Posts Tagged ‘bop marketing’

Is the pay per use business model changing household purchasing dynamics?

DSC08309The process of writing the previous post on India’s energy efficient cook-stove development efforts made me pause and reconsider my assumptions. Here’s the snippet that struck me in the article.

Philips took its India stove to more mature markets in Africa, where a raft of foreign-funded stove projects had familiarised customers with the product.

This seemed to explain why, when M-Kopa, the pay as you use solar system startup in Kenya, expanded their product line, the most popular first choice for low income consumers were improved cook-stoves.

Energy-saving stoves have been the highest seller to date, while smartphones are also proving popular.

Given the recent hand-wringing over the toilets vs phones stats, I would have expected smart phones to have been more popular than stoves. The fact that they aren’t implies to me that something more is going on than is apparent on the surface. I don’t think its as simple as “sensitization” efforts by NGOs, since the aspiration is still LPG not an improved stove.

You’ll note the assumption made in the pullquote from the Indian cook-stove article:

Women’s time and health were not valued; any family with Rs 1,000 to spare would first buy a mobile phone.

So, the question raised is whether M-Kopa changed this household dynamic, in a market where women’s domestic roles are similar to India’s?

During my exploratory user research study on household energy consumption behaviour for ToughStuff, a now defunct manufacturer of small solar products aimed at the exact same market segment in Kenya, I discovered that one of the barriers to the purchase of the product was the question of “Who would pay for it?”

The phone is a personal asset, purchased by the individual saving bits and bobs from their earnings, over time. Solar power or a cook-stove, is an asset shared by the entire household. Could it be that M-Kopa’s business model, predicated as it is on daily micro-payments to keep the lights running, has changed the dynamics of household purchase (rather than women’s roles)?

Its possible that whoever had the extra 50 shillings in their M-Pesa account sent it to M-Kopa for the day’s payment, and people took turns rather than the burden of purchase falling entirely on one income earner’s shoulders.

And now that more products have been made available for sale through this micro-payment method, it has opened up the opportunity for the purchase of more shared consumer durables, like cook-stoves, rather than individual items of use, like smartphones.

Given the implications of these snippets of insight from M-Kopa, and their importance to both women’s empowerment and the dynamics of domestic finance, I wish that the company would do more to release information, or offer their data for indepth analysis.

Why social enterprise marketing tends to fail – hidden competition, invisible consumers

A couple of years ago, I was frequently in East Africa, consulting with a consumer product company  set up as a social enterprise in the renewable energy sector. An extensive distribution network across Kenya had been established through what they called TT – traditional trade. Yet their sales were nowhere near the figures one would expect from such an extensive exposure to the market. They were struggling to reach their target audience efficiently and cost effectively. Soon after starting fieldwork, I began to get the sense that there are some fundamental issues with the way social enterprises were developing, creating and implementing their market entry strategies.

Many of these issues also apply to consumer product companies targeting the emerging middle class, given the size of the ‘floating class’ and the prevalence of informal retail. Purchasing power assessments as well as hard currency conversion create their own confusion regarding consumer segmentation as “poor”. Some may choose to set the bar at 5euros a day, to identify those at the “Bottom of the Pyramid” (BoP) while the African Development Bank pegs the same amount as “middle class”.

Assuming there’s no competition

Most of these firms, particularly those coming in from the outside and seeking to serve the ‘poor’ in the developing world seem to be operating in a vacuum. Observing their market entry actions point to an underlying assumption that they are entering a virgin market where no competing solutions for their product or service exist.  If this fundamental premise is mistaken then every element of their marketing, communication, distribution and pricing strategy will naturally suffer.

A caveat here is that it might indeed be a virgin market for branded international solutions for that product category in the formal market but this is where overlooking the informal markets and existing practices in user behaviour can be far more dangerous since this is where the competition will come from in the form of substitutes or alternate solutions.

Because of the above assumption, little effort is made to uncover information about the customer, the market or competition or the operating environment. Whether this is due to a vacuum of information on lower income markets or the developing world, or this subject simply not being taken into consideration in a social enterprise, the fact remains that this oversight then gives rise to a series of errors (like the domino effect) – those in marketing strategy viz., marketing communications, value propositions and positioning not to mention pricing.

Conflating company mission with marketing strategy

While this is most commonly found among well meaning social enterprises entering these markets for the first time with their life saving products for the poor, large multinationals with previous experience in the developing world are not immune the minute they choose to focus particularly on the mass (or “poor”) market.

