Posts Tagged ‘bop consumer’

Purchasing Patterns in Cash Based Markets and Informal Economy

When cash flow is irregular and not always unpredictable, both in amount and frequency, such as it is for the majority earning a living in the informal economy, buyer behavior is not quite the same as for mainstream consumers with access to credit cards and regular paychecks.

I’ve quite often made reference to how operating primarily in cash money influences purchasing patterns. Here, I cluster the patterns observed into 4 categories, based on a combination of need and money available.

Source: http://www.hobotraveler.com/electricity/prepaid-electricity-units-in-ho-ghana.php

1. Paid for in advance – Usually a service that can be utilized or consumed over time can be purchased in advance when funds are available and then made to last as long as possible. The best known example of course is prepaid airtime – voice, text and data for mobile phones. Consumers on limited budgets then seek coping mechanisms to extend the “life” of the service purchased.

Source: Niti Bhan, South Africa January 2008

An example is this refrigerator powered by LPG available in rural South Africa. It helps conserve the electricity consumption (South Africa was the first to install prepaid electricity meters) and is a parallel investment in ‘prepaid’ energy – the LPG cylinder.

Source: Niti Bhan, South Africa, January 2008

2. Bought in bulk – Usually food staples or something you cannot live without would be purchased in this manner, either when there is a sudden influx of cash or a payment at the end of manual labour, or, if managing on a fixed amount each month such as remittances from abroad. This ensures that there is something to eat even if money runs out before the next payment might be due. If it’s a sudden influx of cash for someone not on a pension or remittance, then this lumpsum is also the source of funds that may go towards a consumer durable purchase or big ticket item of some kind. In rural economies, the harvest season is major shopping time and boost to local commerce.

Freshly shredded cabbage (Photo Credit: Niti Bhan)

Source: Niti Bhan, rural Kenya, February 2012

3. On demand or daily purchase – mostly perishables like bread, eggs, fresh vegetables purchased for the day’s needs. Partly cultural but also influenced by availability of cash in hand. Cigarettes sold loose or two slices of bread and an egg are some examples we’ve seen. Indian vegetable vendors are also willing to sell you a small portion of a larger vegetable either by weight or by price. You can buy 50p worth of cabbage for a single meal. Mama Mboga in Kenya will even shred it for you. Minimizes wastage whether you’re cooking for one or have no fridge.

This is also the most common pattern if you earn small amounts daily, like the vegetable vendor, shelling out what you have for what you need and then if there’s some change, debating what do with it.

Source: Niti Bhan, The Philippines, January 2009

4. Single use portions – A form of on demand purchase. Interestingly, I came across this working paper by Anand Kumar Jaiswal at IIM, saying that sales results in rural India seemed to imply that only shampoos and razor blades were more successful in sachet form, whereas things like milkpowder, jam etc sold more in the larger size.

Source: Niti Bhan South Africa January 2008

The author cautions against assuming all sachets will sell. I believe it could be based on the usage pattern of the product in question or its nature – what if you packaged a perishable item in single servings that didn’t need refrigeration until opened? Formal packaging in sachets – the kadogo economy – emerged from existing behaviour in informal retail. Breaking bulk down into smaller portions is popular across the developing world’s informal markets.

Single meal portions of vegetables, Cabatuan market, Iloilo February 2009 Photo: Niti Bhan

This shopkeeper in The Philippines has gone a step further to offer you the convenience of purchasing all the vegetables you need for stew – carrots, beans, cabbage – without the financial burden of having to purchase the entire cabbage or carrot. Its a combination of the single use packaging (not quite a sachet) and the on demand purchase of what’s immediately required or affordable. The Philippines has some of the most creative variations of the kadogo or sachet economy that I’ve seen in informal retail.

Business Models for the Informal Economy

You can see the roots of the many variations on business models in these purchasing patterns. As people told me over and over during a project on household solar in East Africa, it wasn’t the price of the product that was the problem but the payment plan which didn’t fit with their existing behaviour. Both must be designed to meet the needs of your intended target audience.

