Posts Tagged ‘emerging middle class’

The end of the global middle class: A more frugal world?

The past half decade‘s worth of financial crises and increasing scarcity of resources have led to an increasing equalization in the global water level. Instead of the high tide that would lift all boats, the leveling off of growth is leading to an entirely different equation of purchasing power parity. Tomorrow’s equilibrium seems to imply a more frugal world. ~ Niti Bhan, 2012

I wrote this concluding paragraph just over 3 years ago. Today, I look at research from Pew that informs me the great American middle class has declined by half. An article on the Indian middle class claims they’re actually the world’s poor. And the mythical African middle class emerges, floats and sinks, sometimes all at once in the same article.

Water has found its level, and its barely staying afloat.

If indeed the global demographics are changing such that what was formerly considered the “middle class” by the metrics of the day do not apply anymore, would it not make more sense to rebase and then assess who is in the middle than to go chasing the golden children of the boom years long past?

Or, one could just stop looking for these unicorns everywhere and take the trouble to study the people who are the majority in these markets.

Either way, what was is over and what’s emerging is more frugal world with thinner wallets, fewer bank accounts and propensity to pinch their pennies. The data demonstrates it clearly enough.

Why the Search for the Middle Class is a Waste of Time and Money

CJamzx5WsAANOgfOnce we stop focusing only on the search for the mythical middle class, we see the very real changes that have taken place, globally, over the past 25 years. The Pew Report in the previous post focused primarily on the middle income/middle class, overlooking in their haste that even this segment of the world’s population had almost doubled from 7% to 13%. Their rationale is based on conventional thinking which frames the importance of this middle income demographic so:

Developing a vast middle class is key to sustaining growth in emerging economies, whose comparative advantage in offering advanced markets products at a fraction of the cost is waning with new technologies.

Just a couple of days before this Pew report, the United Nations released an important global development report. Here, we can see the real changes that have taken place in historically poverty stricken populations like India’s and China’s:

More than a billion people have been lifted out of extreme poverty since 1990 with China and India playing a central role in global poverty reduction, a major UN report has said

The latest estimates show that the proportion of people living on less than $1.25 a day globally fell from 36 per cent in 1990 to 15 per cent in 2011. Projections indicate that the global extreme poverty rate has fallen further, to 12 per cent, as of 2015.

The poverty rate in the developing regions has plummeted, from 47 per cent in 1990 to 14 per cent in 2015, a drop of more than two thirds.

“The world’s most populous countries, China and India, played a central role in the global reduction of poverty. As a result of progress in China, the extreme poverty rate in Eastern Asia has dropped from 61 per cent in 1990 to only 4 per cent in 2015,” the report said.

“Southern Asia’s progress is almost as impressive — a decline from 52 per cent to 17 per cent for the same period — and its rate of reduction has accelerated since 2008,” it said.

Who cares about the middle class and their mythical relationship to economic growth and progress when the data shows that poverty has been halved, and a billion people can dream of hope. If this middle class were genuinely related to economic growth then we wouldn’t be seeing these conflicting headlines. From the same article that touts the need for a middle middle as critical to growth, already linked above, and referencing the Pew Research report.

India’s middle class barely expanded during the decade, increasing from 1 per cent of the population in 2001 to 3 per cent in 2011, an increase the study called ”small by any measure.”

While the Indian economy is currently said to be so:

India is seeing “stable growth momentum” even as economic activities are expected to slow down in China, the US and many other major economies, says Paris-based think tank OECD.

Last month, OECD — a grouping of 34 countries — had pegged India’s growth to remain “strong and stable” at 7.3 per cent in 2015 on the back of revival in investments.

India has surpassed China to become the world’s fastest growing economy by clocking 7.5 per cent growth for the three months ended March. In 2014-15, the economy had expanded 7.3 per cent.

Earlier this month, Finance Minister Arun Jaitley said the country is no longer satisfied being in the 6 to 8 per cent growth.

“It wants to transcend to another level and aim for 8 to 10 per cent growth… We wish to grow faster because we have a huge challenge of eradicating poverty ahead of us,” he had said.

Given the imperative to push hundreds of millions above the poverty line – far more important to a developing country like India, a historically poverty stricken country – worrying about the mythical middle class is the least of the government’s problems. India’s NREGA is the world’s largest public works programme, benefiting 182 million human beings, only 15% of the country’s population.

