Real Plan (the Real is the Brazilian unit of currency). Cynics snickered at yet another new currency and more economic bantering. Unlike the others, however, this policy was founded on sound economics involving a combination of fiscal cuts, an exchange rate anchored to the U.S. dollar, and tight monetary policy. Equally important, the plan was backed by the sturdy resolve of its designer, Fernando Henrique Cardoso, a well-respected former sociology professor turned Finance Minister. At this point, the plan can only be labeled as a success. Inflation dropped from a monthly rate of 50% in mid-1994 to the current annual rate 15%. GDP growth rates for 1994 and 1995 were healthy at 5.8 and 4.2%; in the mid-term future , the expected to GDP growth rate is 3.0%-4.5%.1 This economic success--and not much else--propelled Mr. Cardoso into the presidency in 1995.
Complementing these economic changes are a host of structural reforms. The 1990 Trade Reform Act ended prohibitions on imports, and nominal tariff rates dropped from 23% in 1990 to 14% in 1993. Trade agreements with the neighboring MERCOSUR countries (Paraguay, Uruguay, Argentina, and Chile) have been proceeding, and a common external tariff range of 0-20% went into effect on January 1, 1995 (each country is allowed to make exceptions, however, and Brazil, worried by rising consumer demand, slapped a “temporary” 70% tax on automobile imports in 1995).
In addition to trade reforms, a moderately successful privatization program has been trudging along since 1991 with total sales of $9.7 billion to date. The steel sector has been totally privatized as have parts of the petrochemical industry. Constitutional amendments have put an end to monopolies on natural gas, telecommunications, and shipping and eliminated a distinction between foreign and domestic companies that, among other things, excluded foreign companies from biding on government contracts. Less optimistically, privatization of the crown jewels such as petroleum and telecommunications has been proceeding at a painfully slow pace, with legal restrictions on foreign buyers. Overall, however, trade reforms have opened up the country dramatically in the past few years.
The reforms accomplished to date, however, were the easy ones; the greatest danger at present is restraining public spending. In order for the economic progress to continue, deep and very unpopular cuts must be made--lest inflation return. Places to wield the public spending hatchet abound: the social security program allows some workers to retire in their early fifties; government workers receive a pension equal to their highest previous wage; bloated government agencies make U.S. ones look stunningly efficient; and, at present, no confirmed civil servant can be terminated.
Implementing such reforms would be difficult anywhere. In Brazil it is near impossible. The 1988 constitution basically gave the national government the role of handing out money to the states which used the proceeds on popular spending programs (an artifact of Brazil’s imperial days). Making maters worse, the country’s political system is a hodge podge of parties with nothing in common except regional self-interest. Mr. Cardoso’s own party (the Liberal Democratic) is quite small; he won the election through a weak alliance with several right wing parties. This precarious situation combined with the requirement that constitutional amendments must pass by a two-thirds majority will make it very difficult draw much blood from the states. This may leave spending cuts in infrastructure and other capital investments as the only option. At the same time, however, Mr. Cardoso, armed with indisputable economic reason, has pushed through unpopular amendments in the past. The fate of these crucial budget cutting initiatives remains uncertain.
Despite these cautions, the Brazilian economy has not looked this healthy in a couple of generations and the medium to long-term outlook is good. And, equally important, Brazilian companies are, for the first time in many cases, facing foreign competition and the prospect of earning profits through good products--not through inflation games. The country will be better off because of it.
Economic Development: Compania Siderurgica Nacional
Has the push towards privatization and low inflation through responsible fiscal and monetary policies yielded genuine economic results. Most definitely. And perhaps no company better demonstrates these benefits than the former national steel company Compania Siderurgica Nacional (CSN).
CSN was created during the post-war era as part of a grand national plan: Brazil, with its wealth of resources, would be proudly independent of the superpowers and emerge as a world economic power itself. At the foundation of this plan was a vertically integrated, nationalized industrial group manufacturing goods from raw steel to finished automobiles. These industries would not only be sources of national pride, but also would be bastions of workers’ rights where laborers could earn respectable wages.
It never happened. The national industries became havens of corruption and inefficiency where politicians and, later, ruling military officers padded their pockets. In the ten years to 1990, CSN epitomized Latin America’s “lost decade”: the company never posted a profit during these years losing $729 million in 1990 alone; and debt was a fearful $2.6 billion. It was also not the workers’ paradise originally planned either, and owed an average of seven months back pay to each of the 23,700 employees. In response to this situation, workers struck twelve times in six years. Some of these strikes became violent (somewhat of a rarity in Brazil), and in 1988 three workers died clashing with the army.
