Posts Tagged ‘bottom of the pyramid’

Financial Behaviour Patterns Observed Among Households in Rural Informal Economy in Asia

This is the original working paper of the research conducted on rural household financial management, in developing country conditions, pioneering the use of methods from human centered design for discovery, during Nov 2008 to March 2009, aka the Prepaid Economy Project. It was peer reviewed by Brett Hudson Matthews, and I have incorporated his comments into the PDF.

This research study was carried out with the aid of a grant from the iBoP Asia Project (http://www.ibop-asia.net), a partnership between the Ateneo School of Government and Canada’s International Development Research Centre (www.idrc.ca)

The abstract:


The challenge faced by Bottom of the Pyramid (BoP) ventures has been the lack of knowledge about their intended target audience from the point of view of business development whereas decades of consumer research and insights are available for conventional markets. What little is known about the BoP’s consumer behaviour, purchasing patterns and decision making tends to assume that there are no primary differences between mainstream consumers and the BoP except for the amount of their income – pegged most often between $2 to $5 a day.

In practice, the great majority at the BoP manage on incomes earned from a variety of sources rather than a predictable salary from a regular job and have little or no access to conventional financial tools such as credit cards, bank accounts, loans, mortgages. This is one of the biggest differentiators in the challenge of value creation faced by BoP ventures, particularly among rural populations (over 60% of the global BoP population lives in rural areas).

Exploratory research was conducted in the field among rural Indian and rural Filipino populations in order to understand how those on irregular incomes managed their household expenses. Empirical data collected by observations, interviews and extended immersion led us to identify patterns of behaviour among the rural BoP in their management of income and expenditure, ‘cash flow’ and ‘working capital’ and the significance of social capital and community networks as financial tools. Practices documented include ‘conversion to goods’, ‘stored wealth’, ‘cashless transactions’, and reliance on multiple sources of income that mature over different times.

This paper will share our observations from the field; identify some challenges these behaviours create for business and also explore some opportunities for value creation by seeking to articulate the elements that BoP ventures must address if they are to do business profitably with the rural ‘poor’ based on their own existing patterns of financial habits and norms.


The Conclusion:

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:

  • 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.
  • 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.
  • 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.

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.

What is The Prepaid Economy anyway?

http://www.theprepaideconomy.com

Young Kenyan digital currency blogger Michael Kimani has been asking questions on the future of the “Prepaid” economy, given the rapidly evolving financial landscape of his home country. While Twitter might be good enough for a rapid give and take, it’s constrained as a platform for any meaningful dialogue requiring more than 140 characters at a time. This post is an attempt to synthesize my own thinking about The Prepaid Economy – a project name that evolved beyond its original research mandate of “Why does the prepaid business model work so well for the low income demographic?” – and what I’ve learned since 2008.

 

Background and origins of the concept


Back in 2006-7, when the rapid adoption of mobile phones across the developing world was making headlines (and profits for emerging market pioneers Nokia), I used to live in the pre-iPhone United States. There was something very different happening in the GSM world of SIM cards and SMS. These millions of new phone owners weren’t signing up for unlimited monthly plans or subscriber billing (i.e. postpaid) paying extra to send a text message. Instead, they were purchasing airtime blocks in advance, to be used for as long as it lasted.

It seemed as though it was the prepaid business model propelling the extremely rapid adoption of mobile handset use lower and lower down the income stream.

Back in 2008, thanks to CK Prahalad’s groundbreaking work, the concept of the Bottom of the Pyramid aka the BoP was trending. We were going to do business with the poor, and together, sustainable social enterprises would alleviate poverty through profitable business models, offering myriads of goods and services to the vast majority of the world’s population. But very quickly, a challenge was observed, and I framed it so:

The challenge posed by current business models and payment plans is not the amount that must be paid but the inherent conflict between the regularity of the payments, usually on fixed schedules, against the unpredictability of funds available and irregularity of cash flow.

Yet this very same demographic had embraced the prepaid business model enthusiastically. In South Africa, you could purchase electricity and in Malawi, watch satellite TV. I summarized my findings thus:

What made prepaid work so well for those who managed their household finances on irregular and unpredictable income streams? 

And what could we learn from this in order to inspire business models and payment plans for the majority who managed without regular paychecks and access to credit cards and other financial tools?

 

There is no “Bottom of the Pyramid” market

Back then I conflated the prepaid business model and its adoption by those on irregular income streams (both rural and urban) with the Base of the Pyramid. I assumed that the informal economy and the Bottom of the Pyramid’s “survival markets” were one and the same. It took a series of projects in the field, undertaken from summer 2010 through to the end of 2012 that opened my eyes to the realization that the cash based, informal markets operated on their own rhythm and patterns.

