Posts Tagged ‘market analysis’

Estimating price in unexplored and untapped markets

In addition to estimating the size and value of the Kenyan cyber cafe industry for our client, Village Telco of Cape Town, South Africa, we were tasked with finding out what would people pay for their product, the Mesh Potato. This challenge was the equivalent of walking up to someone and asking:

How much would you pay for this thing you’ve never heard of and you’re not sure what it does?

We discovered it was through the long rambling conversations we were having with our selected cyber cafe owner operators that we were able to get to this point of being able ask such a question. The conversations allowed us a peek into the way they thought about investing in new technology, and in many ways, reflected back to us the basics of the “BoP” consumer mindset that had already been identified previously.  For example:

Maximizing ROI (return on investment)

When asked what he’d pay for a Mesh Potato, our friend Moses responded with a question, “It depends,  how much money will it make for me?”

That is, as a business owner, his evaluation of the product’s price was intrinsically linked to its ability to generate an income stream. Maximizing the return on the investment is his primary criteria – whether it will save him money or a significant amount of time, and how soon will that possible are all the factors that go into the decision to purchase. His question also implicitly holds the corollary premise of Minimizing Risk.

So rarely was the price seen in isolation but instead it was considered in context of a variety of other factors.  For business owners, their primary value driver was “Is this a source of increased income for me?”

Another factor was that of the need to question assumptions underlying traditional models for assessing pricing – from wikipedia’s entry on the underlying assumptions used in Van Westendorp’s model:

The assumption underlying the Price Sensitivity Meter (PSM) is that respondents are capable of envisioning a pricing landscape and that price is an intrinsic measure of value or utility. Participants in a PSM exercise are asked to identify price points at which they can infer a particular value to the product or service under study. PSM claims to capture the extent to which a product has an inherent value denoted by price.

What if price is not the intrinsic measure of value or utility but long term revenue generation potential is?

Until we are able to gather enough insights over the course of a number of such studies and come up with frameworks customized for a very different operating environment, it will only be through the willingness to question all our assumptions and adjusting our approach that we will be able to make reasonably accurate assessments for these untapped markets.

Exploring the market forces acting on the cyber cafe industry in Kenya

This post continues on the challenges of estimating size and value of an untapped market in the developing world – in our current case, it is the cyber cafe industry in Kenya.  A critical aspect of this exercise will include assessing the impact of a variety of market forces acting on the industry in the present day as well as exploring the impact of trends on the near future.
Its only too easy to say that mobile phones will threaten the future of this industry as this June 2011 article does, but how valid is this assertion, really? Complicating the situation is the extremely rapid pace of change – for example the number of internet users in Kenya more than doubled in less than a year, from the end of 2009 to the third quarter of 2010, most via their mobile phones.
Yet, the results of a recent survey found on this Afrinnovator post by Mark Kaigwa in May 2011, contradict the dramatic headline of the June 2011 article:

via Afrinnovator

Kaigwa says: To unpack that a little further, the emerging trend is that the first experience of the internet has become mobile. This still doesn’t rule out the cyber cafe as the mobile experience on feature phones still cannot replace the “full-qwerty-keyboard-got-my-flashdisk-upload-that-document-and-email” use of cyber cafes but as far as social networking and general browsing, the mobile is the device of choice.

And previously in May 2010,  Oluniyi Ajao asked from Accra, Ghana “Are mobile phones pushing cyber cafes out of business?“, where he ends confidently with:

It is clear that mobile phones, are pushing cyber cafes out, the same way public phone booths and “communication centres” have become endangered species. What waits to be seen is how long the few cyber cafes that remain would last. Would they close shop or evolve their business model? Time would tell.

but just a few months before in Sept 2009, Wayan Vota wrote  Cybercafes: Still a vibrant and viable business model with some thoughtful reasons supporting his argument:

Growing, not shrinking, need for public access
Miguel’s point I most disagree with is the suggestion that there is a decreasing need for cybercafes in Africa because of 4P Computing:

Outside of tourists locations, they seem to be drying up everywhere to some degree as more and more of us travel with laptops or at the very least, wifi/highspeed data enabled phones that can do simple browsing anywhere we go.

While he and I may travel with netbooks and iPhones, the majority of Africans do not have such electronica, nor are they buying the expensive data plans that allow for mobile web access. They closely monitor their communication expenses, budgeting for Internet access out of meager daily wages.

Yet more and more business and government services, and professional social capital is moving online. Stores like Rachels’ Bargain Corner and Kenya’s eGovernment initiatives require full-screen Internet access. And with Facebook driving ICT use in Africa, the next professional networks will be virtual, not in person.

So as high-speed Internet and cool new gadgets increase usage by elites, there will be even more need for average Africans to get online, economically, through public access cyber cafes offering Internet access in multiple formats.

More than decline, this is the time to invest in African cybercafes!

So, the question remains unanswered, will the industry shrink or grow in Kenya? (Sept 18th, 2011)

Like any industry, cyber cafes are not all the same. Location matters as does size, speed and the variety of services on offer.  This background work  helps us to frame the broad questions we need to uncover answers to, so as to find the patterns that will help us evaluate the influence and impact of these market forces.

What does that mean? In this specific case, where if we are faced with conflicting information, then one of the key issues to find out will be the cost and ease of access to substitutes i.e. internet enabled mobile phones, cost of data and the patterns of usage behaviour, prevalent in the locale serviced by that cafe.

