Posts Tagged ‘emerging markets’

Goal Directed Research for Innovation Planning in Emerging Markets

What differentiates the research conducted to inform the design of an innovative product or service, in an untapped market? Michael Kimani asked me this question during a recent Skype conversation and I promised to write out the answer.

  • Goal directed research for innovation planning seeks to discover opportunities for new products and services for a particular market or population segment.
  • This means the scope must be broad enough to gather evidence of a market opportunity, customer needs and willingness to pay, as well as identify the constraints and barriers in both the environment (such as infrastructure) and the target population.
  • Looking for evidence of a viable value proposition and/or a business model is what distinguishes this type of early stage research from traditional product and service design research whose goals are to discover the optimal design solution for a particular task and target audience.
  • Unlike academic research, there may not always be a hypothesis to be validated at inception, nor the outcome pure knowledge.
  • Instead, there is a goal driving the design of the research, whether broad focused and exploratory, or narrow focused and specific.
  • This initiating goal can be set at three levels:
    • Sector specific
      • An example of sector specific goal setting would be to explore the potential for financial products and services for a bank. Alternately, this can be framed as identifying opportunities for innovation in financial services.
    • Demographic specific
      • A startup with a product or service under development may want to discover which segments of the target population should be prioritized for their product testing and launch. Alternately, a consumer products manufacturer might want to explore wholly new markets and the customization required for their product range.
    • Outcome specific
      • A popular outcome specific research framing that is sector and population agnostic is “What are the barriers to adoption for our intended innovation among this target audience?” We have conducted such research for a wide range of objectives, from the introduction of sustainable agricultural techniques among farmers in rural East Africa, to insights driving product development for a fintech startup.

The challenge in untapped markets is a dearth of legacy data and consumer insights, hence the need for more discovery driven exploration upfront prior to drilling down to specific research focus areas. In the forthcoming post, I will share our customization of Vijay Kumar’s innovation planning methodology developed over the past few years in situ during projects in East Africa. Note that subsequent research to inform the specific concept design of a product or service will have more of an indepth focus on the target demographic and their particular context.

Introducing The Global Prepaid Economy

This week, that venerable newspaper The Financial Times, published an original piece of writing on the World Economic Forum’s Agenda blog. Its not a reprint from their own publication. It proposes the end of “Emerging Markets” (EM) as we know them:

Now, commentators say, it is the world’s mental map that is in dire need of an overhaul, particularly when it comes to the practice of categorising countries as “emerging” or “developed” markets.

The current economic hierarchy, which places emerging nations at the periphery and developed markets at the core of world affairs, no longer accurately describes a world in which EM countries contribute a bigger share to global gross domestic product than their developed counterparts, when measured by purchasing power parity. Nor does the capacious category, which lumps together countries of such diverse economic strengths as China and the Czech Republic, serve to illuminate crucially different realities between these nations.

“The EM term has outgrown its usefulness,” says Michael Power, strategist at Investec, a fund management company. “The term today embraces big and small, developed and under-developed, industrialised and agrarian, manufacturing and commodity-based, rich and poor, deficit runners and surplus runners, and I could go on,” he adds. At issue are not merely the niceties of symmetry and order.

As someone who has been looking at emerging markets, one way or another, for the past 10 years, both in my writing as well as in my work, this comes as a welcome relief. These markets can’t still be emerging, I thought, when I was in New Delhi at the beginning of June this year.

Yet, in some ways, we need the conceptual means to capture their dynamic potential, as they’re still in motion. As the article concludes:

These contradictions threaten to consign the term emerging markets to the dustbin. But if it follows the likes of “third world” into virtual extinction, its passage will raise the question of what, if anything, should replace it.

prepaid-globalgsma-2011-2013

The Global Prepaid Economy. (Data: GSMA Intelligence)

In November 1996, Vodacom South Africa was the first network in the world to introduce prepaid airtime on an Intelligent Network platform, which made it possible to debit customers’ accounts while they were speaking. Two years later, they went on to win the Global Mobile Award for the “Best GSM Service” for the VodaGo prepay system. Less than twenty years later, prepaid airtime is the dominant business model across the entire planet.

And, interestingly, if you look at the map above, the economies where the prepaid business model dominates are more or less those which were formerly known as emerging markets, frontier markets, developing countries and/or the majority of the erstwhile third world.