This begs the question: “Is growing a vast middle class really key to sustainable growth?

India didn’t grow one (sounds rather like a beard, doesn’t it?) as large as or as fast as China, yet India’s economic indicators seem to be healthier and its population emerging out of abject poverty.

One wonders whether the continued emphasis and focus on chasing the middle class dream not only blinds us to the very real social and economic developments taking place but also whether its a corporate imperative rather than a societal one?

In the long run, will more noodles and biscuits matter, or the fact that more girls are going to school, studying computers and English?

This same single minded search for a middle class is creating its own set of repercussions on the African continent. One gets the feeling there’s a bunch of folks wandering around dazed and confused, groping and grasping blindly for something called “middle class”. Again, overlooked in this game of blind man’s buff are data points like Kenya’s recent emergence as a lower middle income country – the World Bank upgraded it from low income last month:

“Our latest data show that in terms of this indicator, the world’s economic geography has changed a lot. In 1994, 56.1% of the world’s population – 3.1 billion people – lived in the 64 low-income countries. In 2014, this was down to 8.5%, or 613 million people, living in 31 countries. It is heartening to see that over the last one year itself four nations crossed over that critical line from the low-income to the lower-middle income category.”

But, no, lets go chasing the mythical middle instead. On paper, and in the numerous reports churned out by management consultancies, they might be easiest demographic to sell consumer goods to, but as I’d asked 8 years ago, is the holy grail of economic development only the creation of a consumer society? And, is it something that can be realistically aimed for, given the rapidly dwindling natural resources of our planet?

Global tipping point in development

Two years ago, I’d written the following words:

Finally, enough people in enough places have managed to lift themselves free of the gravity well sucking them down into completely insecure and uncertain relationship with the poverty line (aka the next meal or three for the entire family) that they can plan ahead for the next purchase or investment in their future economic status and social standing. One is not independent of the other, especially not in the closely knit, hyper local social networks in rural regions of the developing world.

What we’re in fact seeing are the metrics that demonstrate that tipping point I’d sensed a couple of years ago, while wandering around rural Kenya.

People, not consumers, are bootstrapping themselves out of poverty and feeling steady enough to make a leap for the brass ring of prosperity. The shift is so huge – 700 million people or 10% of the planet’s population – that we’ll be seeing the impact and influence of this emerge over the near term emerging future.

They’ll be neither the Bottom of any Pyramid nor the Middle Class – both measures use metrics too obsolete to account for the leapfrogging taking place in the eternally developing world. What they won’t be is stagnant, or satisfied with their achievements. Pew might say they haven’t come far enough, but who is to say that’s their own metric of success?

Upward Mobility is Changing Base of the Pyramid Consumer Aspirations

I’d observed earlier that upward mobility wasn’t simply about increasing incomes, but also a change in mindset, world view and values. Aspirational consumer behaviour trickles downward faster, as strivers seek to emulate the status signals sent by those they perceive as “arrived”.

The emerging middle class numbers may indeed be uncertain, as statisticians debate over the inclusion of the ‘floating class’ but regardless of their actual income (which in any case may be volatile, particularly if they’re part of the informal sector of the economy) people’s habits are certainly shifting towards more ‘middle class’ choices.

Kenyan news reveals some interesting trends. More people are using clean energy such as LPG for cooking, in the ‘slums’, than before.

In Mathare slum a few kilometers away, that residents are warming up to cooking gas is evident in the number of shops selling the commodity on the periphery of the informal settlement.

Prices for cooking gas are the lowest they’ve been since 2012, putting the smallest available size – 6kg- within reach of far more than before. LPG is an aspiration for both urban and rural cooks. A farmer’s wife in rural Makueni in eastern Kenya told me about her ambitions to cook with gas even though she was making do with firewood from the farm.

Even more interesting is this report on what the author calls the “reject economy” – the sale of seconds and damaged products. Its not so much that there’s an after market for these seconds, but the reasons for their brisk sale. Here are some selected insights from that fascinating article.

Well, the economy in Kenya’s informal sector has its own rules and the about 22 million people straddling the poverty line are masters at navigating it.