Contact me if you need insights on consumer behaviour, household energy consumption behaviour and financial management behaviour in the rural and informal markets of the developing world. Note, this is not a free offer.

Source: These insights are drawn from patterns of behaviour observed among consumers in cash based and informal markets in South Africa, The Philippines, India, Kenya, Rwanda and Malawi. Primary research led and conducted by Niti Bhan. Citation.

“Life is Hard” – Original slides with written speech, BxD 2008

This is more or less the written version of my Life is Hard presentation (slides,video, reference) as first given in October 2008 in Providence, Rhode Island at the Better World by Design conference held at Brown University. Some of the details have become more nuanced since then, some parts have spun off into blogs, projects, grant funded research and more. But the fundamentals remain. Of that I’m glad, as it implies that the basic principles are sound while additional observations in numerous countries since then have only fleshed out the details even more. This is original work and the slides have never been shared previously outside of a presentation environment. Note: This talk has primarily addressed audiences living and working in the first world’s mainstream consumer culture and is given from that frame of reference.

Life is Hard.

Without systems that work, inadequate infrastructure, little or no social security or welfare, and general chaos, life is hard at the bottom of the social and economic pyramid in developing countries. If you have survived to functional adulthood while growing up in the slums and shanties of Africa or South Asia, you’ve come of age experiencing life as adversity and challenge.

The only certainty is uncertainty.

Natural disasters or random riots, anything can happen at any time. Planning for the future, much less tomorrow, can be challenging and a sudden shock can spiral the whole family into destitution.

Uncertainty of time and uncertainty of money.

Uncertain Incomes

Not knowing how many shoes you will shine today or whether you’ll have a call for daily wage labour means you have no way to predict or plan based on your cash flow. You rarely know how much you make each month, and are more likely to be living hand to mouth, getting by with the cash you earned that day.

Inadequate Infrastructure

When systems are lacking or insufficient, they add to inability to plan. You’re waiting for water, or a shared toilet, you’re walking two hours to catch a bus, there’s not enough light or the power is out – it all adds up to uncertainty of time. And is out of your control.

A different worldview

So this life of adversity and uncertainty, surviving (and thriving) in challenging conditions of scarcity, leads to a different worldview than what we’re familiar with. Buyer behaviour and purchasing patterns on irregular incomes are very different, as is the mindset and what is value.

There is daily juggling of income versus expenses, a complex processing of whom to pay for what, and when and for how much. People are familiar with all the financial tools of loans, barter, credit, debit, trade and interest rates, though they may not always call it the same names or be aware of sophisticated financial terminology or use tools like ATMs, credit cards and banks.

The BoP as Customers are strategic money managers

Every decision to spend money – with the exception of an impulse buy of sweets or a newspaper when there is some change available – made by those who manage on uncertain incomes at the base of the pyramid could be said to be analogous to making an investment. Usually in their future, in some way or the other. Whether the decision is a tradeoff between purchasing shoes for a school going child and meat for a meal or choosing to buy some airtime instead of a meal, each of these is an investment – in the child’s future, in future income if work is dependent on being accessible by phone or simply, the next meal.

How best do we optimize the return on our investment in this single shopping basket with this amount of money available today?

Trade offs are a fact of life.

Purchasing patterns on irregular and unpredictable incomes

When income is irregular and unpredictable, both in amount and frequency, such as it is for the majority at the bottom of the pyramid, buying behavior is not quite the same as for mainstream consumers. At least four patterns emerge based on a combination of need and money available.