Tata Nano is the most obvious example of this although here one wonders how much of this had to do with their actual marketing communications and advertising for the Nano and how much to do with all the media hype around the car being specially for the ‘common man’? All the positioning and branding in the world through formal advertising and communication channels could not overcome the public perception of the Nano as the ‘poor man’s car’ created by every other article – from engineering news to international styling.

Similarly, if all the marketing communications, press reports and online information is geared towards the ‘poverty alleviating” mission of the company or product line then this lack of clear focus or understanding of who the target audience is will come through in the positioning and branding of the product in the marketplace.  The vast majority of social enterprise messaging is targeted towards their funders and investors not their potential customers.

And no one will aspire to buy the ‘poor man’s product’ if it means a clear signal of having failed to succeed or admitting defeat among their friends and neighbours. Everyone aspires to a better quality of life, regardless of perceived income segmentation.

Confusing value proposition with need

This lack of clarity and understanding about the target audience for a product or service and thus, its marketing communications and messaging then snowballs into incorrect positioning of the product or incorrectly identifying the value proposition for the end user.

The end result might be the same – the customer choosing to buy your product – but the pain points may differ tremendously across geographies and regions, not to mention socioeconomic strata. An example is water saving flush toilet mechanisms being sold in Nairobi as a sustainable, greener alternative – that is, the same positioning and value proposition as that used in the eco-conscious parts of the Northern European continent. Sales are sluggish. But when you take into consideration that there is a water shortage or that many communities need to purchase water in tankers to fill their household storage tanks, a simple shift in positioning to “Spend less money flushing down the toilet” or some such clever quip could in fact make a more sensible approach in this situation for the very same product.

This gets more obvious the lower down the income stream you go – Mama Mboga with her vegetable stand may not have the same priorities nor relate to the same value propositions that social impact investors do.

Winning awards vs building a trusted brand

And finally, this lack of customer orientation manifests itself in the development of the company’s brand. Awards may be won, and brand recognition created online with press mentions and social media, but the company still remains an unknown entity that nobody has heard of in the markets in which it should be sold.

In a sense, its overestimating the ability of a faceless brand to communicate value to the target audience. Some have called this issue one of Trust and in the past, I’ve referred to it as Commitment but the fact remains that this aspect is the most challenging and difficult to overcome as a barrier to acceptance. Even megabrands accustomed to instant global recognition such as Google may find that not only is their brand unknown and unheard of in these new and emerging markets but others may have gotten there before them.

Which, in a way, brings us back to the first point in the assumptions made at the very beginning of considering market entry strategies in the rising global middle class.

Part 3: Synthesis and Insights from original research on rural economic behaviour

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One can conclude from synthesizing the data collected across the geographies and the range of “BoP” income levels that rural households demonstrated similar patterns of behaviour in their management of household expenses on irregular income streams. These are:

  • the rapid conversion of cash into tangible assets such as goods or livestock,
  • the  subsequent storage of wealth in this form,
  • the ability to conduct cashless transactions by mechanisms both simple and sophisticated
  • shared or cooperative financial tools such as investments, loans, purchases and savings
  • the use of multiple resources allocated by cost and usage
  • knowledge and experience of seasonal ebb and flow influencing cash flow management

The irregularity of cash flow or income over time in the households studied can be said to be a combination of the known – such as the ebb and flow of income over the course of the year, either directly due to the natural seasons or due to other unnatural but predictable factors such as Christmas or vacations; and the unknown –  either the truly unpredictable such as a natural disaster or the simply random, such as not knowing how many customers will make a purchase on any given day.

The known component or the “reasonably predictable through experience”, is less a matter of the actual amount of income earned and more about knowing when to expect peaks and lows in cash flow. This element of seasonality would be a critical component of knowledge pertaining to a particular region or market for BoP ventures seeking to create value through successful introductions of products or services.

For example, in the rural region of The Philippines, January to approximately April or May (or until the rains begin) is considered the annual “summer” or “dry” season – unless a farm is very lucky to have access to sufficient water for rice growing regardless of rain, the farmers can only start planting when the rains arrive and are dependent on it for their second harvest as well. So overall, whether its tiny sari-sari1 stores supplying everyday essentials, snacks and cold drinks or some other business – even those selling necessities like food, all consider this a lean period.

