Posts Tagged ‘consumer demand’

Lessons for development from the demand driven investment strategies of the informal sector

This shopkeeper in Laare, Kenya provided me with deep insight on how investments in expensive inventory are managed in a heavily cash based economy. He runs a consumer electronics store stocking everything from solar panels, music systems, spare parts and batteries, through to mobile phones and accessories.

His purchasing decisions are based on visible consumer demand, he said, preferring to stock what he calls “fast moving items” that sell and keep the cash flowing than to risk tying up capital in something that might not sell. For instance, he pointed to a dusty 5W solar panel, this has been sitting here for a year since most customers in the area prefer buying 20W or larger.

In this context, “fast moving items” are not the same as the marketing term “Fast Moving Consumer Goods” or FMCG which refers to over the counter perishables and consumables like tea, shampoo, biscuits or soap. Instead, they refer to the product range that sells in the local market, and as my visits to electronics stores in different parts of Kenya back in 2012 quickly showed, each market had different price points and products which tended to be “fast moving”.

In a more economically challenged region, it was black and white 14″ TV sets, smaller solar panels and no name Chinese mobile phones, while in the wealthier region around Kilgoris as we see in the previous post, its flat screen Sony Bravias and very large solar panels that sell.

Local demand drives decisions, and thus business growth strategies and investments. Can this insight not also inform development strategies?

The Economist has just published this article on how fish farms are experiencing a boom in response to the growing demand for food from the big city:

The task of feeding that huge population has not been accomplished by the government, by charities or by foreign agricultural investors. It is the work of an army of ordinary Bangladeshis with an eye for making money. Mr Belton’s research shows that the number of fish-feed dealers in the main aquaculture areas more than doubled between 2004 and 2014. So did the number of feed mills and fish hatcheries. Mr Belton has found similar trends in Myanmar, where the fish farms are often larger than in Bangladesh, and in India.

As well as transforming landscapes in a large radius around Dhaka, the fish boom has changed many people’s lives. Aquaculture requires about twice as much labour per acre as rice farming, and the demand is year-round. Many labourers who used to be paid by the day are now hired for months at a time. Seasonal hunger, which is a feature of life in some rice-farming regions of Bangladesh, is rarer in the watery districts. People are eating more protein. Mohammad Shafiqul Islam, a feed dealer, points to another advantage. Because food is now so cheap in the cities, migrant workers are able to send more money back to their families in the villages.

I believe this element of assessing local or regionally accessible demand for a product or commodity before investment is often missing even from the private sector influenced “making markets work” philosophy now prevalent in development strategies. Too often, the “market” is framed as an international one, and an e-commerce platform devised as the bridging solution. Local intermediaries are demonized as “brokers out to squeeze profits at the farm gate” without once considering their role as infomediaries of supply and demand. The very information networks that provide the shopkeeper with guidance on what would sell and what to order are often erased and replaced with an app. Little or no attention is paid to existing consumer demand nor any attempt to link to the existing ecosystem. The informal becomes invisible.

How many of these pilots fail to sustain themselves once the project’s funding cycle ends?

Meeting the challenge of consumer demand

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Karantina Market, Kenya {photo credit: Niti Bhan}

Understanding consumer demand is an inherent part of the informal trader’s expertise. In the cash economy, unsold inventory is sunk cost. The balance between risk and return is a constant juggling, interwoven with the need for incoming cash flow to meet outgoing expenses.

This tabletop – informal retail – caught my attention for its unexpected juxtaposition of products for sale. Day old chicks which you would purchase to raise for eggs or meat and toilet paper. Mama had X amount of surplus cash available to invest in inventory, and one guesses that she’s not a regular market woman or trader so much as someone who saw an opportunity one market day to make some extra cash.

Neither product is a risk, yet in a sense they are both discretionary purchases the customers milling around the market might make if they had some surplus cash of their own. This is an example of opportunity in the margins, for both buyer and seller.

What observations can you add to this?

Grassroots innovators and the “build-test-learn” loop


Afrigadgeteers exemplify the customer centric principles of such high tech processes as the Lean Startup (r) method, or so it emerged from an insightful conversation with my Tallinn based friend Siim Esko recently, on Skype of course.

He made the connection between the need to experiment and test prototypes for market viability – rapidly and cheaply and the ‘product development’ habits of makers and creators who innovate under conditions of scarce resources such as those covered in Afrigadget, REculture or Makeshift magazine.

His insight struck me like a ton of bricks, if I may say so with little exaggeration and I’m sharing it here as food for further observations and thought. I already have a trip planned into rural Western Kenya on Monday, so now that my eyes have been opened, I’d rather ponder this further and write again in greater depth when I have some evidence to support this hypothesis. In the meantime, what do you all think?