Bought in bulk – Usually food staples or something you cannot live without would be purchased in this manner, either when there is a sudden influx of cash or a payment at the end of manual labour or if managing on a fixed amount each month such as remittances from abroad. This ensures that there is something to eat even if money runs out before the next payment might be due. If its a sudden influx of cash for someone not on a pension or remittance then these are the funds that often go towards a consumer durable purchase or big ticket item of some kind.
Paid for in advance – Usually a service which can be used or consumed over time can be purchased in advance when funds are available and then made to last as long as possible. The best known example of course is prepaid airtime.
Sachets or single portions – A form of on demand purchase. Interestingly, I came across this working paper by Anand Kumar Jaiswal at IIM, saying that sales results in rural India seemed to imply that only shampoos and razor blades were more successful in sachet form, whereas things like milkpowder, jam etc sold more in the larger size. The author cautions against assuming all sachets will sell. I believe it could be based on the usage pattern of the product in question or its nature – what if you packaged a perishable item in single servings that didn’t need refrigeration until opened?
On demand or daily purchase – mostly perishables like bread, eggs, fresh vegetables purchased for the day’s needs. Partly cultural but also influenced by availability of cash in hand. Cigarettes sold loose or two slices of bread and an egg are some examples we’ve seen. Indian vegetable vendors are also willing to sell you a small portion of a larger vegetable either by weight or by price. You can buy 50p worth of cabbage for a single meal. Minimizes wastage whether you’re cooking for one or have no fridge. This is also the most common pattern if you earn small amounts daily, like the vegetable vendor, shelling out what you have for what you need and then if there’s some change, debating what do with it.

What is the buyer behaviour observed among BoP “consumers”?

Maximizing the return on their investment – When you have a limited amount to spend, usually at the end of each day, you’re seeking to minimize risk and maximize the value of your investment. From our observations in the field, we have seen some core values emerge in the pattern of buyer behaviour at the BoP in the way they think about and use their possessions or the products and brands they choose to buy.
Repair and renew – Limited incomes mean there is no wriggle room for the easy convenience so beloved of consumer product manufacturers of ‘just throwaway and replace’. Products must be durable and are treated as such – whether its renewing the old mobile phone with a new keyboard after the numbers fade from prolonged use or continued repair of 20 year old cars using spare parts that may not be new themselves.
Maintain and extend – How long will this bar of soap last me? I’m willing to pay a little more if this bar will wash more clothes for my family than that cheaper bar that quickly dissolves into a puddle of soapy goo. Let me tape some plastic sheeting over the television that occupies the pride of place in our one room shack, it will last much longer and still look shiny and new. Cobblers repair sandals with bits of tires and small nails while someone will offer to make like new the grinding stone worn too smooth from constant use.
Recycle and reuse – Nothing ever goes to waste, not even old plastic bottles dug up from rubbish heaps. But even those who are not rag pickers think twice about throwing away something that could be used elsewhere or put to another purpose.

A different mindset, a different worldview

All of these qualities are part of the BoP consumer’s mindset, although many seem obvious or familiar to us. The critical difference, imho, is that while we have the wriggle room for experimenting with the ‘new and improved’ or rather then untried and unproven, those at the BoP cannot take the risk. Proof of performance over time is what establishes the brand’s reputation and trustworthiness. And this influences the messaging that resonates with their values when responding to information about products and services. This is where the ‘sensitive bullshit meter’; the skepticism about marketer’s claims comes into play. The ‘tried and true’ carries weight as Coca Cola, Toyota or Tata can tell you.

We may find that a soap lasts a long time after we’ve purchased it and its advertising message maybe based on nuanced lifestyle messaging, usually a beauty queen lathering up in the shower and then shown on the arm of a rockstar or some such. But when targeting the market at the BoP, these qualities must become easy to confirm and identify, they form the core values which are at the foundation of every purchase decision. What’s on sale must be not only be easy to use but also easy to choose.

(smile at draft)

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.

Deconstructing the solar lighting market hype

Nairobi solar lantern shop, July 12th 2012

The Economist’s Q3 2012 Technology Quarterly has a paean on the promise of solar lanterns replacing nasty, stinky kerosene once and for all. Of note is the careful mention of MKopa, a Nairobi based startup founded by Nick Hughes of MPesa fame, until now conducting pilot tests in stealth mode. But the rest of the article is still the usual rehash of the immense promise of solar lighting to finally get rid of that incumbent fossil fuel, something social enterprises like d.light have been attempting to fulfill for some 4 or 5 years now.