Those who earn daily wages  helping farmers plant the rice have little work, farmers live on their stockpiled rice, everyone tends to spend less but along with the rains all of this changes and the pattern of spending increases until the annual Christmas peak. For some, wholly dependent on what they can earn locally (receiving no remittances from relatives abroad) this can mean a difference of 100% in their weekly earnings between the “wet” and the “dry” season.

The Indians and the Malawians were influenced in similar ways, only the actual timings varied due to geography. Whatever the reasons in any particular region, when evaluating the purchasing power of those who manage with irregular and unpredictable income, the first question to ask is if there are any known patterns of ebb and flow in their cash flow.

It is the unknown component that creates the unpredictable volatility that those on irregular income streams must deal with in order to manage their household expenses with any degree of control. The behaviours observed listed above, taken together, can be summarized to state that each household managed what could be called a “portfolio of investments” that acted as deposits maturing over time.

They either maintained multiple sources of income simultaneously since available cash was often converted into these investments, spreading the risk of any one source failing when needed or stored their wealth accordingly.  Maximizing available resources based on their cost and intended usage along with the tendency towards minimizing the need for cash based transactions all worked together  to smoothen the volatility of the household‘s income.

For example, one family in Malawi reared pigs for sales (or food in emergencies), grew vegetables and maize for their own needs, distilled wine from sugar cane for cash sales and also kept bees with a cooperative for annual harvest of honey. Cash was thus available in varying amounts from a variety of sources at different points of time.

In the Philippines, an extended household living together in one compound pooled their resources from a kitchen garden, stored fuel in the form of bamboo and dried coconut husk, kept chickens and occasionally a pig, as well managed on the small amounts of cash earned daily through running at small sari-sari store on the premises.

While in the Indian village, even the silversmith who made ornaments only during the harvest peak, used his metalworking skills and workshop the rest of the year to make doors, windows and grillwork.

This portfolio management approach to household expenses* implies the manipulation of their span of control over elements of time such as periodicity and frequency as well as currency, i.e. cash or goods, in order to decrease the volatility of their cash flow, improve their ability to plan and while decreasing the variance between expenses and income.

Across the board, the particular characteristic that most stood out during conversations with the rural populace in India and The Philippines, echoing  prior experience in the field elsewhere, was their undeniable pride in their degree of self reliance, and thus, their level of independence from the formal or cash based economy.

Over and over, people would proudly point to assets like firewood, livestock, kitchen gardens etc and emphasize that these resources were ‘free’ and didn’t need to be purchased for cash, often in the same breath pointing out how everything needed to be bought if you lived in the city. Whether it was a nanny goat kept just to provide the daily cup of milk for morning tea or an extra sack of rice held back from the harvest sales, there was a distinct sense of achievement for every penny that didn’t have to be spent.

This trait of minimizing the need for actual cash money also cropped up in other patterns of behaviour including the storage of wealth in the form of ‘kind’ or ‘goods’ (that could be liquidated when and if required); cashless transactions within the community, from the simple to the sophisticated; and the rapid conversion of surplus cash into goods or ‘kind’ (livestock, for example, as investment or planned savings in the form of silver or bricks for a future house).

Expensive resources that required cash outlays such as fuel – diesel for irrigation pumps; liquid petroleum gas cylinders for cooking; or airtime minutes purchased on prepaid plans for the ubiquitous mobile phone, would be stretched out for as long as possible before the need for replenishment. For example, a common behaviour was the choice of cheaper or ’free’ fuel such as firewood or dried cow dung for cooking food which took a long time to cook such as beans or stews, saving the use of the more expensive gas stove for fast cooking items.

All of these behaviours, taken together, imply a challenge for businesses seeking to serve rural populations effectively since their relative lack of liquidity places them in a challenging position as future customers. Conventional business development methods include the use of market research to evaluate the disposable income or purchasing power of the target audience. When considering rural BoP households, these tools may not supply any meaningful data, skewing the perceived income levels or earnings of those studied.

In sum, it can be concluded that the challenges for value creation can be quite different for BoP ventures interested in addressing the rural markets. From the observations made in the field, we can highlight three key implications for business development. These are:

1. Seasonality – with the exception of the salaried, everyone else in the sample pool was able to identify times of abundance and scarcity over the course of natural year in their earnings. Identification of a particular region or market’s local pattern of seasonality would benefit the design of payment schedules, timing of entry or new product and service launch, for example.