And, increasingly, as the insights from my own observations and interviews demonstrated, I realized that there was not only no such thing as “the BoP” – the concept itself often hampered the success of enterprises seeking to serve this intended audience. The consumer mindset and buyer behaviour that I’d observed (and erroneously labeled as “bottom of the pyramid”) was an outcome of a variety of factors, not just income level or purchasing power.

Then GSMA’s 2013 Mobile Economy report showed the global preference for the prepaid business model, not just in Africa. There was a ‘prepaid economy’ that seemed to be more related to the informal economy rather than poverty per se. I took a look from various angles.

At the time, I was lucky enough to be involved in a project that let me observe and compare the performance of 4 pilot programs meant to test payment plan and business model variations in two different East African countries for a client’s current and future product range. It led me conclude that what seemed to work for the majority of the customers was linked to the degree of flexibility inherent in the design.

 

Flexibility is the underlying principle of the prepaid economy

The vast majority of transactions across the continent are still in cash money (although this may change, given current innovations) and the informal sector dominates, especially in retail, in most countries in sub Saharan Africa. Bank accounts and plastic are not yet the norm.

Your purchasing patterns are linked to the amount of cash you have in hand, at any given time.

 

Prepaid puts you in control of your spending

This combination of factors drives the preference for payment plans that put the greatest amount of control in the hands of the end users. The prepaid model’s attractiveness has less to do with paying in advance and more to do with the span of control over when you spend, how much you spend, how often you spend. There is no mystery bill at the end of the month, more so when you have no idea how much you’re likely to make this month or week or day.

 

Will mobile money change this behaviour? 

On one hand, the fact that a mobile money account allows you to keep some float implies that you are now able to consider purchases unrelated to the amount of cash money you have in your pocket. Michael points out various forms of consumer credit being made available and how that is already changing spending patterns. Once an ecosystem of financial services evolve around the core mobile money transfer (payment systems), credit ratings would be available spurring further debt fueled consumption. Would this encourage people to move to postpaid billing? The data from across the world seems to imply not.

What are your thoughts?

India recognizes the economic contribution of street vendors

Photo credit: Meena Kadri

Photo credit: Meena Kadri

What Indian economic phenomenon is at once marginal, even illegal, and enormously independent and entrepreneurial? That would be the street vendor, the small capitalist of the poor, and reservoir of off-the-books penalties that grease the machine of every municipal authority and police station in urban India.

There are an estimated 10 million street vendors (another term is the more pejorative “hawkers”) in the cities of India, functioning mostly in breach of a host of urban laws governing licensing, selling and zoning — and challenging bourgeois ideas of what a metropolis should look like. Street vendors have long battled to be recognized as a professional guild, not a shadowy underclass. Earlier this month, after more than a decade of agitation, the National Association of Street Vendors won a significant victory when the Lok Sabha, the lower house of parliament, recognized the rights of street vendors by passing the Street Vendors Bill, 2012.

The measure acknowledges that street vending is an economic reality that works to the advantage of both sellers and consumers, providing productive employment for many and cheap goods and services for the urban poor. The law contains several significant provisions designed to bring street vendors into far less ambiguous legal and economic terrain, and attempts to break down the high wall that currently divides them from city municipal corporations and resident associations.
[…]
When the big picture on India’s economy is taken into account, it is pragmatic, as well as just, to not expose street vendors to the levels of harassment they currently face, and to bring them into the tax system and the ranks of the urban citizenry. After all, they are the stars of India’s vast “informal economy” — those without contracts, social security or employer benefits — inhabited by more than 80 percent of the country’s 450 million workforce.

It is beyond the capacity of any government, or of Indian business, to integrate into the formal sector such a large pool of what classical economics would call “reserve labor” — a group that is growing at a rate of 1 million people a month. Street vendors, by contrast, can claim to be a class of 10 million workers who generate employment for themselves and value for the poor around them. An essential, if underacknowledged, part of the story of Indian capitalism, street vendors have long deserved a new deal from the Indian state, and at long last they’ve got one.