Why isn’t anyone asking what’s taking so long for this mythical promise to bear fruit? I’d like to start by deconstructing the article and identifying the implicit underlying assumptions that tend to trip the promise keepers.

As previously happened with mobile phones, solar lighting is falling in price, improving in quality and benefiting from new business models that make it more accessible and affordable to those at the bottom of the pyramid. And its spread is sustainable because it is being driven by market forces, not charity.

Show me the case study of a successful example of this product becoming a sustainable business proposition. Every company mentioned in the article is either in pilot testing new business models or talking about their performance and brightness, even while distributing via NGOs. If this is a consumer product business for patient capital then why aren’t the Chinese brands waiting (or mentioned, for that matter)?

Phones spread quickly because they provided a substitute for travel and poor infrastructure, helped traders find better prices and boosted entrepreneurship. For a fisherman or a farmer, buying a mobile phone made sense because it paid for itself within a few months. The economic case for solar lighting is even clearer: buying a lamp that charges in the sun during the day, and then produces light at night, can eliminate spending on the kerosene that fuels conventional lamps.

The economic case might be clearer but the reality is far more complex than that. Lets compare the market entry strategies of mobile manufacturers in their pioneering heydays and the solar lantern makers. Where is the user research and consumer insight on existing household energy usage and purchasing patterns that might shed a light on this ongoing multi-year promise?

The mobile phone is a personal asset. Most people put aside bits and bobs of cash towards their purchase of their phone. It belongs to them and there is prideful ownership and status involved with models and brands.

The solar lantern is not a personal asset. It belongs to and will be used by the entire household. There may be more than one adult earning member of such households. The decision making involved is one of group dynamics, never as simple or easy as that of an individual purchase.

Eliminating spending on kerosene is not the same as generating income by the way of the phone.

Additionally, the phone has become a ‘must have’ and is aspirational, in addition to connecting you instantly to your social network. Small and portable solar lanterns are not yet status symbols nor aspirational in anyway, given that much of the marketing communication places emphasis on saving money on kerosene. Whooptydoo, says the subsistence farmer whose dreams might include TV sets and radios, to be added over time, in modular fashion, to the solar home system.

In an informal test of solar lights carried out by The Economist in Africa, users grumbled about the soapy quality of light and lantern-style design. But the company has won plaudits for its other models: its largest lamp, the S250, was included by the British Museum in its “History of the World in 100 Objects” exhibition as the 100th object. .

I mean, really, The Economist? That is weaselling out of accurate consumer feedback isn’t it, if you state that users (the people who are going to sustain the businesses remember by purchasing the devices) don’t like the lanterns but hey, look, the British Museum likes it. Remember the design awards granted to the LifeStraw? Look at what happens to them:

Carefully hidden away in case someone comes to check up on the beneficiaries of generous charity. When asked why it wasn’t in daily use, the response was that it was far too difficult and took too much time when it was easier to pour a 20 cent bottle of purifier into a bucket.

The article ends with a product that’s a concept developed in a studio. Who is hoping and how that this designer device will magically obtain a viable business plan with effective distribution and sales? The Economist might have been better off focusing on MKopa and Eight19’s efforts to experiment with new pay as you go business models, though I can already see their solution’s limitations particularly in the Kenyan market’s context. They could have talked about Econet Solar or Angaza or MeraGao in India, in the same vein of experimental business models instead of defaulting to the hopeful batteries and museum pieces that will grace the dusty shelves of retail outlets.

Btw, that SunKing you bought in an African supermarket? How many rural low income BoP customers shop there, do you know?

Barriers to business with the ‘Bottom of the Pyramid’ : what can we learn from Mama Boi?