2. Relative lack of liquidity – The majority of the rural households observed tended to ‘store wealth’ in the form of goods, livestock or natural resources, relying on a variety of cashless transactions within the community for a number of needs. Conventional business development strategies need to be reformulated to take this into account as these patterns of behaviour may reflect the household’s purchasing power or income level inaccurately.

3. Increasing the customer’s span of control over the timing, frequency and amount of cash required – Since the availability and amount of cash cannot be predicted on calendar time, this implication is best reflected by the success of the prepaid mobile phone subscriptions in these same markets. When some cash is available, it can be used to purchase airtime minutes for text or voice calls, when there is no money, the phone can still receive incoming calls. Models which impose an external schedule of  periodicity, frequency and amount of cash required may not always be successful in matching the volatile cash flow particular to each household’s sources of income.

Conclusion

Broadly speaking, there was evidence of far more sophisticated cash flow management than has either been expected or assumed among the rural BoP households in the sample pool. In fact, one future task would be to parse out whether the terms ‘irregular’ or ‘unpredictable’ can be be applied. Certainly, income was not as predictable and regular as a salary, but on the other hand, neither were they totally random and unknown. At this point, it seems far more accurate to say that the rural BoP households do not manage their expenses on a “fixed amount arriving on a known day or date”.

Also to be reconsidered is whether those in the rural communities in developing countries should simply be lumped together with their urban brethren as an undifferentiated mass called “the BoP” or “the poor” – for one, living on $2 a day has an entirely different meaning where much of the hyper local economy may not even be based on cash transactions, or else, few daily requirements need to be purchased.

If we’re to seriously evaluate business development for BoP ventures, then a far more nuanced understanding of local culture, buyer behaviour and segmentation of these emerging consumer markets is required.

* Given the similiarities in findings, it should be noted that these insights emerged from a workshop conducted in Helsinki, Finland in April 2009, prior to the release of the now famous book, Portfolios of the Poor.

Timely and relevant or obsolete? Kotler’s BoP in India

Syamant just sent me this Business Standard article on Philip Kotler’s Centre of Excellence to open near New Delhi to focus on the BoP specifically. That is, the Bottom of the Pyramid which was the title of CK Prahalad’s seminal book on high volume, low cost markets in the informal economies of the developing world.

Just because formal methods do not take the informal, mostly cash based, hyper localized economies into consideration in their frames of reference does not mean they do not exist. But Prahalad never meant for his descriptive phrase to become synonymous with an assumed demographic.

The BoP, as I have discovered over the past 5 or 6 years of work, are not actually a target segment of any sort nor can they be considered as such.  One can say that there are critical differences in buyer behaviour and purchasing patterns demonstrated by consumers in the lower income demographic earning irregular flows of cash with few facilities for consumer credit and the mainstream consumer culture that Kotler has played a part in authoring.

Without this critical understanding, and the why of the difference (a natural outcome of the patterns of cash flow, which is seasonal over the course of the natural year) what can one hope from the outcomes of attempting to apply first world marketing frameworks to third world poor?

A huge assumption is that the mindset and value systems are the same and what might be relevant and appropriate to an audience conditioned by at least 3 generations of loud noisy advertising and marketing communications may simply fly past the awareness of the BoP, having only been noticed by marketers as a potential market in their own right.

The label “Bottom of the Pyramid” or more particularly, “the BoP” tends to presume the same kinds of demographical tidbits available for “the Boomers” or “the LOHAS” because this is one thing that I fear “the BoP”cannot have possible.

That’s like saying “the Mainstream Culture Consumer” with no nuance to the segments that are diverse and varied across the global consumer culture in mainstream media and the interwebs.

Professor Kotler, are you sure about doing this?

Prioritizing whom you put at the center of the strategy and why

The tacit mandate for companies interested in the BoP market is that your product or service must either fill an ‘unmet’ need (of which the poor have many), or provide a way for them to enhance their livelihood or quality of life. Why else would they divert their limited and hard-earned cash for your product or service? So the fundamental consideration before design would be to focus on the benefit to the BoP: Is there an opportunity for social or economic development?

Next, the solution must be well designed—contextually relevant, appropriate, and of course, affordable. But the best designed product or service in the world will not sell if your customer is unable to find it. Since logistics and transportation is as much of an infrastructural challenge in the developing world, distribution becomes critical in ensuring the availability of the product. The entire supply chain might have to be built from scratch.