For instance, Ogola buys eggs with cracks or other tiny imperfections — known colloquially as vunjika — at Sh5 each; whole eggs retail at between Sh12 and Sh15 in middle-income neighbourhoods.

Korogocho, like many other slums in Nairobi, is also awash with charred or misshapen loaves of bread, which retail at Sh30 instead of the market price of Sh50.
[…]

“The people in the village buy these products because they are cheaper and they cannot afford mainstream prices. They buy them because, just like other people, they would like to watch the news and have the family gather around the TV,” says Ngala.

The article goes on to quote some salaried professionals offering expert advice to the poor to be cautious about these rejected or secondhand products but I suspect that those with less income have no false impressions about their challenges in life.

“We also deserve the good life just like other people, or what do you think” Ogola asks with a smile.

As the article ends, just because someone may not have 50 shillings for a loaf of fancy bread doesn’t mean he doesn’t wish to have bread with his tea in the morning.

Without something to aspire towards, we would stagnate in our current circumstances, fatalistically accepting our status in life.

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?

Analysing shifts in consumer household purchasing patterns – Milk ATMs in Kenya

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Uchumi Supermarket, Ngong Rd, Nairobi Photo Credit: @bankelele

“We are selling one litre at Sh65, but a consumer can get as little as 77ml at a cost of Sh5. All one needs to do is key in the amount they require, and the product is dispensed,” Gitonga, who procures his machines from Italy, said.

Flexibility is the key to survival, indeed. This quote is from a Kenyan newspaper article titled “Dip in purchasing power drives demand for milk dispensers” which covers the increasing visibility of these milk vending machines in Nairobi and touches upon some of the demand drivers.

Mr Gitonga told Business Beat he shares the profits equally with supermarkets and retailers as he is protected from other expenses such as rent, water and electricity.

He said the demand for milk from the machines is being dictated by changing dynamics in the local market, including the need for quality milk, depressed purchasing power and a surging population.

The prices for processed milk have increased since the introduction of VAT last September, which has prompted consumers to turn to raw milk. Currently, a litre of raw milk in most estates costs between Sh50 and Sh55, while a litre of processed milk averages Sh85.

“We are giving consumers who frequent outlets in estates that sell raw milk that may not be inspected a safer choice.”

What strikes me is the fact that this shift back to one of the fundamental purchasing patterns observed among the lower income demographic is not only an obvious sign stretched household budgets due to rising price of food, but a classic example of the flexibility required by those managing on irregular income streams.

That is, this daily habit to purchase only what is needed and that too by cash amount (5 shillings) or quantity, is the same purchasing model for kerosene, another household staple.

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Could this shift in buyer behaviour also be considered a signal of the fluctuating fortunes of the “floating class” identified by the African Development Bank as those who are part of the emerging middle class but their cash flow might not be as steady as for someone on a regular paycheck?

If so, then we’re seeing here an example of an innovative solution to providing a daily need – milk – to urban households without a cow in the backyard – by ATM entrepreneurs as a whole new market creation opportunity.

Not for milk per se, but for products and services which can offer the flexibility that volatile income streams require, and are still upwardly mobile or progressive consumables that the emergent middle class household needs for their shopping basket, in this case, pasteurized milk.

And the increase in demand might actually also be an increase in the population of those who are now part of “middle class with floating”… this could be one of the dividing lines. I’d keep an eye on the fortunes of these milk machines in supermarkets if I were interested in the African middle class market.

 

The Brass Ring Syndrome: When prosperity is close enough to make a jump for it!

We’ve been talking about that borderline where one goes from “destitute” or “BoP” towards becoming “emerging global middle class” or the AfDB’s “Sub Saharan middle class” since the common band that overlaps both categories is the ever popular $2-$4 a day and it is proportionally the largest segment of the population in most newly emerging economies. I am going to try and describe these GEMs – global emerging middle classes.

What we don’t ask ourselves in all these conversations on emerging markets or emerging consumers is where exactly have they emerged from or what state are they in the process of leaving. It is usually the lower income category or country or LDC labeling or the BoP segment at the bottom of the social and economic pyramid. Its upward mobility for a nation state or region or demographic segment of the population.