Jakarta, Indonesia March 2010

The Monitor Group has made available the complete HBR article “Is the Bottom of the Pyramid Really for you?” (PDF) where the authors frame the debate for multinationals questioning whether to consider entering this challenging though untapped segment of the global marketplace. They list some of the common barriers faced by executives during their attempts to serve this demographic, the majority of whom live in the developing world:

Uncertain cash flow.
Gauging demand.
Sales and distribution challenges.
Disaggregated providers.
Undeveloped Ecosystems.

Issues of demand and distribution as barriers are part of the undeveloped ecosystem – or rather, to reframe these barriers in the context of the local operating environment, all the points are elements of the informal markets that currently serve their customers needs. They become barriers to entry for organizations accustomed to sophisticated information and delivery systems, that is, from their perspective, there is no pre-existing consumer market and one must then create entire value chains from scratch.

And yet, another way of looking at this would be to embrace rather than attempt to replace the elements of the informal ecosystems that exist. How can you leverage the characteristics of what makes them suit the needs of customers who live in conditions of uncertainty? Flexibility, adaptability, improvization – all of these have been mentioned numerous times in as many reports and articles. This PDF recommends in conclusion that the most successful companies have been those that have created new kinds of businesses:

The most encouraging business-model innovations at the bottom of the pyramid manage to surmount multiple barriers at the same time. They represent not incremental adaptations but new, groundbreaking, end-to-end strategies.

Leapfrogging conventional wisdom just the way technology has been leapfrogging the inadequate infrastructure in most these locales. But where can we seek the ways in which to inspire such innovation? Imho the challenge that also exists for all these multinationals and their esteemed consultants is that their frame of reference and understanding is so well grounded in the frameworks and structures of the formal economy in which they’ve trained and learnt to operate.

This slide presentation by Gerry van Dyck (source) offers some fascinating insights on informal markets from the perspective of global FMCG brands. Mr van Dyck’s key point being:

if the market woman can succeed in the fierce competitive environment in the unbranded produce sector to create loyal customers then it is possible to use them as a reliable ally in driving change among consumers

Why stop at simply using them as an ally – lets take the thought a step further and see if we can learn from this study on buyer behaviour in the informal sector. Here’s a snapshot of a slide from Mr van Dyck’s presentation:

In a crowded market with numerous shops all selling the same unlabeled, unbranded produce how does a customer differentiate and choose to purchase? Through relationships – personal interactions over time build a rapport between customer and shopkeeper and ultimately it is this bond that drives the purchasing decisions. In other words, it is the people and the personalities that ultimately matter, not anonymous communications from faceless entities.

And that’s something I see very little mention of in all the fancy documents and presentations being made on how to address the undeniable opportunities available in this space – where are the people? And why aren’t they the starting point for innovation?

The Telco and the BoP (January 2009)

Taken in Raawal village, Rajasthan by Goverdhan Meena, Dec 31st 2008

NextBillion.net’s Rob Katz recently posted an Indian news snippet based on research that led the writer to argue that telco’s should focus on their most profitable customers, those at the top of the pyramid. The BoP (Bottom of the Pyramid), as the numbers demonstrate, are simply not worth it. Following some commentary, Rob added his thoughts on why telco’s should overlook these facts and in fact, find ways to emphasize their services for those at the bottom of the social and economic pyramid.

Now, its my turn to add my 5 rupees worth to this debate, luckily, at this point of time, I’m not on a project for any telco as used to be the case in 2008. First, lets put the visual of the data results here, then I’ll proceed with thoughts that have simmered and have been bitten back for quite some time now.* I’ve also had the pleasurable interlude of chatting about mobile phones with numerous people in rural and urban India, particularly those who would be considered BoP, returning just a couple of weeks ago.

What inspired this ramble were Rob’s closing lines,

The debate is ongoing, and there’s no clear winner. What is clear, however, is that this is not a simple analysis.

Imho, the basic issue is not even a matter of analysis, simple or not, but instead, that of perspective.