Once you’ve made the right product and got it out to where its needs to be, are your customers aware of its existence, what benefits it may provide for them, and the reasons why they should think about purchasing it? Is there a demand for this product, or can one be created? Does the value proposition of your offer resonate with the value system and worldview of those at the BoP?

And finally, the whole offering must cohesively hinge upon preserving and ensuring the dignity of your new customers. The poor are not looking for handouts, but rather opportunities; providing them with such products or services through a filter of ‘charity’ or ‘social work’ serves no one.

Our work in the field observing those at the base of the pyramid had led us to conclude that their life of adversity—managing in challenging conditions—evidenced a very different value system and worldview from what is commonly considered mainstream consumer culture. Their buying behaviour and decision-making criteria imply that those in the lower income strata—particularly in the developing world—are not ‘consumers’ but in fact extremely careful ‘money managers’ for whom an expense is often an investment whose return must be maximized. They tend to be risk averse and seek greater value from their purchases.
So an integrated strategy—one that looks beyond the design of the product or service for the other 90% but also takes distribution, demand, development and dignity into account while touching the core values of the BoP customer—could be considered a framework for best practice. ~ The 5Ds of BoP Marketing: Touchpoints for a holistic, human centered strategy

Why?

 

Lets take the example of your average social enterprise seeking to sell a cookstove or solar lamp to the erstwhile BoP customer. Do you know where he or she goes shopping? If you’re targeting rural customers in Sub Saharan Africa or South Asia, what are the odds of there being formal retail within accessible distance?

What are the odds of your subsistence farmer dropping by a supermarket when he’s in town next for market day? What kind of a difference will it make to your distribution strategy or demand creation and customer awareness program if it were designed from the point of view of your intended customers and their daily life, environment and buyer behaviour?

What if these assumptions were validated prior to investing thousands of dollars in setting up traditional distribution channels, per the conventional product introduction strategies as developed in the more sophisticated mainstream consumer markets?

Most social impact programs, whether they offer a new product or a service, or a program for socio-economic development of some sort, tend to focus their efforts on meeting the perceived needs of their most visible stakeholders. Rarely are these the intended recipients or end users, that is, the customers who would be purchasing the product or participating in the program or service.

Thus, when when there is little or no traction in sales and/or use of product or service, its always a head-scratching surprise. No wonder, when marketing may focus on value propositions that attract funders or changes in design are based on intermediary feedback, with little or no resonance with the actual needs or challenges faced by those among the intended target audience.

Human centered design, which inspires this holistic approach to the design of a strategy or plan, provides us with an approach which prioritizes the needs and challenges of the people considered most important for success or failure. Over and over, we learn expensive lessons when little or no impact is observed. Experience shows that the most dangerous assumption at the start of planning a program or crafting a strategy is that there is no difference in context between BoP markets and mainstream ones.

Whom do you choose to respond to? 

Prioritizing a particular user group allows for more relevant design and development. Iteration after initial implementation, that is, testing the prototypes in the field, need to be based on accurate feedback and if this aspect is not considered critically, then strategies get misaligned as multiple voices may offer conflicting or indirect information.

What do you choose to focus on?

Time and money are not unlimited. Prioritizing which set of voices to listen to and what context or needs your service or program is meant to serve helps increase the focus of the efforts and the resources.

As our most recent experience with agricultural value chain innovation in the context of social and economic development for Bottom of the Pyramid markets shows us, the lack of clarity and understanding of who exactly is the “User” ie. not having a specific focal point for planning and for program design leads to a cascading series of challenges from initial implementation through to end result, and thus, impact.

What essential aspects of the approach, philosophy and methodology from human centered design can offer value to such program development for donors?

Target market strategy for upwardly mobile BoP segments

* BoP – referring Prahalad’s Bottom of the social and economic pyramid, MoP – middle

This visualization of the emerging consumer market opportunity in India is by the insightful analysts at Nomura Research Institute, Japan. When taking this in conjunction with the information collated in my previous post on the imminent boom in upward mobility currently being seen in rural India, one can instantly perceive the logic of their target market strategy.

Why stumble around in other rural areas, when the first ones most likely to benefit from the economic changes taking place will be in teh vicinity of the smaller cities which are themselves rapidly growing? And if they themselves aren’t, its likely that their local market’s shops will source new products from the nearest city. Innovation diffuses outward from the urban areas, as do new ideas and thinking. We saw this same pattern with the way the internet cafe industry was evolving across Kenya during the Village Telco project last year. And its the same pattern of diffusion for new product introductions in the informal trade – the ones who are ultimately serving the BoP customer in their rural village. Thus, this target is a focused one with greater impact than seen in the first instance.