Worldwide momentum of changes signal tipping point for shift into BoP minority

Now, this is happening on a global scale, that enough momentum has occurred with all our poking and prodding at the bottom, whether through sustainable development or BoP enterprising women in some form. One could say that there is no impact at all of all these puny pilots all beavering away in their little remote villages, country towns and livestock markets, maybe achieving the social impact of a flea on the back of the Indian rural poverty elephant or one might wonder if all of this activity, taken together, synergized into this faint rumbling of an imminent global change about to take place.

Finally, enough people in enough places have managed to lift themselves free of the gravity well sucking them down into completely insecure and uncertain relationship with the poverty line (aka the next meal or three for the entire family) that they can plan ahead for the next purchase or investment in their future economic status and social standing. One is not independent of the other, especially not in the closely knit, hyper local social networks in rural regions of the developing world.

This photograph is one such example that encapsulates this kind of liminal rural economic behaviour, particularly in the developing world. Here I choose Bobbi Schaetti’s definition of liminal space, taking meaning from the root word limnos, which is Greek for the threshold time – when what was is over but what will be is not yet. Schaetti considers it a time rich with creative fomentation and full of potential, fairly bursting with the energies of the new and improved aka innovation.

Is not pulling yourself up by your bootstraps, like thousands of Kenya’s smallholder farmers, the equivalent of innovation in quality of life and circumstance? Are you not seeking a whole new level of lifestyle thus adopting a sustainable change in the way you currently live?

This is just a hypothesis that I hope to validate in the next opportunity. Because if we are able to use the tools from the design planner’s toolkit in order to understand economic behaviour and activity in the very human and flexible rural economy which is primarily based on tangible evidence of wealth, value and Returns on Investment (RoI).

Answer at bottom of page: What is the photograph telling us?

This is a light fixture and lampshade that has been affixed to the ceiling of the homestead’s main living room in a solidly bourgeois farming neighbourhood in Mwingi, Eastern Kenya. The household is dependent primarily on agriculture, thus living on seasonal cycles of abundance and scarcity per the harvests. But they’re now ready to make that leap for the last mile to the electric grid – this connection from homestead to the nearest Kenya Power grid might cost as little as 30,000 shillings, the price of a prize cow, or as much as a 100,000 if you are just a wee bit short of the distance they will cover with their equipment.  We’ve met a local teacher who managed to install an additional pole for the electric wires within his homestead walls.

Here, the entire homestead has been wired for electricity and so, a visible symbol proclaims to the community and neighbourhood what the family is aiming for in the next opportune moment that such a lumpsum of cash is available free and clear.

Reaching such a point, imho, implies that all else is in readiness for this status jump up from low income or lower class if one considers schoolteachers, civil servants, bank managers etc are considered the rural elite. They first to install solar power in their homes in order to enjoy the latest mod cons and gadgets. This signal itself, however, might be country or region specific. What we can feel certain about however is that there will be such a set of culture and region specific signals or cues, appropriate to the local context, that will signal as visibly the ongoing intent of this household to emerge into the global middle classes as customers and consumers of goods and services that improve one’s quality of life.

That is, now consumption patterns should change to include those which contribute to lifestyle choices and indulgence or convenience just enough more, on a regular basis, than those who live hand to mouth for survival’s sake. Another way that one can look at this distinction is to ask if the person is able to treat oneself regularly (whether its monthly near payday or every weekend to meat for the family dinner) or if this treat is random, uncertain and rare.

Brave New World: Revisiting Theodore Levitt’s globalization of markets

Convergence of global markets and equalizing of purchasing power will finally offer the “global consumer” Theodore Levitt was seeking. ~ @nitibhan

I found myself summing up a search with these words at the end of a series of articles I found while digging around online. Now I want to explore this potentially emerging future a little more and see where its coming from and where it might be going. There seem to be two simultaneous shifts taking place, economically and globally. Even as we see signals of the rise of the “emerging global middle classes”, many of whom could be classified as the former “poor”, we note a concurrent decline in the same classes being noticed in the erstwhile first world.

For example, there’s a special report on GlobalPost titled America the Gutted which covers what they call:

There is a deep unease spreading across the United States of America. As anyone who’s living through it can tell you, the nation’s middle class — the backbone of the world’s largest economy — is in distress.