Source: Bloomberg

Affordability is not the same as a lower price point

Third party informal kerosene sales point deep interior of rural Eastern Kenya. Photo credit: Niti Bhan

Absolute price of a product has always been assumed to be the means to successfully reach the BoP customer and the concept of affordable is often a synonym for cheaper. While price bands do matter when targeting this market, price/performance ratios tend to be more important to those who seek the best value for their hard earned and limited cash and affordability is proportional to the flexibility of the payment plan than the lumpsum amount. This is evidenced by the findings from the household energy consumption behaviour research conducted among representatives of the claimed target audience (the Base of the Pyramid living without electricity) which captured fuel usage and purchasing patterns based on income and cash flow.

The vast majority of the rural BoP who tend to be subsistence farmers managing on irregular income streams from a variety of sources have seasonal peaks and lows in their cash flow. Only on occasion during the course of the natural year are lumpsums of cash available for direct purchase. Documented behaviour includes storing household ‘wealth’ in the form of livestock, to be sold on demand for emergencies or at predetermined times of need such as for school fees at the beginning of the year.

Harvests are a seasonal time of plenty and shopkeepers in each region are aware of the major buying season for consumer durables and other high ticket items. At other times, purchases are made by the way of a variety of ‘informal microfinance’ tools such as shopkeepers offering layaway plans within their local community, permitting customers to pay off the price of the desired product over time and offering flexibility of duration, periodicity, frequency and amount of each payment per the customer’s convenience.  The risks are only when the customer is a relative stranger to the area.

This purchasing pattern, based as it is on an irregular cash flow of varying but small amounts, is why kerosene as a choice of fuel for lighting is so embedded in rural BoP markets. One can purchase it on demand, by cash amount (as little as 5 eurocents) or quantity (250 ml or even less) thus its purchase and use can be determined by the cash available on hand to the customer. It is the requirement of a lumpsum amount of cash that more often acts as a barrier to purchase than the absolute price of the product.

Thus, affordability of a product or service, in the mind of the BoP customer, has more to do with the flexibility of the payment plans than the price range. An example of this is the widespread prevalence of prepaid or pay as you go payment plans for mobile phone airtime that has made mobile phone usage affordable in the informal economy where few have the regular paychecks or consumer credit facilities to consider post paid subscriptions that deliver a monthly bill for an unknown amount.

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.

The Informal Economy Symposium, Barcelona on October 12th 2012

Our aim with this symposium is to explore the global scope, innovations and potential futures of the informal economy.

Opening Keynote will be John Keith Hart, who coined the term “informal economy” and the day long symposium on the 12th of October will be closed by John Thackara.  There will be three panel discussions, as follows:

PANEL 1: SCOPE, MEANING AND TENSIONS IN THE INFORMAL ECONOMY

This panel will explore the scope, tensions and influences of the informal economy. It will set the stage, provide case studies, and present new themes that make clear why the informal economy is a key topic for business and society today. It will address critical questions for the symposium: What are historical foundations, contemporary developments, conception and misconceptions of the informal economy? What parts are institutionalised or marginalised and which are not?  What does regulation look like?  How is the informal economy similar or different in emerging vs. developed markets?  What kinds of goods and services does it include?  Are there good and bad informal economies? How are the informal and formal linked? How do labor, goods and services move within and between them? Why does contemporary business need to understand the informal economy?

PANEL 2: THE FUTURE OF MONEY AND THE INFORMAL ECONOMY

This panel will explore the use of money and other exchanges in the informal economy. This panel builds on the previous, starting with the premise that the informal economy is a place to create new value for business and society. It will discuss the relationship between regulated finance and informal exchanges, focusing on, among other things, mobile money. Some key questions to be addressed include: How is the use, exchange and idea of money similar or different in formal vs. informal economies? How do digital technologies encourage and expand informal practices and exchanges?  What are the ways to establish financial links and other bridges between formal businesses and informal practices? What are specific financial needs in various informal economies? What are the challenges faced by companies operating in financial services and other businesses when addressing the context and practices of the informal economy?
panelists: Ben Lyon, Ignacio Mas, Niti Bhan  moderator: Rich Radka

PANEL 3: INNOVATION AND OPPORTUNITIES IN THE INFORMAL ECONOMY

This panel will look at innovation within the informal economy. Rather than approach informal economic practices as make-do strategies of people in the margins, panelists explore the potential for the lean and agile practices of the informal economy to adapt to contemporary global shifts. Some key questions to be addressed include: Can informal economic practices be indicators of future economic activity? What can these practices teach us about our own innovation efforts and modes of doing business?  What does the persistence of informal economies mean for the future of business? What challenges does it present? What are some ways companies can act on opportunities?

You can register for the symposium here, or follow the blog and twitter hashtag #informaleconomy.

