Posts Tagged ‘bop markets’

Floating Upwards: The Bottom of the Pyramid Segment is No More

Pew Research Center’s latest results on global income distribution show some rather large shifts among the lowest income segments.

PG-2015-07-08_globalClass-00The Bottom of the Pyramid or Base of the Pyramid (BoP) segment, defined as those who live on less than $2.50/day has just lost a significant percentage of the population. While one can quibble that $2.50 is greater than $2.01 and thus they are still there in the low income segment, you’ll recall that the BoP segment was originally $2/day in its heyday, estimated to be 4 billion strong in the old days.

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The low income segment, as defined by Pew, ranges from $2.01 to $10 a day, which overlaps with the African Development Bank’s ‘floating class’ and the ‘lower middle’ class. Lets look at the ‘floating class’ so as to cover all bases when it comes to the income range of people whose cash flows are irregular and unpredictable. One day might be only $2 but the next could be $10. This daily amount, it floats.

From the Pew report:

This study divides the population in each country into five groups based on a family’s daily per capita consumption or income.3 The five groups are labeled poor, low income, middle income, upper-middle income, and high income. Of the four thresholds that separate these different income groups, two are especially important to keep in mind. The first is $2, the minimum daily per capita income that must be exceeded to exit poverty.4 The second is $10, the threshold that must be crossed to attain middle-income status. The thresholds are expressed in 2011 prices and 2011 purchasing power parities.

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700 million people exited poverty.

They’re not rich yet nor middle income, but their upward mobility and emergence is undeniable, and their consumption is increasingly visible. They are part of the reason why African statistics on the middle class market are so volatile. Obvious and visible consumption is taking place yet few fit the traditional description of what an emerging middle class segment should look like.

Aspirations change even one rung up the ladder

Income is not the only reason for my confidence in making the claim that the era of the Bottom of the Pyramid, the BoP, is over. Along with the few more shillings or rupees a day, comes a shift in mindset. Suddenly, from worrying non-stop about the next meal, we’re thinking about the possibility of investing in a motorcycle, or a cow. Sending the smart one to high school or taking computer classes.

Some old habits remain as the need for frugal buyer behaviour hasn’t changed with a few more dollars a day, and we’ll still see purchasing patterns influenced by cash flows and informal retail. But the dreams have grown and changed.

Once this happens, even if there might be dips in cash flow, one’s  worldview is very different from those who are still struggling to survive. We learn to make do if there’s a tight patch, but we don’t go back to living like “the poor”. And it is this transformation that has broken the back of the BoP forever.

Your product or service for the BoP might now be too small for their newly expanded hopes and dreams and ambitions.

 

Related post predicting this moment from 2013

Understanding at the bottom of the design pyramid

source

Before we can give form – and it does not have to be a tangible product but could even be a service, a business model or a strategy – to what we wish to do, its not enough to step back to just the function level, one must step even further back to envision the whole before one can even begin to pinpoint what the requirements are.

And before we can envision the potential solution space within which the requirements can be framed for the ultimate manifestation in the form of design, we must understand not only the what and how but also the why, when and where.The most powerful concept in this diagram, imho, is the fundamental importance given to ‘understanding’.

Without understanding – which in this sense could be seen as ‘grasping or grappling with the big picture’ – one cannot begin to envision or see what the possible directions or paths that ‘form’ or ‘function’ can take. Without the big picture view, the perspective into which all the disparate bits fall into – if not falling into place, then at least within understanding or at least coming to terms with – we cannot see far enough ahead in order to shape or manifest tangibly any plan of action or even, next steps.

I have said before that I believe that design is inherently a philosophy or a system of values first, and it’s implementation, in whatever form, second. Understanding the ecosystem in which your actions will take form comes first, which then leads to vision – only then can you begin to get down to the brasstacks of framing requirements and finally the design. We very often jump straight to the design – or the action – and this hierarchy of the steps required prior to any design is a useful reminder of the other 90% of the iceberg.

This approach has been the basis of my work in the little known geographies and the uncertain conditions of the emerging consumer markets of the developing world.

Exploring the market forces acting on the cyber cafe industry in Kenya

Cybercafe, Makueni, Kenya August 2011 (Photo: Muchiri Nyaggah)

This post continues on the challenges of estimating size and value of an untapped market in the developing world – in our current case, it is the cyber cafe industry in Kenya.  A critical aspect of this exercise will include assessing the impact of a variety of market forces acting on the industry in the present day as well as exploring the impact of trends on the near future.