What Nomura’s gurus have added however is a layer of nuanced caveats on this analysis – one, not to forget the fact that even as people’s upward mobility takes them up the food chain to ‘middle of the pyramid’ (their MoPs in the diagrams), this very same economic change will have visible impact on the local business environments, so stay cognizant of that, and two, that even as people migrate upward economically, they do not automatically change their system of values in terms of purchasing patterns and buyer behaviour to resemble the existing higher income strata, instead they still think like the “BoP” they were.

Thus, the emphasis in the strategies to choose how and at which point to enter the market whilst straddling both the MoP and BoP population segments. An example of all of the above comes from the recent Daily Yomiuri article about Yamaha’s activities in Asia and Africa:

Yamaha Motor Co. has started selling water purification facilities in emerging countries in Africa, Southeast Asia and other areas, as part of its so-called bottom of the pyramid business plan, which aims to generate profits by improving the livelihood of low-income earners in such countries.
[…]
Yamaha has built small water purification facilities in five locations in Senegal and Indonesia, including local water service public corporations. Each facility is designed to provide a community of about 200 households with 8,000 liters of water daily. The firm also received an order in Mauritania.
[…]
By selling its name in untapped markets in Africa and small villages in Asia, Yamaha also aims to boost its sales of outboard motors and motorcycles in the future.

Emerging evolution of global BoP markets by mindset and income

 Japan’s Nomura Research Institute have an interesting take on the evolution of the existing global population currently demarcated as the BoP (Base or Bottom of the Pyramid). While it is not surprising that income levels are expected to increase, given the signals already observed in frontier markets and rapidly growing economies, what was intriguing was their assertion that the newly emerging “Middle of the Pyramid” (or rather, emerging global middle class since that’s a diamond not a pyramid) will display an entirely different sense of value i.e. a different mindset, from mainstream consumer culture prevalent today.

This values gap between the customers at the BoP and those immersed in the global mainstream is something I’ve written extensively about previously, having identified and framed it in “Design for the next billion customers” back in 2008. It is one thing, however, to describe my observations of differences in mindset and buyer behaviour, and another, to see this aspect in terms of population and income, that too, taking the increasing upward mobility into account.

That is, what this diagram is saying is that not only is there a difference in value (and thus, mindset) between the BoP customer and his brethren higher up on the social and economic pyramid, but even as their income rises and they evolve into ‘middle income’ customers, their mindset is more likely to remain the same as when they were classified as BoP than to suddenly shift into the mindset and values of those in the higher income brackets.

That these emerging global middle classes will continue to have more in common with their rural cousins and their BoP roots.

Yes. This makes perfect sense. And to see it visualized like so offers valuable insight into the emerging consumer markets of the near and medium term future.

Convenience as a service

Shredded cabbage for sale, Wote, Kenya 3rd February 2012

Convenience can mean different things to the household consumer, depending on their location. In urban Chicago, its stocking up the freezer and pantry with a trip to a megastore like Costco while in Singapore it might be the ubiquitous neighbourhood hawker stand where rice, meat, two veg can be had for as little as $2.50 per person. Here in the mostly rural, arid Makueni district of Kenya where the concept of leftovers is moot and only bars and restaurants tend to have a refrigerator, convenience means stopping by the cabbage lady for just enough for tonight’s meal.

Kerosene sales, Wote, Kenya 4th Feb 2012

Purchasing patterns observed previously among those on irregular income streams have been clustered into  four major categories:
1. Prepaid or pay as you go
2. Bulk purchases of non perishables
3. Sachetization or as its called here in Kenya, kadogo
4. On demand, for immediate use

The shredded cabbage, being sold by weight or “amount” (half a cabbage or quarter) is a clear example of the last pattern and common across the world while the way kerosene is being sold could be said to be closer to a ‘sachet’ or small purchase as it tends not to be a daily or on demand purchase.

Interestingly, here I saw bulk purchasing for firewood or charcoal rather than foodgrains since most families have some land where they grow maize.  The maize is first and foremost for household use and only the surplus is sold.

So why have I called this ‘convenience as a service’?

