Posts Tagged ‘bop’

Lessons for toilet builders from the history of India’s cookstove development efforts

Learning from the maker, herself. Rawal village, Rajasthan, India in January 2009.

Vaishnavi Chandrashekhar has written a superb critical analysis looking back at the history of India’s development efforts to provide viable, feasible, and desirable solutions to the myriad unmet needs of the common man. Using cookstoves as her narrative theme, she explores the challenges of base of the pyramid product development and marketing, and draws lessons for “the toilet builders of today.” A must read for social enterprises, entrepreneurs and design for impact.

Years after its big launch, India’s stove mission is going nowhere. A new government is in power, and another object meant to save the rural poor is now galvanising excitement. Companies such as Indian Oil, L&T, Tata Consultancy Services and Vedanta, among others, have pledged to build toilets to stop people from defecating in the open. Meanwhile, the cookstove programme has practically vanished from view, quietly renamed the Unnat Chulha Abhiyan and downsized.

This was not the first time a big push for clean cookstoves started only to falter. The history of India’s cookstove programmes parallels the evolution of the global development agenda, shaped by the geopolitics of each era—saving forests in the 1970s, improving women’s lot in the 1990s, preventing global warming in the 2000s. Since the 1970s, development agencies and governments around the world have spent millions of dollars promoting clean stoves as the solution for a succession of big problems. These programmes reflect a yearning, among nation-builders and international donors alike, for silver bullets—objects that are quantifiable technological solutions, but also symbolic, such as vaccines, mosquito nets and toilets.

A timely find, as the World Bank et al renew their PR push to promote toilets over mobile phones. The rise and fall of the “next big thing” for the poor is as much a trendy hip thing of the moment as any 15 minute internet celebrity. As silver bullets emerge and disappear according to donor whims and fancies, its the poor who suffer from half baked solutions and incomplete projects left behind like abandoned children’s toy in the sandbox.

Badly trained, reluctant stove-makers meant bad stoves. In one Haryana village, 67 percent of users said the new chulhas were too high, and over half said the cooking holes were too small for their pots. In Punjab, many families found their fuel consumption increased. In Orissa, chimneys were removed because villagers feared their thatched roofs would catch fire. In one village, a row of houses did burn down. “We couldn’t talk about chulhas in that area for years,” said Sarin.

There was also a more fundamental issue: the programme’s goals were out of sync with what women wanted. While the focus was on making stoves that consumed less wood, women wanted ones that emitted less smoke, or cooked faster.

As always.

As for clean cookstoves, she came to the conclusion that structural problems couldn’t be solved with single-point interventions. “Designing a smokeless biomass chulha,” she said, “is in some ways more complex than designing a nuclear power plant.”

And in India, we note the same issues that plague the sales of “objects to replace dirty stinky kerosene” and other things that are good for you, like oatmeal.

Over the years, Karve found that even better-off rural communities were not persuaded by arguments about health, the environment, or even time saved in cooking. Women’s time and health were not valued; any family with Rs 1,000 to spare would first buy a mobile phone. She came to believe that the “aspirational value” of the stove had to be engaged. Like any successful consumer product, “the price has to be right, the benefits outstanding, and it has to look good,” she said. “It has to be cool.” That kind of hard-sell made Karve, with her “NGO mindset,” uncomfortable.

Is that women’s health is not valued, or that the rupee invested in the mobile phone brings back a greater return than the rupee sunk into a stove or toilet? What are the assumptions we are making on why people choose to make these trade-offs, and how does that bias us so that our own assumptions end up being consistent barriers to new product introductions to this target segment? We have enough years of experience with the stoves and toilets and water purifiers to want to pause and reflect by now.

“Why must the global alliance for a developing-country problem be headquartered in Washington?” he said in an interview in his IIT office, in 2013. Besides, he wasn’t sure that the GACC’s market-driven approach was the correct one. “I’m always worried when people say there’s only one way to solve a complex problem,” he said.

Which brings us full circle to the problems of toilets and the bank.

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.

The 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.

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.

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.

The values gap in banking the unbanked

Back in 2008, after my first deep dive into the African consumer market, on behalf of Samsung, I’d identified something I called the “values gap” as an intangible barrier between the first world’s consumer brands, and the mindset and worldview of the majority market, then referred to (erroneously) as the “Bottom of the Pyramid.”

