Boston Consulting Group: Missing the Mark

Emilio Morales

U.S. President Barack Obama’s December 17 2014 announcement that he would normalize relations with Cuba made the island a top talking point in the international business world, especially in the United States. It also created a tidal wave of frenzied media headlines. Cuba became a buzzword for the world’s biggest TV networks, and news stories about the island flooded the Internet, while lawyers and consulting companies were inundated with calls.

Since then, major legal firms have gone on the hunt for clients interested in exploring business opportunities in a market that was for so long forbidden fruit. Several market research companies are doing the same, among them the renowned Boston Consulting Group.


An article published by journalist Mimi Whitefield in the Miami Herald on June 2, entitled “Study finds low Brand awareness among Cubans- but they do know Adidas”, reports on a recent study carried out by Boston Consulting Group.

This study makes a number of conclusions which are extremely questionable, essentially because the survey was carried out on the basis of an interview sample poorly designed to verify brand awareness and consumption behavior among the Cuban population.


 Some two months ago, we had the opportunity to read the Boston Consulting Group study, and when we looked at it closely we were able to see that the sample selected did not reflect current demographic patterns in Cuba. The co-author of the study, who is also apparently the principal investigator of the project, Marguerite Fitzgerald, botched the composition of the sample of the population interviewed, although she boasts that this was the first accurate consumer survey made in Cuba, according to the Miami Herald.

If the intention was to attract attention, then this was obviously easy to do, because many companies interested in testing the waters of the Cuban market were going to be keen to read such a study.  After all, it came with the seal of the highly reputed BCG.

However, the co-author seems to be oblivious of the fact that the BCG is not the first to ‘discover’ Cuba and that many other companies and prestigious academic institutions have, for decades before them, been monitoring the Cuban market.

The co-author and BCG have tried to ‘identify’ Cuban consumers as if they were Christopher Columbus discovering for the first time Cuba’s native inhabitants in 1492. The pretention is infantile and pathetic.


The study’s first mistake is in the make-up of the sample of those interviewed, based on a choice of survey participants who were 40% black, 28% mulatto and 32% white. The second flaw was in selecting survey locations with such completely different consumption patterns as Havana, the capital, and the island’s second city of Santiago de Cuba in the east, one of the territories with the lowest consumption and greatest poverty in the country.

Havana is the most populated locality in the country (18.89% of the total population) and also concentrates 52% of the purchasing power in hard currency of the whole population. Santiago de Cuba’s population represents 9.40% of the national total, and has a very low purchasing power quota of 3.43% of the nation’s total. This is a completely disproportionate contrast.

These two basic errors alone mean the study outcome cannot be described as even exploratory. The results are hugely distorted and the conclusions of the study cannot be seen as accurate.


 At best, they could be viewed as a hypothesis to be proved in subsequent deeper investigations, but using correctly calculated demographic samples. This would mean not just taking into account the demographic characteristics of the population being studied, but also the behavior of other variables in each territory of the island.

In the first place, it should be noted that the Cuban population is composed of 64.1% whites, 26.6% mestizos and 9.3% blacks, according to data published by the National Office of Statistics and Information (ONEI) in the 2012 census.  This is very different from the sample selected by BCG, which was composed of 32% whites, 28% percent mestizos and 40% blacks.

Several journalists working for U.S. media, both written press and television, as well as some academic circles, have created the idea that in Cuba the population is predominantly black. This is totally false.

It appears that the co-author of the study followed this false cliché and therefore blundered in the make-up of the sample, displaying a lack of rigor in the planning of the project.

Secondly, the study also failed to take into account the retail distribution presence of the state stores that operate in both territories and where the population make their purchases. There is a huge difference, both in amount and in variety of goods offered, between the retail network present in Havana and the one in Santiago de Cuba. When you add in other factors already explained above, such as the differences in purchasing power, the result is that the consumption patterns of the two territories are distinct from each other and exist in totally different contexts.

Besides, to describe the BCG study as the most accurate on consumption in Cuba to date is simply nonsense. It should have been an automatic requirement to look up previous studies on the subject being researched. However, it is clear that preliminary work was either not carried out at all or that it was done without the required thoroughness.


 For many years, there existed in Cuba an institution called the Institute of Internal Demand, whose role included drawing up studies on the consumption patterns of the Cuban population in different products and services. In the 1980s, this entity carried out dozens of studies of this kind. Later, in the 1990s, when the Cuban government initiated an opening in the economy to counter the severe economic crisis of the so-called Special Period, several companies and institutions in the country conducted dozens of surveys on the consumption of products and services. For example, the CIMEX Corporation, where I worked for six years, made numerous surveys of this kind directed by the marketing research branch of this holding company. 