There is a premium one is paying for the convenience – whether its the shredding being done for you or the difference in price of kerosene between the town and the village.  Someone has saved you the time and effort thus it costs money. There’s an entire economy around water and its supply chain that I’ll be taking a closer look in a forthcoming post.

Questioning the value of the term Base or Bottom of the Pyramid aka the BoP

Siim Esko wrote a short piece on his blog BoP Strategies after a conversation we recently had. Since much of his work focuses on the BoP in India and I’d just returned from the Kenyan tour, it was but natural for us to compare and contrast the challenges and the conditions of the lower income demographic in both these countries.  He refers to recent posts on NextBillion.net when he starts:

Ashoka is targeting the top of the BoP with their Housing for All project, but they can still say they are targeting the base of the pyramid – those who can’t afford current housing solution, but who are not the poorest of the poor. But Aneel Karnani talks about the destitute poor and how the BoP is misconstrued. It’s apples and oranges.

Its apples and oranges indeed but by only referring to them as fruit, that is, the BoP, one tends to forget that this acronym actually refers to the more than 4 if not 5 billion of the entire planet’s population. And they are not all alike in any way, shape or form.  And that’s why I told him that I’m increasingly concerned about unqualified use of the general term BoP for this market.  Siim continues in his post:

There is much use for there being one definition for what we used to call the poor segment. But it seems like people get confused by the ‘bottom’ in ‘bottom of the pyramid’. In fact, it’s a rabbit hole and the rabbit hole goes deep.

We don’t take the whole World and consider that our market. You will never get VC funding with an idea like that. We zoom in on the continent, which can be divided into countries, which divide into regions, into areas. The people in different micromarkets have different buying behaviour, different wants and aspirations. And catering to those wants and needs is different. Selling snow mobiles in Helsinki is different than selling them in the north of Finland where Santa Claus lives. For one, it is entertainment, for the other, about survival. We know that. Think of the BoP in the same way – divided into tiny segments all over. Some marketing strategies are replicable across areas, income segments and sexes, but many are not.

And maybe the use of the term by an Ashoka in their own context of what they are trying to achieve – affordable housing or by Karnani in what he’s attempting to say may work but in the context of the entire global community of people who are increasingly focused on this space (that is, for example, the audience of a site such as a NextBillion) it implies that one BoP reference is the same as another. And why not, they are all the Base of the Pyramid you say?

Kenya is very different from India, and Africa from Asia. Yet due to the singular BoP label, the implications often are that one’s BoP experience with big bad messy India will prepare one for those in Kenya (or that success in a favela necessarily implies success in the basti). How different is this current situation from the early days of globalization and mass production of consumer goods across the world, based on the now debunked theory that Theodore Levitt espoused?

Any global advertising agency will tell you that localization and understanding regional differences is critical for the sales of your detergent or shampoo – the challenges that multinationals who rushed into India and China in the closing years of the previous century are well documented. Those hundreds of millions of middle class housewives were, in fact, nothing like Mrs Saunderson back in Toledo or Cincinnati, were they? So why, now, as we extend our reach down the income stream to the rest of the world’s population, are we on the point of making the same expensive errors of judgment and assumption?

In the early days of awareness creation, that here was a world changing opportunity to effect positive change and impact wellbeing, the concept of the 4 billion micro producers, consumers and creators at the base of the global economic pyramid was a valuable and compelling visualization. It captured the imagination of many and much good has come out of this – CK Prahalad has left us with a legacy.

However, as the BoP market matures and competition increases, it will only get more difficult if this single label continues to be used – it implies a single monolithic entity, segmentable only by “income” – in itself a challenging proposition in an environment where most are on irregular income streams from a variety of sources and unable for the most part to evaluate what their weekly/monthly/annual income may be, much less feel they have $2 or $3 or $5 to spend each day.  We see this in our work and we see it in the field.

If there are truly to be outstanding successes in this area, then perhaps its time to consider this market with the same degree of seriousness that advertising does its audience, regardless of whether you are making a profit, sustaining yourself or simply giving it all away.

But why aren’t they buying my fantastic life saving product?

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An all too common a question blurted out in frustration by well intentioned social enterprises attempting to crack the code of the informal economy at the base of the pyramid, usually ending with the rejoinder “when they can spend double the amount on a phone!”

So why aren’t people sensibly rushing out with their hard earned shillings or kwacha or rupee to bring home that life saving potable water gadget or heart warming bit of solar sunshine to add to their clean and efficient cookstove in their kitchens?