The value propositions of the producers immersed in mainstream consumer culture – “buy now; pay later”, “new and improved” or “throwaway and replace”- fell far short of the mark when it came to reaching the emerging consumer markets of frontier economies.

Overlooked by marketing communications and the messaging of the advertising industry for generations, these new consumers were not conditioned to respond to these familiar messages. In fact, their buyer behaviour – their “consumption values” if you will – resonated more with almost the exact opposite responses – “minimize risk; maximise returns”, “tried and trusted”, or “repair and reuse”.

These choices were the outcome of their environment of uncertainty, and often, adversity; of inadequate infrastructure and, incomes which tended to be irregular and unpredictable. Without access to consumer credit, their purchasing patterns were driven by their cash flow, and an environment of resource scarcity influenced their consumer behaviour.

This gap in mindset and in values meant that the value proposition of a product or service or even a business model was ignored for the most part, as noise. “Not for the likes of us” as some had said, in India, in South Africa, or in The Philippines. The irony, in some cases, was that even when the product or service was meant specifically for the lower income segment or for those in the cash based informal sector, the way it was advertised overshot the target it was intended to reach.

An example of this is Wizzit, a South African mobile bank designed for the erstwhile Base of the Pyramid (BoP) customer. Unlike traditional banks with their reams of required paperwork, most of which were unavailable to the BoP customer, all you needed to open a Wizzit account was your mobile phone number and your ID. You didn’t even need any money, nor were you penalized if the account was empty or left unused for 6 months.

You would think that everyone would open an account as soon as they’d heard about it? Well, it didn’t happen that way.

Wizzit’s marketing messaging focused on the value proposition of “mobile” as interpreted for the first world or privileged customer – “Now you can bank on the go”

Imagine someone who had never thought that they could qualify for a bank account hearing or reading that value proposition? “Its not for the like of us” and tune it out.

If the messaging had touched upon the value proposition embedded in the product’s design – ALL you need is a phone number and your ID and YOU TOO can have a bank account – their audience would have immediately recognized its relevance to their own context. “Hey, I can qualify for this bank account, let me go find out more”

As simple as that.

When the value proposition of the producers immersed in mainstream consumer culture don’t resonate with the world view and mindset of the customer, there’s a gap that cannot be crossed no matter how hard you try. This values gap manifests itself in the product’s design, its marketing communication, distribution strategy, and sales promotions.

And its not just consumer products or services that fail to bridge the chasm. Wherever you seek to lower barriers to adoption and minimize the dropout rate – promoting a new irrigation technique, for instance, or adoption of formal financial services – bridging this gap is key to success.

People, Pesa & Place: A Multidisciplinary lens for innovation in social & economic development

This original Venn diagram visualizing the sweet spot of innovation success is a familiar one, with as many variations as there are practitioners. One of the most common is the one below, where business, people (or, as often, design) and technology replace the human centered qualities of viable, desirable and feasible.

I’ve used them both for years, particularly the latter, evolving it incrementally in the project for the Dutch govt where we looked at barriers to adoption of new agricultural techniques (technology) introduced in international development programmes.

Yet, I still struggled with this framing when actually considering solutions for programme design and development, or rather, any products and services meant for the poor in the developing world.

Innovation, this Venn Diagram said, happens at the intersection of the attributes of viable, desirable and feasible. A solution that met these criteria would have greater chances of success. This made sense and it still does.

However, when it came to solutions meant for the lower income demographic, particularly where the majority were managing on irregular, often unpredictable, income streams, from such activities as informal trade and subsistence farming, there were additional issues to be considered. These were often critical to the success or failure of the newly introduced innovation.

For instance, inadequate infrastructure is a fact of life. Whether is variability in electricity supply in the urban context or lack of it in the rural. Things we take for granted in the operating environment in which these lenses were first framed – pipes full of running water, stable and reliable power, affordable, clean fuel for cooking, credit cards and bank accounts – are either scarce, inadequate or unreliable for the most part.

Feasibility, thus, takes on an entirely different meaning in this context. Each location or region (place) may have different facilities. Launching a service in Kenya or Tanzania, even for the most rural and economically challenged, means we can think of using mobile money solutions in the business model, while a similar service in India would have to be designed to adapt to the local context. On the other hand, India has an extensive postal system as well home addresses, while this is still a barrier to delivery in many African locations.