2014 prepaid data gsmaAcross emerging markets and developing countries, the preference for prepaid mobile services cuts across income range, socio-economic class or type of employment. Choosing to pay as you use seems to have little or nothing to do with regular paychecks, bank accounts, credit cards or age.  So vast is it that one can consider it an economic characteristic in its own right.

The global Prepaid Economy.

What do all the regions where the prepaid business model dominates have in common?

  • Cash intensive
  • Informal sector employs more than the formal
  • Still developing
  • More volatile
  • Higher uncertainty
  • Less social safety nets
  • Faster growth

What does the prepaid business model do for the customer?

It empowers them. Control over how much to spend (the amount), and its timing (the frequency and periodicity of purchases) is in the hands of the end user, the mobile subscriber. There’s no bill at the end of the month, to be paid by a deadline, for an as yet unknown amount. That is, there are no surprises.

Why does this matter?

In cash intensive operating environments, where expenses must be managed within the constraints of cash available on hand, the prepaid model offers manageable access to voice, text and data. Where the informal sector might be the source of employment for a greater majority of the population, uncertainty is a defining characteristic as incomes may be irregular, unpredictable and/or seasonal. That is, there is a greater degree of volatility to be managed. And, where there are fewer social safety nets to rely on, surprises in the form of a bill at the end of the month might make the difference between going hungry to bed or putting meat on the table.

In this series of articles, I’ll be taking a look at the nature of the prepaid economy and characteristics common across many geographies. Next part will look at the relationship between Time and Money.

Being middle class in India

Middle_class__What_2237591a

Are differences within the middle class, in income, education, and cultural and social capital, so wide as to render moot any ideological or behavioural coherence to this group?

Over the next two months, The Hindu will release the findings of a new survey on the aspirations and anxieties of ordinary Indians. Here’s a snippet accompanying this infographic:

Two things are striking about this finding: the contrast between respondents’ self-perception and objective reality and differences on the rural-urban axis (Figure 1). We disaggregated our sample into five income categories, based on self-reported annual household income. While any such classification is admittedly blunt, the results are nonetheless illustrative. Whereas respondents are more likely to self-identify as middle class as household income increases, a sizeable proportion of respondents across all income groups believe they are part of the Indian middle class. 47 per cent of lower middle-income respondents self-identified as “middle class”, while half of middle income and 54 per cent of upper middle-income respondents did so. Expectedly this declined to 48 per cent for those in the highest income bracket. Most surprising 45 per cent of those who were in the lowest income bracket self-identify as middle class, barely 3 per cent less than the richest income group.

Even within the same income categories, however, there are marked differences between rural and urban India.

I wonder what the implications are of these results which surprised the researchers, and also, whether this challenge of applying metrics which segment not matching up with actual people’s self image is one that we’ll also find in the African context.

 

A tale of two Africas

It was the best of times, it was the worst of times.

By the middle of the year 2013, the continent of Africa finally put her foot down and said to the world that enough is enough, “We’re taking over the reins of our future and giving voice to our own story.”

Ghana and Kenya took control of their elections, so much so that Kenyans on Twitter (#KOT) monitored international media online, going as far as to use their collective voice to force reporters to validate the veracity of their stories (#someonetellCNN).

Ugandan born Ashish J Thakkar, the entrepreneurial businessman behind The Mara Group and The Mara Foundation recently made headlines for telling Donald Trump off  on his ignorant comments publicly on Twitter.

In the meantime, Zambian economist Dambisa Moyo dukes it out with billionaire philanthropist Bill Gates, exchanging ad hominems online while Bono gets asked why he thinks he should speak for the “poor African” among the world’s most powerful people. 

This is just the tip of the iceberg of pushback getting louder as globalization and connectivity finally begin to level out that flat playing field so beloved of Bangaloreans and Thomas Friedman.

This is the tale of two Africas.

One, belongs to the NGOs and the philanthropic foundations of charity and goodwill, seeking to uplift the downtrodden even while giving voice on their behalf, relegating them to pitiful images of hunger and misery.

The other, the other belongs to the African herself, grabbing the mic and speaking out loud and strong on what is really needed to be changed on the global platform, be it the lost revenues from taxes as pointed out by Kofi Annan or simply tweeting en masse in order to be heard.