There are two separate questions being conflated in that exasperation.  One of the fundamental errors in evaluating this dilemma lies in assuming the mobile phone as an object of ownership equals any one of these artifacts i.e. you’re comparing apples to oranges. You may as well ask why someone could spend money on medication for a sick child instead of on your [insert BoP product here].

What seems like a very long time ago, back  in 2006 when I first started pondering the BoP and their consumer habits more closely, an online colleague who blogs as niblettes put forth an answer. I’m yet to find a better explanation than his  – from a December 2006 post titled “Wealth flow key to BoP product success“:

For instance, cell phones are an incredibly popular product in developing countries, despite the fact that their cost relative to income makes them very expensive. Certainly part of the reason is a lacking wireline communication infrastructure. But this is only helps explain demand, not their capacity to pay for a cell phone nor the high priority placed on cell phone ownership.

What allows people in developing countries to afford the high relative cost of a cell phone is the fact that these devices provide an actual return on investment–they make money. Cell phones do this by accelerating the flow of existing wealth within an economy.

If you have $1 it takes a year from the day you spend it for it to come back to you (you buy a loaf of bread from a baker who buys some wheat form from a farmer who buys the charcoal from you), you will not be in a hurry to spend that $1. However if it takes only a day for the $1 to come back, you won’t think twice about spending it.

Now, what makes cell phone ownership a high priority for people of limited capacity? Cell phones accelerate the flow of wealth which grows purchasing power without having to first increase the total money supply in the economy. This gets into all sorts of arcane macro economics, so lets keep this practical. Imagine you live in a part of the world where it can take weeks just to negotiate a replacement part for your broken tractor. It costs you the same price for the part, but getting it this part tomorrow means harveting your crops on time, while getting it in three weeks means getting a lower price for over ripe produce.

Accelerating the flow of wealth like this is almost like getting something for nothing: increased purchasing power with no foreign direct investment, no charity and no bloating work hours.

Toothpaste, dvd players, and even dishwashers will not have this same kind of direct and immediate effect on an economy. So while folks in bottom of the pyramid market may want such things, they can neither pay for nor will they prioritize such purchases because these kinds of products don’t repay their investment price the way a cell phone does.

Distinguishing products this way (those that accelerate the flow of wealth vs. those that don’t) seems to provide a lot of insight into what kinds of new products will and won’t succeed in bottom of the pyramid markets. However, like i warned, this theory is still pretty fresh (it may even have to go back in the oven for a while).

Well, I think its time to bring this idea out of the oven now – I can attest to this finding after having looked at how those at the BoP managed their household incomes on uncertain income streams – their cellphones did indeed help them accelerate their decision making and the responses i.e. accelerate the cash flow, primarily because they increased their span of control over time – periodicity and frequency or money – in cash or kind.

There are of course numerous other nuances at play in choice of purchases including social status, but sadly, in the case of social enterprises, the majority of their offerings tend not fall under the category of “bling”. But at the very least, we would be doing ourselves a disservice if we consider a mobile phone just another consumer product, at least on this side of the planet.

The other issue, or question, is then “Why aren’t they buying X or Y, when X will save more money for them in the long run and emit less smoke/more light/clean the windows/prevent diarrhea?”

Embedded in this question are frames of reference and as yet undiscovered value judgments – from our perspective, it seems like it should be common sense to make this sensible purchase – I hesitate to call them subtle patronization even though in some cases that may also be a factor.

One of the elements that had emerged from the Prepaid Economy work was the concept of “willingness to pay” vs. “ability to pay” – that is, we should not assume that the ability to pay for a product implies a willingness to pay for it. Conventional frameworks such as disposable income and whatnot operate on this implicit assumption, but once we tease out the underlying influence of mainstream consumer culture, so carefully cultivated over three or more generations, we can take a clearer look across the ‘values gap’ into the BoP consumer’s mindset and values, as a discerning and demanding customer in his or her own right who is making ends meet and a better life for their children in very challenging environments.

I believe framing it this way would then allow for an indepth look at  the area of “Demand” – not demand creation, which implies an artificial stimulus of ‘want’ rather than ‘need’ but instead the existing patterns of behaviour, tradeoffs made, the Why behind the decisions to continue to use something instead of replacing it with the socially beneficial solution. One can then see why there is no demand, or if the demand exists, what are the barriers to purchase.  In plain English, what’s really going on if we are not to simply assume entire populations lack the common sense of the product’s creators.