Similarly, the viability of a concept, in this context, must look beyond just the conventional definitions of business, business model or marketing. The embedded assumption here is that a marketplace already exists, with all the support services, information flows and distribution networks.

Further, the current version of this framework, does not offer cues to the research and design team to look for, and take into consideration, elements such as cash transactions, cash flow, lack of formal financial instruments, seasonality, and a myriad other underlying reasons that drive preference for payment plans such as pay-as-you-go or credit based on future harvests.

And as we all tend to promote these diagrams as a means to anchor our explorations and discovery process towards identifying the design drivers for innovative solutions, it seemed to me that we needed more obvious cues to signal that these issues not only exist, disparate from what we may be accustomed to, but also need to be clearly and realistically described. There is far too much tacit knowledge and too many critical assumptions embedded in the current process.

This diagram is my prototype of the next generation of the original Venn Diagram, where the attributes of the lenses have been interpreted in the context of the difference in operating environment. While it has emerged from a focus on the erstwhile Bottom or Base of the Pyramid or the poor – both of these terms are anathema to me when referring to people – I believe that it might very well make sense to use it for a wider range of incomes and consumer segments, particularly in the African marketplace.

People, of course, does not change from the original, and desirability – that is, creating something that will resonate with them – permits us to lower as many barriers to adoption and minimize the dropout rate. This element came to fore in the Dutch project where the question posed was related to the sustainability of donor funded programmes to effect positive change after the funding ends.

Place replaces Technology, as a lens through which to consider the feasibility of a solution. Furthermore, the benefit of this is that it opens up the framing of the solution space, away from technology per se, and lets us consider a broader range of interventions. Technological solutions may be only one factor, and not a given, as the current framing assumes from the outset.

Pesa is the word I’ve chosen to designate viability. It means money in more than one language across the developing world and thus implies more than just the marketplace which may or may not exist in the formal sense assumed in the first generation diagram. In the context of new products and services, it can cover all aspect of the business model including revenue generation, payment plans, pricing and timing of introduction. And in the context of programmes, it brings to the fore the need to look at means for economic impact, and, uncover a way to measure this impact. Irregular income streams tend to make it difficult for people to know what their monthly income may be or whether, this week, they’ll have that mythical $1.25 or $2 or $5 to spend today.

I look forward to your feedback on this and will be writing more on the diagram separately pertaining to both innovative products and services for the emerging African consumer market as well as a framework for social design innovation for the economically challenged.

Part 4: The visual documentation of the original research on rural economic behaviour

I have uploaded a PDF synopsis of the fieldwork conducted during the original Prepaid Economy research including approach and methodology. Also documented are the different ways those in the rural economy manage their ‘investments’. These images support the observations documented in Part 2 and my thoughts on rural Indian cow ownership have been fleshed out here.

Also of interest maybe this paper from Purdue’s Agricultural Economics department on The multifunctionality of livestock in rural Kenya whose abstract states:

While many contemporary development programs with regard to Sub-Saharan Africa’s pastoralists promote improved livestock marketing as a way out of poverty, they also fail to take into account the multi-functionality of livestock within these communities, and thus are doomed to failure. While livestock are a main source of income for the pastoralist household, they also serve a purpose as a store of wealth, food source, and status symbol. Furthermore, cattle and smallstock (sheep and goats) fulfill each function to a different degree. Since livestock are so multi-functional, marketing projects could better achieve their objectives if they had a more accurate picture of what motivates household livestock sale decisions.

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

broad_prepaid
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.

Part 2: The Observations made during original research on rural economic behaviour

narrow_prepaid
One can roughly consider the relative income (or wealth) across three regions where observations were conducted on a continuum where the Indian village was the ‘wealthiest’ while the Malawians were living closest to the edge. However, on synthesizing the combined data collected across geographies, patterns of financial behaviour emerged that showed similarities of intention and goals.

For example, non-perishable food grains such as wheat in India or rice in the Philippines were considered a form of wealth that could be stored, acting as savings or insurance. A portion of the harvest would be held back, to be either sold on demand for cash, over the course of the year or as a source of food. Wealth was also stored, as security, for the longer term, in the form of silver ornaments (in India) or as an investment, in the short term, as livestock – pigs, chickens or a milch cow.