Since CSN was privatized in 1993, the situation could not have changed more dramatically. In that year, earnings shot to $71 million and to $108 million in 1994. The Brazilian steel industry, which was completely privatized in the early 90's, has seen phenomenal gains. Man-hours per metric ton has dropped from 14.15 in 1989 to 7.45 in 1994.2 These figures compare relatively well with those of France, Germany and the United States requiring 5.31, 498 and 4.70 man-hours per ton respectively. These gains have allowed the Brazilian steel industry to enter the international market place. At the beginning of the 1970's, Brazil was a net importer and the world’s 20th largest producer. In 1994, it was the world’s third largest exporter and the eight largest producer.
Have these gains in efficiency been passed been passed on to the workers? Yes, for those fortunate to still be there. Salaries have increased by 80% in real terms during 1993-1995, and, owing to an employee stock plan, workers have enjoyed the benefits of the 600% gain in share price during the same period.3 Management is said to include workers and the unions in many of the company decisions.4
But these employees are the lucky ones. Over one-third of the work force has been laid off since the privatization. With limited skills, no retraining or unemployment programs, these workers have joined the ranks of the destitute.
Economic Change and the Poor
The contrast between the workers still employed at CSN and those who are not is somewhat illustrative of the impact of Brazil’s economic reforms so far. The contrast in the latter case, however, is that a small minority of the population has seen vastly improved economic opportunity while the majority has not seen much change. The economic growth has improved the prospects of those fortunate enough to have marketable skills, but, as the goldminers in South Africa have discovered to their dismay, an unskilled worker has a tough go of it no matter what the condition of the economy, even if the government is sympathetic to their plight. These things take time. While Mr. Cardoso may assert that he is in favor of programs in education and skills for the unemployed, the government coffers are still basically empty. Even if a respectable school system did exist today (most certainly not the case), it will be at least a generation before the benefits of economic prosperity are available to a majority of the population.
If this is the case, of course, why would any profit-seeking corporation waste resources marketing to Brazil’s poor at this point in time. There are two good reasons. The first is that the economic reforms and the conquest of inflation has improved the buying power of the poor significantly. Inflation imposes what is known as an inflation tax on the poor. During times of high inflation those not able to maintain bank accounts (and even those who can) must immediately spend their money or watch it evaporate away; the concept of saving money for future purchases is unheard of. The downfall of inflation has eliminated this burden and injected an extra $15 billion dollars annually into the economy (almost 3% of the GDP).5
With this extra cash the poor have been venting years of pent-up consumption. The production of basic consumer goods increased by 15.5% in 1995 over 1994 compared with a 7% increase in industrial goods. Avon has been reporting record sales, and Magazine Luiza, a discount chain, had a sales increase of 120% from 1993 to 1995. Since the ideas of saving or buying on credit are actually conceivable now, sales of durable good, such as washing machines, have rocketed; Baring Securities estimated that sales increased by 30% in 1995 over 1994. Arno, a durable goods manufacturer, sells simple, inexpensive washing machines for about $120 and saw sales rise by 20% in 1995.
The buying power of poor Brazilians has improved substantially in the past few years. And while there probably won’t be a substantial middle class for another generation, companies are entering the market, making profits now, and positioning themselves for the prosperity that seems to be arriving .
The Market
But exactly who are Brazil’s poor and how many are their? This is a difficult question. Even Mr. Cardoso, a professional sociologist and a former Marxist, is at a loss: “To cope with the poor, we need more precise statistics to help us understand the number of poor, where they are located, and why they are poor.”6
Indeed, data on Brazil’s underclass is scarce. Many are located in the drug ridden favelas (shanty towns) in the larger cities; some (mostly indigenous) are located in the Amazon where the residents have little money but can, at least, grow enough food to subsist; but perhaps the poorest are in the northeast of the country in a desert region known as the Sertao. Owing to the country’s past shambolic economic policy and non-existent social programs, schools and health services are scarce, and sanitary conditions are poor.
Brazil has the greatest divided between the wealthy and the poor in the world. While some are wealthy beyond all dreams of avarice, the vast majority struggle. Nearly 75% of Brazilians earn less than $13,000 a year, and 49% earn $6480 or less (the buying power of these amounts in Brazil is comparable to that in the United States).7 These figures do not get to the poorest segments, however. Over 40 million Brazilians (roughly 25% of the population) are outside of the economy paying no taxes and buying almost no products.8 Even so called professionals have a tough go of it: a public school teacher in Sao Paulo earns less than $150 dollars per month.