The analysis itself is simple, follow the rules of the book, look at the colourful numbers above and simply apply the fundamental principle of Pareto – focus on the 9% that bring you 45% of your profits. No brainer, right? Then why are we even having this argument? Forget serving the next billion, or 4 billion or even every human being on this planet who isn’t profitable, including your three year old.

But telcos everywhere still persevere. The roads to Ranthambhore are papered over with bright red Vodafone signage. Ironically there’s no coverage outside the district capital and only BSNL or Airtel seem to work depending on the village. So why are the telcos all looking at this market? And not just telcos, why are Google and Microsoft in addition to Vodafone and Nokia, all turning to look at the BoP, unprofitable though it maybe?

Its because somebody somewhere, in fact, a lot of somebodies in a lot of somewheres, all have that niggly little feeling in their gut that if only they could crack the code, there’s gold in them thar hills. Or at least, profits. Lets start with some challenges telcos face when addressing the problem of the “unprofitable” BoP subscriber:

Internal mindset – business school programming

The Institute of Design taught me one of the most powerful lessons in design – aka problem solving – if you can frame the problem correctly, then half the solution is right there. The uppermost problem on every telco employee’s agenda is that of dropping ARPU rates. As in, “OMG, we’re adding the population of Sweden every month to our mobile subscriber base but our Average Revenue Per User continues to drop.” Duh, yeah.

Of course ARPU will drop. You’re expanding your subscriber base lower and lower down the income stream who will be, most logically, spending less and less on your services. Growth, in this case, is simply adding to the denominator in your own mathematical formula. Perhaps the metric of success when expanding into BoP markets cannot be the same as that held for your ‘richer’ markets?

The BoP are a funny thing. In one sense, they are a numbers game – there’s billions of them – but in another, they aren’t. They will NOT spend in the same way that your wealthier, professionally employed, high tech gadgeteering, mobile data surfing geeky segments are likely to do. Case in point, those 9% up there who are oh so profitable to their respective service providers.

However, the BoP will spend – but only, and this is crucial, only if they perceive the value of what they are spending for, more so when it starts to go beyond the essentials (in the case of the mobile, that’s basic maintenance of their SIM card validity and enough for an emergency call or two). Services and applications for the BoP need to demonstrate simply and clearly the answer to the question “Why should I spend good money on this?”

But before we go into what the BoP needs and why and how they make the decision to spend their hard earned cash, lets take a look at why the telcos haven’t been able to crack this problem with that holy grail, the “BoP killer app” ? (except mPesa, so perhaps that’s a lesson there in itself, eh?)

Big companies like telcos are staffed with MBAs and every decision to spend money on developing a new product (service, application, you name it) must be justified up chains of command and control with shiny numbers, excel spreadsheets, estimates of target audience, demographics and one of the biggest killers for the development of valid BoP services – the concept of “disposable” income. Those at the BoP will find the money for some expense or purchase if its deemed necessary to their wellbeing, survival or future but no penny they have is disposable.

And if you begin the design process by starting with the segment of the BoP who have the disposable income for your product rather than starting with a clear value proposition and an understanding of your target market’s mindset, what are the chances you are going to end up with a dud product that nobody wants to buy?

Pareto’s killer principle

Pareto’s principle applies globally as well and for those telcos whose footprints span the globe, its not just the top and bottom of the same pyramid, but the difference between what’s being spent by their wealthier subscribers in hard currency zones versus their returns from the developing world. Because of those numbers, in that chart, the ones that clearly demonstrate its not worth the effort to invest in developing relevant, affordable or appropriate services for the BoP on the mobile platform, you know, the stuff they’d actually want to shell out good money for, the BoP usually end up with crap that’s irrelevant and useless. For the logic goes, lets develop something for our subscribers in X, Y, or Z OECD nation and simply adapt it for our emerging markets, yeah?

So users in Berlin get scrutinized for ideas that will conceivably make pots of money in Calcutta and CapeTown. Forget Raawal village or Soweto or the outskirts of Kisumu. Naturally, one assumes, that since a phone is a phone is a phone, what Herr Schmidt likes to download and spend money on is the same as Goverdhan Meena. They just speak a different language and perhaps, Mr Meena earns a lot less. Sigh.