Also, people rarely held on to money in the form of cash for any length of time, for the most part due to lack of access to banks and/or the high cost of maintaining an account proportionate to their incomes. Available cash was usually converted to “kind” – either goods or livestock- the choice of which reflected careful prioritization. These tangible purchases then acted as financial tools depending on their “convertibility”-

long-term security (silver);
planned savings (buying building materials on a piecemeal basis over time until a house could be built);
insurance or a “cushion” against shocks (a pig that could be sold to raise cash or eaten as food) and finally,
investments (milk bearing cow, young piglets to rear to maturity, culling high margin ‘fighting cocks’ from chicks).

Cashless transactions, thus, were frequently observed. These behaviours were most complex in India; where a sophisticated mechanism allowed a group of farmers to negotiate the annual retainer for the services of a carpenter in the form of a number of sacks of wheat to be paid during the harvest and the local shops would set a ‘currency’ conversion rate of a kilo of wheat to the rupee to be used for buying sundry provisions. The shop that insisted on cash only transactions priced its goods about 10% cheaper than the rest. Barter was far simpler in Malawi, where a mobile phone could fetch its equivalent price in goats.

Here, it must be noted that very often each household’s resources such as a store of fuel (cow dung in India; firewood elsewhere), chickens or a kitchen garden and assets like milch goats or cows, would be pointed out with pride. For their possession implied an independence from cash money – in almost every interview, people would emphasize how little they needed to purchase in the store or nearest town for their daily needs as they were self sufficient in these demonstrated requirements. Often it would be added that in a city, you had no choice but to purchase everything you needed.

Thus the use of purchased resources were optimized for maximum cost/benefit and their use extended as much as possible before replenishment. For example, if a household had access to cooking gas, they would still use firewood or charcoal for foods that took longer to cook while the more expensive fuel was used for foods that cooked quickly.

In the Philippines, cashless transactions were rarely in the form of goods but tended to involve time or physical labour, primarily as a form of social capital in the community. These complex webs of the rural community’s social networks of trust were obvious in the patterns of sharing and cooperation seen in every country. Groups would invest and save together, for example, the extremely sophisticated cooperative ladies lending circle which had expanded over time to include the services of a local bank in India; or the beekeepers cooperative in Malawi where half the annual profits were saved in a common account while the other half was equally shared.

In addition to the behaviour patterns mentioned above, an external factor was observed to be of great significance in the management of rural household expenses. While it naturally differed in timing and reason from region to region, every household and profession could predict, within reason, the ebb and flow of income based on the seasons of a natural year. In fact, many other observed behaviours were often directly linked to these expected peaks, such as the harvest season, and lows, for example the dry season when fields lay fallow. This pattern of expected ups and downs or seasonality in income flow was seen to affect even those who were not directly involved in agriculture, as the local economies were closely knit and interdependent.

Note: This blog was begun as a way to publicly share my thoughts during fieldwork, so much of the raw data and immediate observations are available under the category “user research” as well as blog posts written during January 2009 to April 2009 as seen in the archives available on the right hand sidebar.

Reflecting on this blog’s genesis after 5 years

I started this blog in late December 2008, in earnest and every day during the first prototype fieldwork for The Prepaid Economy project, one of the iBoP Asia Project’s first batch of Small Grant winners from the ASEAN region. For the first 5 months of 2009, this blog was on the mainpage of my website as I felt my entire enterprise – Emerging Futures Lab – was being entirely supported by this grant.

It was only in April 2009 that I began my next phase in advancing my experiential knowledge of preparing, planning and programming research using design ethnography tools from the field of user centered design (UCD) when I moved to Helsinki, Finland on a project with the then Helsinki School of Economics (HSE) and now a part of Aalto University. This university is the result of an academe-led innovative merger of the independent schools of business, design and engineering (science) which was manifest tangibly in the form of an experimental platform for interdisciplinary innovation research and pedagogy known to all as the Design Factory.