Europe could stop fighting it and see if informal economy has lessons to teach

Wastepickers in Athens, Greece 2012

Scanning recent writing on the informal economic activity in the wake of the Great Global Recession brings to light the ongoing struggle to deal with it.  Is it good or is it bad? Will it help or is it hindering? Don’t forget the taxes being left unpaid by the economically challenged citizens trying to feed their children. The contradictory articles seem to imply that its perfectly alright for the unemployed in the third world to seek ways and means to earn a dollar but its evil and unthinkable for the same response to occur in the first.

Hoist by their own petard is the cliche that comes to mind, yet it seems as though the conflict is more due to the long established demonization of this natural behaviour, one that has documented benefits such as resilience and cooperation, thus few attempts are being made to bridge the chasm between the formal and informal or pause to understand if there may be some value for the future.

John Sullivan asks What Does the Informal Sector Mean for Global Economic Growth? where he offers insights from the situation in North Africa:

Most of the countries involved in the Arab Spring do not yet have the resources available to create the jobs that they promised. They lack the money to simply build new factories, and government sector employment is no longer the solution it was during the strongman days. Governments must mobilize the informal sector and give them a voice. […] The street vendors of Cairo have already spoken out by partnering with the Federation of Economic Development Associations to develop a draft law and begin working toward its implementation.

But from Europe comes writing whose word choices imply that the neighbourhood kid out to make some pocket money is as much of a tax dodging criminal as more shadowy members of society:

This informal economy is spreading almost to everywhere in the world. It does not only affect developing countries but it is also part of the everyday life of high-income countries, such as the EU member states. Entrepreneurs operate in the unofficial economy because they want to get free from the taxes and regulations that make official transactions unprofitable or unfeasible. Thus, the farmer who sets up a roadside stall selling produce is a participant, so is a construction company that does not report its income to the government in order to avoid meeting legal standards such as minimum wage. Parts of this informal economy also include the children who sell homemade lemonade outside their houses in summer, or their private French classes paid for by adults under the table.

Its a terrible virus, apparently, and its infecting our kids. In Greece – hardest hit of the eurozone nations – Prof Friedrich Schneider, who has researched the Shadow Economy, as he calls it, shares his point of view:

Schneider said that the greater the difference between gross and net income of citizens the more likely it is for the informal economy to deepen.  High social security deductions and taxes predispose individuals to seek ways of avoiding these costs. “No one is hiding taxes in order to save money. All who evade taxes want to gain something in the short term.”

A major prerequisite for the development of informal economy is the complex and complicated legal system. European countries are hyper-regulated by default and the more severe cases are on the periphery of the euro area and in the countries of the Eastern bloc. Corruption there is particularly strong. Schneider explained that the system should be simplified and facilitated.

The quality of services in the public sector can also affect the deepening or reduction of the informal economy. The more severe the procedures in the public sector, the greater the risk of avoiding the implementation of established procedures.

The European version is all about the formal structures, laws and regulations, taxes and services – sounds like a bureaucracy, while the very nature of the informal is the flexible and adaptable. Is it any wonder that its sprouting up in response to the perceived collapse of the global formal economy, as we saw in Spain last week?

I wrote the following 3 years ago, after reviewing the writing on the informal economy, then focusing primarily on the lower income demographic in the developing world:

Because as long as you lump together the activities of the people like selling hotdogs door to door (although buying it from a wholesaler informally), distilling wine for the village, keeping small shops within walking distance when towns are far away or even urban services ranging from garbage disposal to dishwashing to repairing shoes – with the “firms that are hiding from formal regulations and don’t want to pay taxes etc” any formal programs or activities, whether from the social and economic development angle or the corporate profitability angle are going to act at cross purposes.

Martha Alter Chen writes in “Rethinking the Informal Economy” that India stands out as an example where the informal economy has been accepted, acknowledged and now slowly being addressed by government policy. Not in order to dissolve it or remove it but to work with it simply because the incomes of far too many people are dependent on it and no formal systems can be put into place to take care of each and every corner of the country nor her billion citizens.

One can then take what seems to be working, called “creative, resilient and efficient” by Hart, quoted by Chen, and enable systems that support it further, fostering development and increasing success rates at the touchpoints where the informal and formal meet.

Perhaps there is a lesson here about flexibility and adaptability for formal, structured Europe and her economy, hurting as it is right now? After all, as the Jamaica Gleaner puts it, people have to spend all that money somewhere:

Everton McFarlane, deputy director general, said informal activity is being reflected in the formal economy via consumption and investment.

“If there was this informal sector that somehow was not being captured, then where are these people spending their money?” asked McFarlane.

