Posts Tagged ‘informal segment’

Barriers to business with the ‘Bottom of the Pyramid’ : what can we learn from Mama Boi?

Jakarta, Indonesia March 2010

The Monitor Group has made available the complete HBR article “Is the Bottom of the Pyramid Really for you?” (PDF) where the authors frame the debate for multinationals questioning whether to consider entering this challenging though untapped segment of the global marketplace.  They list some of the common barriers faced by executives during their attempts to serve this demographic, the majority of whom live in the developing world:

  1. Uncertain cash flow.
  2. Gauging demand.
  3. Sales and distribution challenges.
  4. Disaggregated providers.
  5. Undeveloped Ecosystems.

Issues of demand and distribution as barriers are part of the undeveloped ecosystem – or rather, to reframe these barriers in the context of the local operating environment, all the points are elements of the informal markets that currently serve their customers needs.  They become barriers to entry for organizations accustomed to sophisticated information and delivery systems, that is, from their perspective, there is no pre-existing consumer market and one must then create entire value chains from scratch.

And yet, another way of looking at this would be to embrace rather than attempt to replace the elements of the informal ecosystems that exist. How can you leverage the characteristics of what makes them suit the needs of customers who live in conditions of uncertainty?  Flexibility, adaptability, improvization – all of these have been mentioned numerous times in as many reports and articles.  This PDF recommends in conclusion that the most successful companies have been those that have created new kinds of businesses:

The most encouraging business-model innovations at the bottom of the pyramid manage to surmount multiple barriers at the same time. They represent not incremental adaptations but new, groundbreaking, end-to-end strategies.

Leapfrogging conventional wisdom just the way technology has been leapfrogging the inadequate infrastructure in most these locales. But where can we seek the ways in which to inspire such innovation? Imho the challenge that also exists for all these multinationals and their esteemed consultants is that their frame of reference and understanding is so well grounded in the frameworks and structures of the formal economy in which they’ve trained and learnt to operate.

This slide presentation by Gerry van Dyck (source) offers some fascinating insights on informal markets from the perspective of global FMCG brands. Mr van Dyck’s key point being:

if the market woman can succeed in the fierce competitive environment in the unbranded produce sector to create loyal customers then it is possible to use them as a reliable ally in driving change among consumers

Why stop at simply using them as an ally – lets take the thought a step further and see if we can learn from this study on buyer behaviour in the informal sector. Here’s a snapshot of a slide from Mr van Dyck’s presentation:

In a crowded market with numerous shops all selling the same unlabeled, unbranded produce how does a customer differentiate and choose to purchase? Through relationships – personal interactions over time build a rapport between customer and shopkeeper and ultimately it is this bond that drives the purchasing decisions.  In other words, it is the people and the personalities that ultimately matter, not anonymous communications from faceless entities.

And that’s something I see very little mention of in all the fancy documents and presentations being made on how to address the undeniable opportunities available in this space – where are the people? And why aren’t they the starting point for innovation?