Posts Tagged ‘affordability’

Prepaid Mobile: The Business Model that Empowers

It feels like a long time since I last pondered the nuances of the prepaid business model, until I came across some words written by Indian social media researcher Swati Janu. She documented her observations on the infrastructure of insecurity from the tenements of New Delhi.  There’s value in reflecting on how our understanding only increases over time, and we can never say that we’ve stopped learning

This sentence caught my attention:

From a rural population that is fast going online to the resourceful teens in urban slums, the lower income demographics are choosing to buy internet, through small but recurrent amounts, which enable them to straddle the line between affordability and aspiration.

The small but recurrent amounts – the Rs 10 mobile recharge Janu writes about – are the lifeblood of the prepaid payment plan for voice, text, and data (airtime) for the now ubiquitous cellphone that has changed the landscape of the developing world.

To enable the lower income demographic’s ability to straddle the divide between their aspirations and their ability to afford them is empowering. One could say that:

Prepaid is a business model that empowers aspiration, through affordability, incrementally.

Instant gratification has never been within their purview.

Estimating price in unexplored and untapped markets

In addition to estimating the size and value of the Kenyan cyber cafe industry for our client, Village Telco of Cape Town, South Africa, we were tasked with finding out what would people pay for their product, the Mesh Potato. This challenge was the equivalent of walking up to someone and asking:

How much would you pay for this thing you’ve never heard of and you’re not sure what it does?

We discovered it was through the long rambling conversations we were having with our selected cyber cafe owner operators that we were able to get to this point of being able ask such a question. The conversations allowed us a peek into the way they thought about investing in new technology, and in many ways, reflected back to us the basics of the “BoP” consumer mindset that had already been identified previously.  For example:

Maximizing ROI (return on investment)

When asked what he’d pay for a Mesh Potato, our friend Moses responded with a question, “It depends,  how much money will it make for me?”

That is, as a business owner, his evaluation of the product’s price was intrinsically linked to its ability to generate an income stream. Maximizing the return on the investment is his primary criteria – whether it will save him money or a significant amount of time, and how soon will that possible are all the factors that go into the decision to purchase. His question also implicitly holds the corollary premise of Minimizing Risk.

So rarely was the price seen in isolation but instead it was considered in context of a variety of other factors.  For business owners, their primary value driver was “Is this a source of increased income for me?”

Another factor was that of the need to question assumptions underlying traditional models for assessing pricing – from wikipedia’s entry on the underlying assumptions used in Van Westendorp’s model:

The assumption underlying the Price Sensitivity Meter (PSM) is that respondents are capable of envisioning a pricing landscape and that price is an intrinsic measure of value or utility. Participants in a PSM exercise are asked to identify price points at which they can infer a particular value to the product or service under study. PSM claims to capture the extent to which a product has an inherent value denoted by price.

What if price is not the intrinsic measure of value or utility but long term revenue generation potential is?

Until we are able to gather enough insights over the course of a number of such studies and come up with frameworks customized for a very different operating environment, it will only be through the willingness to question all our assumptions and adjusting our approach that we will be able to make reasonably accurate assessments for these untapped markets.

Questioning the narrative of extreme affordability for mobile phones

Yesterday I had a long conversation with someone whose job is related closely to mobile phone design. You’d recognize his employer’s name very easily. He asked me about extremely affordable phones for the low income segment in emerging markets. Late in the year of 2012, I found myself hesitating before answering immediately with a resounding “Yes” to support the concept of low cost mobile phones for the BoP customer in India, Africa or wherever.

That was enough to make me reflect on why I hesitated. After all, wasn’t this the default aspirational outcome for these demanding customers?

It was, indeed. But the narrative has not yet caught up with the reality on the ground. For citations, lets go to Alexis Madrigal’s article on The Phone of 2022, where he mentions:

No one has tracked these market shifts better than Horace Dediu at Asymco. He’s documented what he calls “a tale of two disruptions,” one from above in Apple and one from below in cheap Chinese and Indian manufacturers. In just the last five years, Nokia, LG, and RIM have seen their market shares and profits collapse due to this pincer movement.

This disruption from below has changed the mobile phone landscape for the lower income segments everywhere. Suddenly, their aspirations are affordable and the trade offs they make are now between a cheap fake with all the trimmings and a more expensive brand with less features, not between a phone and no phone at all.

For branded manufacturers of mobile phones, going after this low cost segment simply does not make sense anymore. Their own cost structure will never support what a Bird or a Tecno is able to provide for quite the same price. The low end mobile phone market is now a commodity market, where even the repairmen tell you that people don’t bother to get their phones fixed anymore because a Chinese replacement is cheaper than the branded spare parts. Furthermore, mobiles are a personal asset and one worth saving up for – why not aspire to the best possible you can afford?

Thus you’ll find a taxi driver in Nairobi flashing his iPhone or the security guard with Blackberry curve. The “smart” aspect of the phone may not always have to do with the innards of the device.

Human beings are aspirational. This shift in the consumer’s perception and choice in response to the larger shifts as documented in the snippet above includes the reality of increased choice. Even 4 years ago, it was difficult for a poor farmer to contemplate the purchase of a mobile, seeming as it did a shiny shiny way outside his grasp. Today’s market forces have brought it home to him, well within his reach, as any beachboy surfing Facebook will inform you.

The old emerging market for mobile phones narrative is a dangerous one for the big global brands. The emerging stories are now the Tecno’s and the MicroMax’s. Yes, there is a lowest income bracket or those 2 remaining families without a phone, but that market has now spun out of reach. The digital divide is being bridged by names you’ve never heard of and the discards of those who’ve gone on ahead.

Far better to take a step back from the fray and think about where the dots are with regard to the mass majority markets of the world. The internet experience. The window to the wider world. The global social network. The aspirations that the commodities cannot fulfill as easily. Far, far better to offer a stairway up than a dumbing down. Nobody aspires to be the bottom of anything.