The segment that is in the bottom half of the economic strata but above the lower quarter is the one of interest for this study. This is a group of roughly forty million people who earn 100-500 dollars per month--almost all of which is disposable income. Hence, taking the average income, the immediate market is roughly $14 billion. This market will continue to grow in numbers and economic prosperity in the long run. At present, however, this group has a difficult time.
The toll taken by low incomes is evident in the country’s health and crime figures. Only 70% of Brazilian households have piped water, and only a third are served by sewage systems.9 In poverty infested Sertao, where the concept of hygiene is a novelty in many parts, the infant mortality rate is 60 per thousand (and probably higher due to deaths not recorded); in the country’s relatively prosperous economic center, Sao Paulo, the rate is 36; while in Western Europe, the figure is ten.10
While the dry northeast may have the worst health conditions, the favelas of the large cities have the highest crime. Years of government corruption and, more recently, increased poverty and a thriving drug trade are taking their toll on the favela residents. Much of the criminal “underworld” is often taken in stride, however, and the technically illegal jogo do bicho (a lottery in which players bet on animals instead of numbers) has been a part of Brazilian life for decades. In contrast, the entry of the drug trade (notably in crack) brought more brutal types of crime. In addition to the gang warfare that comes with the market, underpaid policeman have been known to massacre civilians as revenge for not receiving their cut of a drug shipments. With such problems, it is not surprising that Brazil’s murder rate has been climbing: it has jumped from 11.5 per 100,000 in the early eighties to 19.7 today.11 While this is still quite small compared to Columbia’s figure of 89.5, Brazil has the second highest rate in Latin America. By comparison to the United States, Sao Paulo has half as many policemen per 1,000 inhabitants as New York, and four times as many murders. Given these figures, it is not surprising that 80% of Rio de Janeiro’s citizens want the once distrusted army back on the streets to fight crime.12
It would be a mistake, however, to label the favelas only as havens of crime. Many are permanent communities where people raise families as best as they can, where some have lived for as long as forty years. The inhabitants are known for the resourcefulness, creativity, and energy that develops through day-to-day living. There is also a strong sense of self-reliance. Years of empty promises from corrupt governments have made the poor justifiably cynical of any help from politicians. If any improvements are to be made, they will centered in the community.
This is the first major platform of a marketing to low-income Brazilians: community service through community involvement. McDonalds has long practiced this idea. Along with community programs such as paying teenage employees for time spent doing homework, it often tries to recruit mangers and owners locally. This was evident during the Los Angeles riots in 1992 as McDonald restaurants with “Black Owned” painted on the windows were spared the destruction levied elsewhere. In Brazil, Amway has met some success with a campaign aimed at saving the national tree of Brazil, Pau Brazil.13
Community Involvement: The World Bank Water Project in Rio de Janeiro...
and Trash in Curitiba
In 1992, the World Bank (the Bank) was close to canceling a project that would bring water and sanitation to favelas in Rio de Janeiro. This project was aimed at communities with over 50,000 residents in areas having a per capita income of less than $87. As a sub-project, programs in hygiene were to be offered as well. Most of the funds for the project had been disbursed by the Bank, but Brazilian institutions were characteristically gridlocked and apathetic. In addition, previous projects had been unsuccessful: bills went unpaid, connections were made illegally, and maintenance was poor.
The program, and others like it, succeeded when stakeholder participation was made the central theme of the program. That is, the Bank required that engineering firms bidding must team up with community organizations in the design of the project. In addition, connections were assigned to groups of roughly 25 families, all of whom bore collective responsibility for seeing that the bills were paid, and that the facilities were used properly.
Interestingly, the primary stakeholders were the women. In the favela families, women are the permanent fixtures in the community while the men tend to be transitory. It was the women’s organizations that pushed through the project and were ultimately responsible for its success. The women also took pride in the fact that they would, for the first time in their lives, be receiving a bill at a postal address—for many a postal address was a first a first as well.
While water and postal service may also be problems for low-income residents of Curitiba, a city in the south-central state of Parana, trash collection most certainly is not.14 The governor, Jamie Lerner, developed an innovative plan for helping slum dwellers remove excess trash as well as aid local farmers. Rather than city collection, which there are no means for anyway, residents are encouraged to bring their trash to collection sites at predetermined times. In exchange for the rubbish, food is given to the residents. The food, in turn, is purchased from small local farmers. The net result of this reciprocating program is that garbage is collected, small farmers earn wages, and the city breaks even.
