Chile

Chileans Enjoy Free Market Prosperity

But now face middle class problems

Chile seems like the perfect test market.

In a nation of only 17 million inhabitants, consumers find enormous choice across most product categories, much aimed at the broad middle class but also with price points for both the wealthy and the poor.

Cars are a good example. The choice includes not only the expected US brands, or even imports from France, the UK and Italy or Japan, but also Chinese and Indian brands. The range reflects both the nation's openness to international brands and the ready market at all economic levels. It was not always this way.

In the 1970s, hyperinflation gripped the country. It reached 150 percent in 1973, the year of a brutal coup in which commander-in-chief of the army, General Augusto Pinochet seized power from the democratic and leftist government of Salvador Allende. During the 17 years that the repressive Pinochet regime controlled Chile it introduced a free market economy open to international trade.

The free market model fit well with Chilean culture. Historically, Chile had been relatively isolated and self-sufficient, a thin ribbon of lightly populated land with few natural resources, set between the Andes Mountains and the Pacific Ocean. Local entrepreneurship emerged naturally from necessity.

Chile today is predominantly middle class. Between 2000 and 2010 GDP per capital grew 155 percent to almost $12,500, according to the World Bank. Chile has become a major consumer market. In 2010, it became the first Latin American member of the Organization for Economic Cooperation and Development (OECD), an international group devoted to improving economic and social wellbeing.

Brand importance increases

The factors that drove Chile's rapid economic improvement include increased foreign investment. Direct Foreign Investment surpassed $15 billion in 2010, according to the World Bank.

Wide availability of affordable credit, not only from banks but also, in a distinctively Chilean phenomenon, from major retailers also played an important role. In addition, a relatively low tolerance for official corruption distinguishes Chile from some of its neighbors.

Brands are important. Chilean consumers prefer local brands for certain items such as wine. International brands are strong in apparel and luxury. People also spend disposable income on travel, with LAN, Chile's national airline, promoting inexpensive flights to domestic destinations and neighboring countries.

Many brands market extensively, relying on traditional media to reach a mass audience. This broad-brush approach reflects the influence of some of Chile's most active marketers, its retailers.

The major Chilean retailers all issue widely accepted credit cards, enabling the retailers to collect and maintain an enormous amount of data about customer purchases. They use this information minimally for target marketing, however, and instead set the nation's advertising tone with a focus on price promotions, usually in traditional media.

Retailers help lead change

Retail brands occupy an unusually prominent place in Chile's economy. In the BrandZ™ ranking of Chile's most valuable brands, eight of the Top 15 are retailers. BrandZ™ ranks two of the brands, Falabella and Sodimac, among the most valuable retail brands in the world. Founded in Chile in 1905, Falabella operates department stores and specialty outlets throughout South America. Its home improvement banner, Sodimac, also is present outside of Chile.

The strength of the Chilean retailers, and their presence across Latin America, is complemented by the absence in Chile of some major multinational retail brands, such as Tesco and Carrefour. Walmart entered Chile relatively recently through acquisition. This relative lack of attention by global retail leaders can be explained in part by the small size of the Chilean market. But it also reflects the competence of the local players. Home Depot's attempt to enter Chile in the late 1990s failed because the home improvement chain misjudged the market and Sodimac proved to be a formidable competitor.

One more feature of Chile distinguishes it in Latin America: its problems. Chile is experiencing the problems of a middle class country. Healthcare needs are high on the public's agenda. Students are demonstrating for more equitable access to education at lower price.

Meeting citizen expectations for adequate healthcare and higher education are basic requirements in a progressive society. They come with costs, however. And the unresolved question in Chile is, who pays?

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Fundamentals for brand building in Chile

  1. Be relevant
    There's a lot of brand choice in Chile across most categories and price points. In many ways Chile resembles a developed market. Success requires being relevant.
  2. Be different
    Positioning at the premium or upper premium part of the range usually provides suffi cient differentiation. The pressure for real difference is at the midrange.
  3. Offer more than price
    Price always is important but it's not the single most important factor that it was perhaps 10 years ago. Price is one of many considerations that, depending on the category, can include product functionality, emotional appeal, design and style.
  4. Think test market
    Chile is a small market with a large opportunity. The country’s limited but solid consumer base makes Chile almost a test market, a place where brands can quickly expand and understand what works and what doesn’t work.
  5. Know the retailers
    Many of the multi-national retail leaders are absent from Chile because the market is small and the competition is tough. Chilean retailers are unusually strong and some operate throughout South America.

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