The democratization of technology and the rise of social networks have done far more to empower the everyday African than they themselves currently realize. From a passive acceptance or even, ignorance, of the media’s narratives around Africa’s poverty, hopelessness, disease and backwardness, the instant access granted by the handheld computer in every pocket has also opened their eyes to their image and reputation on the global stage.

Just yesterday, I was requested not to use the term “sub Sahara” by some folks on Twitter, offering up citations and links to articles that pointed out the subtly racist nature of the phrase, whereas I’d been completely ignorant of the baggage and only considered its geography and common usage. But today I find myself conscious in my choice of words and I doubt that I would ever use these words again. All because of a few 140 character tweets exchanged with virtual strangers.

These are only the first drops in the bucket, poised to become a deafening flood of voices, as Africa – all 53 countries, hundreds of languages and myriads of peoples – roars loudly against the misrepresentation and yanks back the reins of her own narrative and agency.

Reach Beyond: the CHI 25th Anniversary Conference in San Jose, May 2007

Today I realize that I had been struck dumb by the myriads of visions dancing in front of my eyes when I went up on stage to share the Closing Plenary at the CHI2007 conference back in San Jose, CA in the first week of May 2007.

May 3rd, 2007 in San Jose CA Photo Credit: anikarenina Flickr

Have 6 years passed so suddenly?

This seems like a timely moment to look back at where we are now on our journey towards an internetworked worldwide web of humanity, enabled by technology, encouraging trustful and cooperative commerce, connectivity and communication. 

/I feel like a broken record sometimes ;p

Case study of design strategy failure: Whirlpool World Washer for emerging markets

This is a comprehensive study of the introduction of an automatic washing machine, the World Washer, into the Indian market, by Whirlpool Corporation in 1990. Conceived as an important part of Whirlpool’s global strategy in the late nineteen eighties, it was designed for the emerging markets of Mexico, Brazil and India. It failed dramatically and resulted in Whirlpool having to purchase obsolete twin tub technology from Korea for their next product launch in India.

This paper attempts to describe the existing market at the time of the launch 1988-1990; Whirlpool’s global strategy and the part played by their design departments; the intersection of strategy and design; and, to analyze the reasons for the World Washer’s failure.

“First, you have to ascertain which standards have already been established by the competition. The product won’t be accepted if it doesn’t live up to those standards. Secondly, you have to look at the environment in which the product will be used.” ~ Dr Pia Honold, Center for User Interface Design, Siemens AG

Reflecting on the mobile internet in Kenya

Poster in shop, Kagumo, Kenya 18th October 2011

After the past three weeks of focusing on cyber cafes and internet access in urban and rural Kenya, we’ve been questioning the value of the “mobile internet” statistics provided by operators to the CCK. Muchiri pointed out that since most of our feedback seemed to revolve more around SIM operated routers installed by cybers, or mobile broadband modems sold either to regular home and business users or even, in the smaller towns, used to link networked computers in small cybers to the internet, what did the information actually communicate?

A thousand shillings cheaper than in Nairobi, seen in Kagumo, Kenya

At the shop we were in, Jacqueline (who is saving for her own laptop for Christmas) explained to us that it was cheaper to buy a data bundle or use the modem, than to browse on the phone using the Ksh 2/min offer directly.  Extremely knowledgeable about the most cost effective ways to browse using whichever device you may have, she uses her phone for social networking constantly and prefers it to the cyber which she only visits occasionally. However it was she who pointed out to us that she didn’t think that it was internet enabled phones alone that were affecting the cyber’s business but also the fact that affordable devices (desktops, laptops and modems) were increasingly popular and easily available.

If so, then the 98% of Kenya’s internet users who are on mobile internet may not be doing it through mobile phones alone as is so often assumed but via a variety of SIM based devices. A detailed breakdown of devices under the heading of ‘mobile internet using SIM’ as reported to the authorities might begin to offer a clearer perspective on user behaviour and modes of access.

Opportunity spaces vs ideas – business development for the BoP markets

Inaugural Issue of Entreprenuer magazine, photo taken in Kanpur India, Sept 13, 2009

Ideas or concepts are not the same as opportunity spaces or gaps in a particular market. Exploratory user research can identify opportunities for innovation, that is, either unmet needs or gaps in the existing ecosystem which could be filled by a product or service with the intent to create and provide value. On the other hand, actual ideas for new businesses or concepts for products or services may not be the immediate outcome of such exploration. While the insights from the field can act as waymarkers for new revenue generation opportunities, they are not the actual ideas or concepts themselves.