Marketing in the Favelas
The World Bank experience makes a number points that should interest the marketer with respect to distribution and to advertising. First, the poor are very cynical of outsiders; trust was gained here through community involvement and two-way communication. Second, the women are the real fixtures in the community and make the decisions both inside and outside of the home. Thirdly, direct one-on-one communication was the most effective, indeed only, means. In marketing, this reads direct sales. Literacy rates are poor, and postal service, if it exists, is unreliable. In addition, as with low-income areas in the United States, large stores do not locate in these areas leaving a multitude of small shops as the only distribution points. With this in mind, direct sales organizations such as Amway and Avon have established operations in these areas.
Since inflation has been tamed, direct sales have been rocketing. This is because inflation works against direct sales as such firms typically deliver now and collect weeks later. According to Domnus, an association of direct sellers in Brazil, the growth has been impressive: the sales force grew by 12% in 1995 reaching 790,000, and is expected to climb to 1,000,000 in 1996; roughly 360 million products are now sold through direct sales in Brazil; sales increased by 53% in 1995 to $3 billion.15 Direct sales of “luxury” products such as cosmetics do particularly well in among low-income families. This is in part due to the influence of television.
Somewhat surprisingly, many Brazilians have some sort of access to television. This is one of the few benefits of the old military regime who sought to better control the populous through this means. Rather than military propaganda, however, today’s viewing features popular telenovelas showing wealth and lifestyles that the vast majority of Brazilians only dream about. It is this emphasis on dreams that has given firms such as Avon success in the region.
Avon: Direct Sales in Brazil
Avon saw the potential in Brazil over thirty years ago. The limited accessability, emphasis on one-on-one communication, and dreams of a more luxurious life made selling cosmetics directly an ideal opportunity. The results of the campaign have been impressive. Brazil is now Avon’s biggest overseas market with sales of over $1 billion in 1996--double the 1993 level.16 There are now 478,000 Avon beauty consultants in Brazil--over twice the size of the army.
At the heart of the organization, is an elaborate computerized network spanning 2,500 miles. Sales are transmitted to the central factory in Sao Paulo, which produces products for nine surrounding countries as well. Since money is seldom used in many of the areas where Avon operates, particularly in the Amazon, a barter system is sometimes used. That is, cosmetics are traded for commonly valued items such as chickens or flour--the sales representative works out the details. Why would people who live hand-to-mouth spend scarce resources on cosmetics? According to Avon: “What is a Woman without lipstick?”17
Poverty and Racism
Racism is subtle in Brazil. While the United States and South Africa saw loud and sometimes violent protests, the lack of vocal social unrest may give the impression of racial harmony and equality. Nothing could be further from the truth. And, it is imperative that companies wishing to sell to low-income Brazilians, understand the situation. While demographic figures a scarce, even Mr. Cardoso notes that “There is no purely racial violence in Brazil. But slavery left its marks in the shaping of our society and has caused descendants of slaves to be among the poorer segments of the Brazilian people.”18
Despite Mr. Cardoso’s frank appraisal, the government, and even many black Brazilians, seem to be in a state of denial. According to official census results (those quoted earlier in this paper), only 5% of Brazil is black and 39% are mixed--a majority of the population is white. Many may find these statistics a bit odd, however, as blacks seem to make up a majority of the population. Indeed, black movement organizations estimate that 60% of the population is black, and, by U.S. definitions, the figure could be as high as 80%.19
But it is not just government officials who try to whiten Brazil. Many black Brazilians have not fully reconciled their dark skin. A survey conducted by Veja, a popular Brazilian weekly, found that it is easier for dark-skinned Brazilians to describe themselves as white-native Brazilians than as black-white (this may be part of the reason that official statistics do not seem accurate). Indeed, according to Ney Oliviera, a professor at the Federal University of the State of Rio de Janeiro, “I’m much more comfortable visiting Americans than Brazilians because they [Brazilians] always deny race as a factor in the country. I am black but they say to me, ‘You are not black. You are Mulatto or Moreno [brown].’ They try to whiten me.”20 Oliviera also noted that few Brazilians refer to themselves as Black, but instead use terms such as “mixed” or “cinnamon-skinned.” Perhaps this sort of evasion and the inherent good nature of Brazilians are the reason that the “silent majority” has never taken front stage in national politics.