Otoh, if you were to actually look at the culture and context of your emerging markets, or in the case of India, the subject of the original post, the difference in needs and spending habits of the surfing urban 9% and the aspiring rural farmer’s son or migrant worker and then developed some services and solutions that made sense to him, do you think he might not want to buy it?

The irony is that this is not unknown or rare knowledge – that there’s a gulf between the urban and rural, the ToP and the BoP or the West and the East – but it seems to me that when it boils down to it, the telco chappies still seem to think that one size will not only fit all but there’s no cognitive dissonance in the exercise either. Top down concept design and development will only go so far – that is, to the limits of those who are part of mainstream consumer culture, who seek entertainment and iPhones (well described as a phone for those who wish to consume rather than produce). LirneAsia’s research on mobile usage at the BoP had led Dr Rohan Samarajiva to proclaim that for the BoP it would be models based on production – save them time or make them money – that would work, not models based on consumption – no matter how attractive the game, your average member of the BoP would think twice about downloading entertainment.

In fact, let me digress into a story here, when I was talking to Sanjay (a factory worker) about downloading stuff onto mobiles he said that he preferred “nokia dot com” (as he called it)- he said that when wanted to download something – a ringtone, a wallpaper, whatever – he preferred Nokia because before download they told you how much it would cost to do it and then you could take the decision to spend but Airtel and Hutch et al simply download and only later you found out you’d spent Rs 20 on something you didn’t think was worth it. Case in point, your customer feels screwed. Brand loyalty is rarely built by advertising alone and the BoP are far more cynical than your average mainstream consumer. He doesn’t have that spare Rs 20 for experimenting, every penny counts.

Finally, the bottomline

That’s the biggest problem innit? The bottomline aka profits? Although I must admit that because this entire rant was triggered by an Indian analysis, I would like to take this moment to point out that there’s still little or no comprehension in India of the need to do something for the BoP, that business can still be run on the metrics of profitability alone and the next billion will either somehow manage or its the government’s job to provide.Its an attitude problem, not an analytical one.

I came back from India thinking that innovative new services on the mobile platform would not emerge or bubble up indigenously, but ironically were far more likely to diffuse from sub Saharan Africa. There’s simply no focus on the needs of the BoP there, although data now begins to show that states that have significant mobile penetration are doing far better than states where mobiles have yet to reach the lower income strata. Not to mention all the studies done on the impact of mobile phones on the GDP of developing nations. No, your average Indian techie is too busy chasing the iPhone crowd to even imagine that his driver’s mother back home in the village might want a service on her mobile. Let them eat cake.

Global multinationals are certainly focusing on the BoP markets, as Rob has pointed out in his second post, but they too stumble along using outdated methods and assumptions when attempting to design something for this new and critically, unknown, market. If Nokia can launch English language lessons in China – just think of the market for that – why do the rest of the device manufacturers cling tightly to the idea that they’re just device manufacturers? Its ironic to think that the kind of brand power Nokia has among the BoP will allow them to someday overtake the telcos in “ARPU”.

And if mPesa can capture the attention of the world, then what’s stopping the Indians telcos? Will it take their ad agency to inspire them to do something or will continue to rely on outdated lessons of how to address a new market from business school teachings or big name management consultancies who have yet to catch up with today’s global economic reality?

What will happen though if the telcos continue to think this way is that they’ll be simply overtaken by the hackers themselves. The bottom line is about enhancing people’s lives now not profitability alone.No excel spreadsheet will show you that nor Pareto’s principle apply, to be honest, we’re talking about too many billion people who cannot be ignored for emphasis to continue to the 20% who consume the most resources. Refresh your assumptions, open your eyes, look at the big picture. The future is staring right at you, its all about give and take. Help them and they’ll help you. The BoP are people too.

Update May 19th 2010: Has anything changed in the past 16 months? And if so, what and how?