Median income and net worth are falling. Unemployment remains a persistent and pernicious problem. Millions of houses languish in foreclosure, or drown under mortgages that exceed their market value. Health care, education and other day-to-day costs continue to rise, further pressuring family budgets.

To make matters worse, new technologies are decimating entire industries, and social safety nets are threatened by rising government debt.

and The Telegraph informs us that not only is it expected that the median annual income of the UK’s middle class will fall by £800, but there’s a brain drain as middle class professionals flee overseas for better paying jobs. Anyone old enough to remember the headlines just two decades or more ago will recall similar challenges in places like India or South East Asia. Canada feels their pain.

Which brings us to this chart from the Financial Times:

And they are not the only ones. The venerable Economist, the trend following World Bank and of course, the OECD have all noticed this social and economic transition taking place. From Latin America to Sub Saharan Africa, the tortoise slowly munches the lettuce the hare tripped over. Australia expects succour from China’s emerging middle classes while Brazil’s former BoP get a mainstream soap opera (telenovela) of their own. When the Bottom of the Pyramid (BoP) goes mainstream, Houston, we have a very interesting situation here to be analyzed.

Almost 30 years ago, Theodore Levitt published The Globalization of Markets, a manifesto for global multinationals to focus on an emerging global consumer. The intervening years showed many such companies the challenges and pitfalls of the frontier markets of yesterday – Kellogg in India being the best known such example. Products had to be localized and pricing strategies reframed, the emerging markets were so very different from the domestic consumers of the sophisticated markets of the (sic) “Global North”. The path to development was projected to follow that of the developed countries and much beating of chests occurred when the realization dawned that it meant a billion or two more automobiles on the planetary highway.

No such luck.

The past half decade‘s worth of financial crises and increasing scarcity of resources have led to an increasing equalization in the global water level. Instead of the high tide that would lift all boats, the levelling off of growth is leading to an entirely different equation of purchasing power parity. Tomorrow’s equilibrium seems to imply a more frugal world. One only hopes it means greater cooperation and sharing, with our world as our community and not a fight to the finish scrabbling over the last piece of the pie.

The Africans are not beneficiaries anymore

Innovating without knowing your customer is like being lost in the dark with your eyes closed: you’ll never know if you hit the light switch ~ @bdoorn

My colleague on my current project in The Netherlands, Bart Doorneweert, tweeted that insight after our next to last user interview today (tomorrow is our last). While I’ve been hesitating to say out loud that there is a crying need for user centeredness in program and policy development (design, even), its even more obvious when our client’s perception of the users has not changed since aid meant charity for beneficiaries and not economic and market development of the BoP customers.

That is actually the biggest difference between the Indian and Chinese business interactions across the African continent, including everyone’s former colonies, and the erstwhile European Union. Its hard to do business when your broker is a notforprofit NGO whose mandate is not to make a profit. Sustainability in agriculture, for example, does not mean the cost of going green is so high against the pittance paid by the megamultinationals for cocoa that farmers are giving up the business as a lost cause.

Maximizing resource extraction while minimizing input does not take the human condition into account. The so called Bottom or Base of that economic pyramid prefer that we Maximize our constraints and minimize our resources.

They want to do business but the trendy money is chasing “sustainable social enterprises” set up by trust fund designers. Ben Lyon, founder of Kopo Kopo told me in a conversation a few months ago in Nairobi:

We weren’t beholden to our customers until we starting thinking like a business.

We didn’t hold ourselves accountable until we started treating our ‘beneficiaries’ as customers.

No investor took us seriously until we dropped the ‘social enterprise’ label.

 I think that is going to be the biggest shift required in perspective – to think of your beneficiaries as your customers and to consider the design of win win business and revenue generation models. This reminds of when I first realized this kind of big shift difference in positioning users in the designer’s mindset. It was back in early 2008. Because I can see the difference in the mobile landscape in Africa, starting with the internet cafe industry project for Village Telco one year ago across Kenya that allowed me to get a rapid yet varied snapshot by end of July 2012 when I ended my second contract with ToughStuff in Nairobi.

The BoP are not really the Bottom of anything nor do they think of themselves like that in Africa. And along with this change came the simultaneous impact of increasingly affordable phones and data access to the world wide web leading to very rapid rate of adoption of everything on the mobile platform. In 4 short years, the size of the African mobile phone user base has come a year or two away from doubling.