Everything that I came to understand about the patterns at play in the informal rural economies of the developing world was in one way due to conversations and whiteboarding exercises with the wide variety of people accessible to one in the factory. It was only later that it received the formal name of Aalto Design Factory, for most of its first year of existence it was simply “the df” or “df” to all of us early adopters and believers in removal of barriers and silos to effective communication, cooperation and collaboration.

In retrospect, I could have analysed a lot more with the rich deep dive of data I had gathered after my immersion in the field. I had spent 10 days off the www in a rice growing barangay in Iloilo, The Philippines and a similar amount of time but less direct inhome experience in rural Rajasthan, India. On the other hand, in the numerous projects since then, the layers of understanding the balance of flow – the give and take of transactions of value between trusted referrals, juggling the factors of “time” and “money” in order to smoothen the volatility between in the incoming cash and outgoing for daily needs and other expenses – have only deepened in nuance and understanding.

This research path was set upon in late 2008 – just around now, in fact since the deadline for applying for the iBoP/IDRC’s Small Grant was the first week of September. It has been 5 full years on wondering about the inherent conflict between periodic, calender based payment plans, monthly subscriptions and other regular inflows of cash, often paid as a bill of unknown amount due in the near future or as hire purchase payments AND the irregular and sometime unpredictable income streams from a variety of sources relied upon by the vast majority of the world’s households for managing their household finances.

Why the prepaid business model works so well for the informal economy, the base or bottom of the pyramid (BoP) and the seasonal ebbs and flows of the rural economy can all be explained by simply pointing out the fact that this pay as you go system hands over the control over amount to be paid and date it is due to the end user – something that Donald Norman, father of user centered design (UCD) has also pointed out as a factor in user satisfaction with a product and its design.

About 12 months ago I completed fieldwork that took my original primary research on the prepaid economy and its decision making behaviour in order to better inform business models and payment plans and went a few steps further into comparative analysis of experimental results. I was able to compare the sales results of a product line across 4 different variations of payment plans being pilot tested among rural offgrid residents in 2 East Africa Community countries.

This was almost as good as a direct test of the original hypothesis that the greater the span of control over time (duration, frequency, periodicity) and money (amount, cash or kind) a business model offered a member of the informal economy, the better the long term chances of sustaining the enterprise. In fact, I was able to add one more factor to the equational mix which was not considered when I first began this work.

This is what I call “Face time” or combination of social capital, daily proximity and interpersonal relational mix – that which allows you to negotiate on terms of payment such as time and amount with someone to whom you owe this cash or payment and the limits of this negotiation are bounded by the limits of trust between the two of you.

Face time and Flexibility were the two main attributes of the 4 business models being pilot tested that seemed to capture the range of responses, performance and feedback, yet allow us to distinguish what was different in each model, thus what might have influenced a change.

None of this research was quantitative but completely qualitative groundclearing work to discover insights that would inform more relevant and appropriate business models and other market entry tactics to maximize, within constraints, the adoption rate of innovation (a new venture, a service or business model, an invention) among the population without regular paychecks and easy access to consumer credit. This work has also validated my hypothesis that the tools from user centered design could be used to advantage to grasp and make sense of more complex and wicked problems than could be understood by simple numbers alone. The methodology being part of product development process also allows for company’s to reach a faster path to market with an innovative product or service or revenue stream in entirety.

The original fieldwork in agriculture dependent rural economies in ASEAN and South Asia and the early work in Africa, all looked at the bulk of such a population, the lower income segments at the BoP. But now with the rapidly emerging global middle classes i.e. those displaying regular patterns of consumption, this knowledge gained can also help assess the worldview and consumer mindset of the emerging consumer markets of sub Saharan Africa.

There is so much yet to be learnt and every single actor is breaking new ground, whether its Econet Wireless and MKopa with their airtime or mobile money pay as you go solar lights and charging or whether its every social enterprise trying to sell a cookstove, a lantern or a water pump to the subsistence farmer. We need to document every instance of success so that patterns of what worked might be of help to better refine and improve our models for market creation at the very end of the global value chain.

Dangerously obsolete: questioning the use of the all purpose label “The BoP”

Siim Esko wrote a short piece on his blog that inspired me to write out these thoughts. Since much of his work focused on the BoP in India and I’ve recent East African experience with the demographic, 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 posts on NextBillion.net when he wrote:

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.

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?

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