Black Brazilians are scarcely represented in politics. In the United States, for example, Blacks make up 12% of the population and 9% of the House of Representatives. In Brazil, Blacks make up roughly 60% of the population but only 3% of the lower house of congress. Benedita da Silva, who became the first black female to be elected into congress in 1986, noted the implications of this vast under-representation: “In Brazil we live in a racial harmony myth.”21 While there may not be apartheid laws on the books, the results are about the same. Ollie Johnson, a politics and black studies professor at the University of Maryland noted that even the head of da Silva’s party (a left-wing party named The “Workers Party” does not fully confront the situation, “he has argued that South Africa had a situation of racial apartheid, but in Brazil you have a situation of social apartheid, emphasizing the class issue. He does not recognize or acknowledge fully a racial apartheid here.”22
Indeed, while their are no apartheid laws on the books the results are about the same. The black population bears most of the burden of poverty. With such economic problems, and a Brazilian mind set, shared by many industrialized nations, that to be white is to be attractive and sophisticated, it is not surprising that black Brazilians are reserved about their skin color. But here is a crucial point: black Brazilians are most certainly not reserved about their African heritage. African-based cuisine, dance, martial arts , and, especially, music are universally regarded and enjoyed by both Blacks and Whites.
Olodum and African Heritage
Perhaps no organization better represents the positive influence that these cultural roots can have than Olodum. The organization was founded in 1979 in Salvador da Bahia. This city is located in one of the poorest regions of the country, and, as the first capital of Brazil, is where Afro-Brazilian culture began. Olodum’s mission is to educate the people of Salvador, celebrate Afro-Brazilian culture, and internationalize the struggle of black Brazilians through Samba music, a style developed by Afro-Brazilians. The Olodum band has played in Europe, Africa, and the United States. The organization uses the proceeds to fund a factory that employees 350 workers, a school with 400 students, and community service work. According to the organization’s director, “Olodum is helping to prepare its youth for the job market and, through arrangements with outside companies, it has introduced many of the students to various professional fields. But to me, the most important thing about our school is that we are preparing these children for life, for defending their civil and human rights”.
The power of African culture to unite and elevate poor communities is the second platform for successfully marketing to low-income Afro-Brazilians. Along with service to the community, appealing to African heritage through the many facets of this rich culture would be appreciated. Care must be taken, however, as the residents would justifiably take a dim view of necked commercialization—especially by a foreign firm. Gaining trust takes time, and, again, it starts from within the community, with local employees.
Conclusion
Selling to low-income Brazilians is not for all firms. It demands products that can be sold through a limited selection of distribution channels and at affordable prices. While this appraisal has focused on direct sales of “affordable” luxury products, firms that sell basic necessities have prospered as well. Nestle, for example, has done well through mass-selling “breakfast biscuits” (dry, hard, cookies, wrapped in plain packaging that Brazilians eat with morning coffee) to low income families.23 Whether a firm has expertise in basic necessities, or in small luxury items, however, the recent changes in the Brazilian economic and political landscape, make now the proper time to begin. With the halting of inflation, low-income families have additional spending power; firms are currently making money in this market, while, at the same time, positioning themselves for the economic progress ahead.
Among the low-income groups, this paper has focused on the Afro-Brazilians--the largest segment. It has been shown that while Brazil has a long way to go towards racial equality, African heritage is a driving force within these communities. Appealing to these roots in the context of a community development oriented marketing strategy would be an effective means for companies to establish themselves in Brazil. U.S. firms, which like Brazilian ones have a pool of labor from many ethnic backgrounds, is at an advantage in this regard. The Afro-Americans, who have common cultural heritage and experiences with the Afro-Brazilians, are well suited to lead efforts in the Brazilian marketplace. This ability, combined with a combination of technological and marketing expertise, will benefit U.S. firms in Brazil.
With the economic changes coming on line, there is good reason to believe that Brazil will prosper during the next 10-15 years. But what about after this? The economic changes completed to date are actually the easy part; social development and equal opportunity through education is more difficult. Without these changes, however, the country will stagnate and never utilize its full potential nor develop a significant middle class.
Will Brazil share its coming prosperity with all of its citizens? It is difficult to say. The current administration, however, seems more sincere than at any other in the country's history in doing so. But foreign firms, particularly those from the U.S., have a role to play as well. As these firms become a larger component of the economy, they will have the opportunity and ability accelerate social change in the country through equal opportunity and educational programs. It is not only an obligation--it is a good long-term business strategy.
End Notes