Think about that for a moment.

This is not an iPhone in every suburb. This is a world wide communications device bringing the World Service to your ear. All you need for that, really, is 20 bob for a week’s charge of electricity. Plugging into Facebook or Twitter will change your thinking of the world.

So, even in the remotest village, some smart kid is already dreaming of hacking his own makerbot or at the very least gawking at the global consumer mainstream floating by, through his little screen.

This, however, does not change the realities of their consumer behaviour. Their irregular incomes from a variety of sources, if part of the cash based informal and/or rural economy, are seasonal and life remains hard, even though the webz are changing dreams and aspirations almost as fast as hotcakes.

When you are talking to a potential customer, you seek to touch his aspirations with your offer, but when you address beneficiaries, you only talk about the social benefits not the human dreams.

Fresh look at India’s consumer market

This report (PDF) by Yoshihiko Iwadare of Nomura Research Institute is only 15 pages long but manages to overturn conventional business strategy on its head in its framing and approach to new market entry for India’s emerging consumer markets.

For more on the Indian consumer market today.

The customer is the king; the beneficiary will remain a pauper

We weren’t beholden to our customers until we starting thinking like a business.

We didn’t hold ourselves accountable until we started treating our ‘beneficiaries’ as customers.

No investor took us seriously until we dropped the ‘social enterprise’ label.

~ Ben Lyon, Founder, KopoKopo, Nairobi, Kenya

When I wrote “Why so much ‘BoP’ marketing fails in the developing world” recently, I had sensed that there was a more fundamental problem – either one of implicit assumptions or basic premises – than those which I’d identified through observations in the marketplace. It took these three powerful statements from Ben Lyon, founder of Kenyan startup KopoKopo, to throw light on the issue.

Were these social enterprises treating their customers like kings or were they dealing with them like the beneficiaries of development aid?

Identifying this distinction, we believe, is critical and can make the difference between success and failure. In fact, taking the thought a step further, I now wonder whether this underlying premise might not be the reason why so many social entreprenuers are unable to scale.

The lens through which you percieve your intended customer base and thus, evaluate their needs, purchasing power, wants and wishes becomes the focal point around which your product or service, its business model and distribution strategy as well marketing communications will revolve.

When we seek to serve a very demanding customer who just happens to manage within an extremely challenging environment, we raise the bar on our own performance and metrics of success. For no one will spend good money on something that offers little value or return on investment.

But as long as social enterprises continue to perceive the target audience for their goods or services as ‘beneficiaries’, with all the attendant baggage of assumptions and perceptions, they will never quite be able to address the challenges of creating a market for a profitable and thus sustainable, enterprise.

Maximizing profits alone may not always be the right answer, but even the triple bottom line approach embraced by European businesses can offer a more valuable orientation than simply “doing good”, which may overwhelm critical considerations of “does this actually make sense and does the market actually want it”. I’d written this snippet earlier, before I’d identified where the seed of the confusion seemed to lie.

Because the demand being addressed by these messages is not that of the target audience, who are ultimately the ones for whom these products are made.

Everyday, research shows that the barriers to adoption include:

Improved cookstoves rank poorly on all three dimensions: their benefits are rarely valued highly by customers at the outset, they are expensive, and they require a significant change in lifestyle to be put into use.

Lets start with benefits alone – which is where the topic of identifying the correct value propositions for the target audience comes in. If your messaging and marketing is all about the best selling drill addressing an audience of home improvement contractors but what your actual customers need is a hole in the wall, how will you manage to bridge this gap in communication when you face your customers directly?
By focusing on the value propositions – be they environmental, healthcare related or otherwise – meant for every other stakeholder but the end users aka the customers of the product themselves – organizations may never quite identify nor refine the benefits as they relate to the poor customer, in the context of their lives, and their decision to purchase and use the said products.

And this conflation – of marketing messages meant for shareholders (in formal business terms) being sent to the end customers – will continue to create a barrier to sales and demand creation unless we start taking this demographic seriously as a paying customer. The roots of this challenge are also embedded in the way the concept of “the BoP” has evolved away from Prahalad’s original vision of a vast new market and opportunity into a catchall label for the poor, the downtrodden and the precepts of poverty alleviation.