Its only too easy to say that mobile phones will threaten the future of this industry as this June 2011 article does, but how valid is this assertion, really? Complicating the situation is the extremely rapid pace of change – for example the number of internet users in Kenya more than doubled in less than a year, from the end of 2009 to the third quarter of 2010, most via their mobile phones.

Yet, the results of a recent survey found on this Afrinnovator post by Mark Kaigwa in May 2011, contradict the dramatic headline of the June 2011 article:

via Afrinnovator

Kaigwa says: To unpack that a little further, the emerging trend is that the first experience of the internet has become mobile. This still doesn’t rule out the cyber cafe as the mobile experience on feature phones still cannot replace the “full-qwerty-keyboard-got-my-flashdisk-upload-that-document-and-email” use of cyber cafes but as far as social networking and general browsing, the mobile is the device of choice.

And previously in May 2010,  Oluniyi Ajao asked from Accra, Ghana “Are mobile phones pushing cyber cafes out of business?“, where he ends confidently with:

It is clear that mobile phones, are pushing cyber cafes out, the same way public phone booths and “communication centres” have become endangered species. What waits to be seen is how long the few cyber cafes that remain would last. Would they close shop or evolve their business model? Time would tell.

but just a few months before in Sept 2009, Wayan Vota wrote  Cybercafes: Still a vibrant and viable business model with some thoughtful reasons supporting his argument:

Growing, not shrinking, need for public access

Miguel’s point I most disagree with is the suggestion that there is a decreasing need for cybercafes in Africa because of 4P Computing:

Outside of tourists locations, they seem to be drying up everywhere to some degree as more and more of us travel with laptops or at the very least, wifi/highspeed data enabled phones that can do simple browsing anywhere we go.

While he and I may travel with netbooks and iPhones, the majority of Africans do not have such electronica, nor are they buying the expensive data plans that allow for mobile web access. They closely monitor their communication expenses, budgeting for Internet access out of meager daily wages.

Yet more and more business and government services, and professional social capital is moving online. Stores like Rachels’ Bargain Corner and Kenya’s eGovernment initiatives require full-screen Internet access. And with Facebook driving ICT use in Africa, the next professional networks will be virtual, not in person.

So as high-speed Internet and cool new gadgets increase usage by elites, there will be even more need for average Africans to get online, economically, through public access cyber cafes offering Internet access in multiple formats.

More than decline, this is the time to invest in African cybercafes!

So, the question remains unanswered, will the industry shrink or grow in Kenya?

Like any industry, cyber cafes are not all the same. Location matters as does size, speed and the variety of services on offer.  This background work  helps us to frame the broad questions we need to uncover answers to, so as to find the patterns that will help us evaluate the influence and impact of these market forces.

What does that mean? In this specific case, where if we are faced with conflicting information, then one of the key issues to find out will be the cost and ease of access to substitutes i.e. internet enabled mobile phones, cost of data and the patterns of usage behaviour, prevalent in the locale serviced by that cafe.

We’ll also need to dig up the CCK’s research results and then evaluate whether these substitutes are having a greater impact on the highly visible urban locations or is this threat a longer term trend and one that will affect a cybercafe regardless of whether its rural or urban.  And finally, we’ll have to actually get out there and take a closer look  in order to understand what is really happening. This is just one part of what Semacraft Consulting Partners will be doing over the coming weeks in order to answer these questions and more.

The challenge of assessing the size of an emerging market opportunity

Street stall, Durban, South Africa Jan 2008

Untapped opportunities in the developing world bring with them their own challenges for businesses seeking to invest in them.  An interesting one is that of assessing the market size and value, particularly for the lower income demographic that operates primarily in the informal economy (often called the BoP or bottom of the pyramid).  This snippet frames it well:

To begin, it is critical to understand why traditional market sizing methodologies are ill-equipped to size emerging markets. To illustrate, if a firm were to use traditional methods to size a mature market such as the coffee market in the United States, it would consider demographic trends (e.g., aging baby boomers), psychographic trends (e.g., increased health consciousness), past sales trends and consumption rates, price movements, competitor brand shares and new product development, and channels/retailers among others. However, conducting such an analysis for emerging markets presents a challenge as several of these factors (e.g., past sales, demographics of the customer when there are no current customers) don’t exist because the markets are presently untapped.

The situation is exacerbated  by lack of easily available demographic data, few formal retail channels, little consumer knowledge, and if the majority of the target audience happens to be outside the urban population centers, even lack of basic infrastructure like roads. One must begin from scratch. Can any rules of thumb be developed as we increase our understanding of the next few billion customers?

This conversation will continue.