Other companies such as BrasCuba, Cubanacan, Palmares, and Habanos S.A, to name just a few, also carried out numerous studies on their own brands and on the consumption behavior of the Cuban population.

 

In fact, exactly 10 years ago, the late Professor Ángel Hernández Gómez (who was then director of marketing at CIMEX) and myself conducted an exploratory survey on the level of brand recognition among the Cuban population out of 32 categories of products and services. This survey had a larger and much better stratified audience sample than the one that BCG uses in its study. We carried out 780 interviews in nine provinces of the country[1].

At that time, the purchasing power in dollars of the Cuban population amounted to $1.87 billion, a little less than a third of what it is today. This survey is included in the work "Cuba: ¿Transito silencioso al capitalismo?" (2009) , published by Alexandria Library Incorporated , and in “Marketing without Advertising: Brand Preference and Consumer Choice in Cuba,” Routledge Advances in Management and Business Studies, 2011. 

The results of this survey were surprising. It showed that despite the limited buying power of the Cuban population at the time, brands played a primary role in the decision to purchase; 41% of those interviewed said they based their decision to buy on brands[2].


 Another revelation of that study of 10 years ago was that different segments of Cuban consumers displayed extensive recognition of both national and foreign brands.

Those interviewed recognized a total of 711 brands, 56% of them foreign and 44% Cuban. The following is a list of the top 10 brands that obtained the widest recognition in that study.

A more recent study by our own company 10 years later has found changes in the order of ranking[3]. Nestlé is now the foreign brand most recognized by Cubans. The following is the top 10 listing for 2015.

It is interesting to see that Apple has slipped into the list of the top 10 most recognized foreign brands. However, the BCG’s published study does not mention Apple as one of the mobile phone brands best known among the Cuban population, particularly sought after by young people.

Another of the study’s blunders, running into speculation, is its estimation that financial remittances to Cuba will reach $6 billion a year in 2020, as reported in the Miami Herald story. This is impossible.


The greatest growth in remittances to Cuba took place over the last seven years: $1.68 billion. This made Cuba the fastest growing receiver of remittances in Latin America in this period, a phenomenon driven by President Barack Obama’s easing of restrictions on money transfers to the island and by reform measures by the Cuban government creating more openings for the private sector[4].  Both of these factors have propelled the sending of remittances to levels never before seen.

However, a deceleration of this growth is expected in the next five years. By 2020, remittances in cash could for the first time reach $4 billion in a year.

Estimating that they will reach $6 billion would mean that remittances would have to increase by nearly $3 billion in only five years, almost double what they grew in the last seven years. This is impossible, because there are no longer any restrictions on remittances to Cuba and the space for expansion created by past restrictions has already been filled up.

Topping this catalogue of errors was the conclusion, as reflected in the Miami Herald’s report of the BCG study, that the Cuban population had a low level of recognition of brands – but that it had heard of Adidas.


Our survey back in 2005 was already showing that Cuban consumers recognized 711 brands in 32 lines of products and services, and that 41% percent of those interviewed said they were making their purchase decisions based on brands. If you also consider that the Cuban population currently has more than three times the buying power in dollars than it had back then, and that it is also receiving at the same time from relatives abroad a further $3.5 billion in merchandise, of mostly well-known brands (of clothes, shoes, electronic goods, medicines and food), then just how much wider must that brand recognition be today, 10 years later?

These arguments, and Cuba’s own reality, are sufficient to show that the BCG study is a sham.

 Bibliography


 

[1] Morales, Emilio. “Cuba: ¿Tránsito silencioso al capitalismo?” Alexandria Library, 2009. Capítulo II, Los consumidores cubanos y las marcas. Págs. 60-61.

[2] Morales, Emilio; Hernández Gómez, Ángel. “Estudio sobre notoriedad y conocimiento de marca en la población cubana”. 2006.

[3] Cerviño, Julio. “The importance of Brands in Cuba’s market”. THCG BUSINESS REPORT APRIL 2016 No.2. The Havana Consulting Group and TECH.

[4] Morales, Emilio. “CUBA: The Fastest Growing Remittances Market”. THCG BUSINESS REPORT APRIL 2016 No.2. The Havana Consulting Group and TECH.