“Are they not spending their money on agricultural goods? Would you not see that in the GCT sales? Are they not spending on electricity consumption? Are they not spending on housing?

In other words, the intersection of the formal and informal economy is not an island by itself that is divorced from the formal sector.  Whatever is taking place, people must consume.

5 lessons from design planning for the bottom of the pyramid

1. Consider the design of the entire ecosystem in a holistic manner rather than the product alone

The majority of industrial designers in studios and corporate departments around the world are tasked with the design of a specific product or application, isolated contextually, for the most part, from the larger ecosystem of the market primarily due to their experience of and immersion in the existing sophisticated marketing infrastructure. They have the luxury of access to information flows on packaging, distribution, supply chains and retail outlets as well as competing designs and this lets them focus on refining a particular product, package or UI.

This situation is almost reversed when it comes to the BoP consumer and the BoP markets. The paucity of information does not only hamper the BoP themselves but also those who seek to serve them. Furthermore, much of the market infrastructure is non existent or of a vastly different quality than that experienced in richer markets. Factors such as income streams that are irregular and lack of financial tools such as consumer credit available for outright purchase are issues rarely considered during the design process but can and do influence the final outcome.

Products designed in isolation may win awards but may never quite impact the quality of life in the manner they were designed to do so if their business model, pricing or payment plans, much less distribution or usage do not reflect the conditions of the operating environment.

2. Price as a rigorous design constraint, not simply a data point or the sole criteria for reverse engineering

The issue of pricing then, becomes mission critical in the design brief but not as a reason to compromise the design. That is, if the traditional MNC approach is top down, stripping features and degrading quality and lifespan achieve no purpose except risking the brand’s reputation. Instead, maximizing the constraints while minimizing utilized resources can be seen as a way to innovate for this demanding consumer segment by providing value through elegant design solutions that appeal yet offer a return on their investment.

3. Being aware of and questioning assumptions made

Whether its as basic as availability of electricity and running water or as subtle as the design interpretation of such underlying value propositions as “convenience”, the assumptions made about consumer buying behaviour, purchasing patterns and decision making or choice of brand or product cannot go undebated or unquestioned. A challenging environment, conditions of uncertainty or scarcity and the hardships of daily life managed on irregular incomes all serve to influence the value system and mindset of the target audience in ways we are not always able to immediately discern if we don’t flag our implicit assumptions as a potential stumbling point.


4. Nuances of local culture and society matter

These markets are not the already saturated mature ones of the “global village” with a blase attitude towards such throwaway things as the use of religious iconography on lunchboxes and t-shirts, still preferring to stand on their dignity and self respect over the sophisticated acceptance of perceived disrespect. Thus, nuances observed during user research that may be overlooked when considering different regions within the developed world may in fact be far more important in the context of BoP consumer markets and influence the user acceptance and adoption rate of the product or service.

Choice of colours, features, tone and style of communication are some of the design elements so affected. Choosing to tread as delicately as a newcomer never hurts. Respect matters.


5. Think of them as your most demanding customer, not the helpless poor in need

Why have I been getting so grumpy about well meaning social enterprise?

Yesterday’s post deconstructing The Economist article on the promise of solar lighting for the millions of poor living without electricity made me question my strongly worded response. Another recent one is from well meaning Guardian, whose first of the 15 innovations they claim will change lives in Africa is the now forgotten Hippo Roller. Even the designer behind that project prefers not to talk about it, but trust the media to dig it up in order to flesh out their content. Theirs is the third Africa specific section to be launched in the recent weeks and yes, there’s a dearth of information for the armchair journalist.

Why do articles like this make me cranky?

Because they do more harm than they help. By inaccurately portraying the market and its opportunities – whether its the lower income demographic in Africa or India – they inspire well meaning but fundamentally unsound business plans and social entrepreneurs to sink valuable time and effort into ineffectual social goodness. It is irresponsible journalism.

Writing such slapdash articles only serve to create a rosy view, blurring into fuzzy altruistic goodness, which overlooks the hardcore realities of establishing profitable business enterprises in these challenging markets in order to serve the most demanding customers successfully. They leave you with the impression that all you have to do is ensure your product reaches every supermarket shelf and it’ll simply sell like hotcakes.

If it were still only the beginning of the “fortune seeking at the bottom of the pyramid” era, when companies and startups had to be encouraged to look at this market, then this overblown hype and hoopla might be understandable. Today, some half a decade or more later, it simply serves to underline the ignorant arrogance with which these populations are viewed.