Imho, this conflation of the two – a concept or an idea and an opportunity space or gap in the existing market – gives rise to confusion about the goals or outcomes from field research, particularly in the short term or for the immediate results. It must be noted that even insights derived from observations are usually the result of data analysis and synthesis, best done with a team after the field research has been completed. Only after this can one say with any degree of confidence which gaps or behaviours observed would translate into potential opportunity spaces for innovation or new product development leading to sustainable and sustained revenue generation opportunities. Finally, the concepts or ideas can be generated within the constraints of this opportunity space.

The potential ‘market’ at the BoP is vast, complex and chaotic and too many needs go unmet that at first glance that it may seem opportunities are indeed available  for the picking and the possibility of fortunes immense.

The first critical challenge is to evaluate which of these potential areas offer value; a return on the customer’s investment, meagre though it may be.

The next is to evaluate the time and effort any new venture among BoP customers would require before it would start showing returns.

This is not a hit and run market.

Insights from the South African low income market (BoP) opportunity

Durban, South Africa - Jan 2008

I came across this article from South Africa titled “Why companies should care about the low-income market” which has some excellent insights about this demographic and opportunity space. Also called the ‘BoP or Bottom of the Pyramid’, it is the mass majority segment in the emerging middle class in Sub Sahara today (per recent reports.) I’ve interspersed my observations in between snippets from the article which are in italics:

He notes that large firms are also becoming more secretive about their bottom of the pyramid (BoP) strategies, perhaps a sign that they are beginning to take this market seriously. “We see a very clear trend that companies are no longer asking what the bottom of the pyramid is.”

This is an interesting piece of news – BoP markets are now internationally recognized as a long term growth market opportunity,  the secrecy implying that the strategy is less about CSR (and attendant goodwill via PR ) and more about competition.

 “If you look at the upper-income segment in South Africa, those markets are mature, they are growing at perhaps 1% to 2% per year, whereas your low-income segments are growing at anything between 9% and 15% per year. You ignore such trends at your peril,” Coetzer explains.

Here’s why companies are taking it seriously – those are some significant growth figures, offering the kind of returns on investment that saturated, mature markets cannot.

Another point here is that BoP customers are very rarely formally employed with a regular paycheck.  The BoP market is also mostly cash based and almost 70% of the lower income markets are rural. All of these mean that they have not felt the impact of the global recession (there are exceptions such as migrant worker remittances from the rich world for example).

The article gives an example of tapping into REculture – the informal market’s characteristic behaviours of recycle, reuse, repurpose, resell and repair.

Coetzer explains that bottom of the pyramid strategies do not always just comprise of selling products, but also purchasing from the low-income segment. An example of this is Collect-a-Can, a non-profit but self sustaining recycling business, with steel and tinplate producer ArcelorMittal and beverage can manufacturer Nampak as shareholders. Collect-a-Can pays people cash for collecting used beverage cans and provides tens of thousands of unemployed South Africans with the opportunity to earn a living.

Opportunity spaces

“immediate untapped opportunities are present in the fields of financial services (especially mobile money), home upgrading and repairs (plastering, tiling, electrical installations, insulation, energy‐saving light bulbs, solar panels) as well as the distribution and delivery of goods. ”

An earlier survey […] revealed that the majority of informal entrepreneurs in Cape Town townships are looking to grow their businesses, but are unable to do so because the type of credit, insurance, training and financial services available in the formal market are not adapted to their needs.

Catering for the low-income segment often calls for creative business models and product innovation.

While these unmet needs are the most visible, increasing competition will require a more strategic, customer-centric approach beginning with a greater understanding of this customer demographic.  Opportunity spaces for new products and services that can add value and enhance lives,  not simply plug the gaps of unmet needs. Needs and wants are so many at the BoP that every decision to spend money is a trade off on the risks of a return of maximum value.

“There is huge diversity within the bottom of the pyramid. People have different aspirations, different needs, and one of the biggest mistakes for any company would be to think of it as a single market segment. Not bothering to investigate just how diverse this segment is, is something we see quite often as a classical mistake,” says Coetzer.

 

Further reading

Emerging Markets as a Source of Disruptive Innovation: 5 Case Studies – February 2010
The 5D’s of BoP Marketing: Touchpoints for a holistic, human-centered strategy – January 2009
The Fortune at the Bottom of the Pyramid Begins with Understanding : Targeting the BoP Customer (PDF) – Nov 2008
Design for the Next Billion Customers  – April 2008

Should you launch in emerging markets first? Some examples of an Africa first strategy

Freeplay fetal heart rate monitor

That is the question posed by Prof.  Vijay Govindarajan in Harvard Business Review.  A short piece, co-authored with an undergraduate student, its basic premise is that for medical devices and other impedimenta of the health care industry such as diagnostic tests, there are benefits to launching in emerging markets first before entering the advanced first world markets.  They end by saying:

Ironically, the fact that companies hesitate before developing for emerging markets creates a source of comparative advantage that startups can use to gain market share. Claro Dx developed a next-generation battery-powered reader the size of an iPhone to detect HIV, syphilis, and hepatitis, for example. Its older reader in U.S.-centered clinical trials for prostate cancer recurrence is the size of a desktop.

Startups can benefit from reverse innovation. Can readers think of other types of startups an emerging-market-first strategy might be applicable to (sic)?

This need not simply apply to cases of reverse innovation alone – that is, bringing innovations developed for emerging markets back to the developed world, take mobile money transfer systems and their region specific success. Considering this gives rise to one key factor that does not seem to be covered in this article. That is the role played by  a vacuum in the operating environment. When something is missing in the system there is a gap or an opportunity space for an innovative solution to fill the need.  An oft quoted example is the leapfrogging of landlines and communication infrastructure by mobile wireless devices now available in everyone’s hands.

In the sophisticated developed markets there are layers of legacy solutions or an established status quo which often act as barriers to entry, impeding the rapid uptake or even the introduction of some innovative product or service.  Frontier markets on the other hand, such as those offered by the rapidly evolving consumer markets in Sub Saharan Africa can offer some unique opportunities such as:

The Kenyan sub $100 IDEOS Android Smartphone

Building a new brand or awareness of an entirely new product category – Huawei is a Chinese telecommunications equipment company well known for successfully taking on established players such as Ericsson and Nokia Siemens Networks. However it has no such reputation in consumer products such mobile phones until the launch of the low cost Android based smartphone, the IDEOS via mobile operators such as Safaricom in Kenya and MTN in Uganda. After seeing significant sales figures in Africa, it has just announced the launch of a low cost smartphone in Germany under the IDEOS name.

Samsung solar powered netbook

Innovative solutions for resource scarcity – Many of the challenges posed by the emerging market environment such as need for low cost, robust solutions with innovative business models and distribution channels also act as a resource constrained crucible for testing new products and services.  Samsung has launched a solar powered netbook in Africa first before taking it the developed world.

Leapfrogging infrastructure and services – While MPesa may not be as easily portable elsewhere, its the first and foremost example of a service filling a vacuum while inspiring major global efforts to find similar solutions for other regions. Others are more common in the mHealth space and here the argument is better articulated by this article “Developing countries offer lessons for the West“,

Mobile health applications from developing countries have the same potential to penetrate developed markets. In developing countries, these applications span a wide range of activities, including data collection, disease surveillance, health promotion, diagnostic support, disaster response and remote patient monitoring,” Sandhu writes.

But it is an unrealized potential, according to Sandhu. “Although myriad mHealth programs are operating in developing-country markets, only a few prominent mHealth innovations in the United States have been imported from abroad. Among the most notable are Vitality GlowCaps and GreatCall Medication Reminder Service, both of which are working to improve medication adherence,” he writes. According to Sandhu, both are outgrowths of technology that originated in South Africa. The Text4baby messaging service for pregnant women and new mothers was modeled after VidaNet in Mexico and Mobile 4 Good Health Tips in Kenya, though, like GlowCaps and GreatCall Medication Reminder Service, it is not an exact replica of the original. This is intentional.

The goal should not be to copy programs exactly, but rather to adapt global innovations for the developed-world market,”

But all of these are centered around information technology and mobile communication – do we see the potential for innovations dispersing out of Africa in other areas such as renewable energy solutions or consumer products for the home or are we seeing the first signals where Africa will make its mark globally?