We’ll also need to dig up the CCK’s research results and then evaluate whether these substitutes are having a greater impact on the highly visible urban locations or is this threat a longer term trend and one that will affect a cybercafe regardless of whether its rural or urban.  And finally, we’ll have to actually get out there and take a closer look  in order to understand what is really happening.

The challenge of assessing the size of an emerging market opportunity

Kagio fresh produce market, Kenya, April 2013

Untapped opportunities in the developing world bring with them their own challenges for businesses seeking to invest in them.  An interesting one is that of assessing the market size and value, particularly for the lower income demographic that operates primarily in the informal economy (often called the BoP or bottom of the pyramid).  This snippet frames it well:

To begin, it is critical to understand why traditional market sizing methodologies are ill-equipped to size emerging markets. To illustrate, if a firm were to use traditional methods to size a mature market such as the coffee market in the United States, it would consider demographic trends (e.g., aging baby boomers), psychographic trends (e.g., increased health consciousness), past sales trends and consumption rates, price movements, competitor brand shares and new product development, and channels/retailers among others. However, conducting such an analysis for emerging markets presents a challenge as several of these factors (e.g., past sales, demographics of the customer when there are no current customers) don’t exist because the markets are presently untapped.

The situation is exacerbated  by lack of easily available demographic data, few formal retail channels, little consumer knowledge, and if the majority of the target audience happens to be outside the urban population centers, even lack of basic infrastructure like roads. One must begin from scratch. Can any rules of thumb be developed as we increase our understanding of the next few billion customers?
This conversation will continue.

Target market strategy for upwardly mobile BoP segments

* BoP – referring Prahalad’s Bottom of the social and economic pyramid, MoP – middle

This visualization of the emerging consumer market opportunity in India is by the insightful analysts at Nomura Research Institute, Japan. When taking this in conjunction with the information collated in my previous post on the imminent boom in upward mobility currently being seen in rural India, one can instantly perceive the logic of their target market strategy.

Why stumble around in other rural areas, when the first ones most likely to benefit from the economic changes taking place will be in teh vicinity of the smaller cities which are themselves rapidly growing? And if they themselves aren’t, its likely that their local market’s shops will source new products from the nearest city. Innovation diffuses outward from the urban areas, as do new ideas and thinking. We saw this same pattern with the way the internet cafe industry was evolving across Kenya during the Village Telco project last year. And its the same pattern of diffusion for new product introductions in the informal trade – the ones who are ultimately serving the BoP customer in their rural village. Thus, this target is a focused one with greater impact than seen in the first instance.

What Nomura’s gurus have added however is a layer of nuanced caveats on this analysis – one, not to forget the fact that even as people’s upward mobility takes them up the food chain to ‘middle of the pyramid’ (their MoPs in the diagrams), this very same economic change will have visible impact on the local business environments, so stay cognizant of that, and two, that even as people migrate upward economically, they do not automatically change their system of values in terms of purchasing patterns and buyer behaviour to resemble the existing higher income strata, instead they still think like the “BoP” they were.

Thus, the emphasis in the strategies to choose how and at which point to enter the market whilst straddling both the MoP and BoP population segments. An example of all of the above comes from the recent Daily Yomiuri article about Yamaha’s activities in Asia and Africa:

Yamaha Motor Co. has started selling water purification facilities in emerging countries in Africa, Southeast Asia and other areas, as part of its so-called bottom of the pyramid business plan, which aims to generate profits by improving the livelihood of low-income earners in such countries.
Yamaha has built small water purification facilities in five locations in Senegal and Indonesia, including local water service public corporations. Each facility is designed to provide a community of about 200 households with 8,000 liters of water daily. The firm also received an order in Mauritania.
By selling its name in untapped markets in Africa and small villages in Asia, Yamaha also aims to boost its sales of outboard motors and motorcycles in the future.

Emerging evolution of global BoP markets by mindset and income

 Japan’s Nomura Research Institute have an interesting take on the evolution of the existing global population currently demarcated as the BoP (Base or Bottom of the Pyramid). While it is not surprising that income levels are expected to increase, given the signals already observed in frontier markets and rapidly growing economies, what was intriguing was their assertion that the newly emerging “Middle of the Pyramid” (or rather, emerging global middle class since that’s a diamond not a pyramid) will display an entirely different sense of value i.e. a different mindset, from mainstream consumer culture prevalent today.

This values gap between the customers at the BoP and those immersed in the global mainstream is something I’ve written extensively about previously, having identified and framed it in “Design for the next billion customers” back in 2008. It is one thing, however, to describe my observations of differences in mindset and buyer behaviour, and another, to see this aspect in terms of population and income, that too, taking the increasing upward mobility into account.

That is, what this diagram is saying is that not only is there a difference in value (and thus, mindset) between the BoP customer and his brethren higher up on the social and economic pyramid, but even as their income rises and they evolve into ‘middle income’ customers, their mindset is more likely to remain the same as when they were classified as BoP than to suddenly shift into the mindset and values of those in the higher income brackets.

That these emerging global middle classes will continue to have more in common with their rural cousins and their BoP roots.

Yes. This makes perfect sense. And to see it visualized like so offers valuable insight into the emerging consumer markets of the near and medium term future.

Rural India: On the tipping point of a boom or tremors of historic change?

copyright niti bhan

It seems 2012 will be the year of Rural India’s ascendancy over the ubiquitous metros and urban elite in the minds of market makers and strategists alike. I was in New Delhi this last week of August and on my return I thought I’d write an update on my impressions of urban India today, starting with the visible rise of the “emerging global middle classes“. A quick search online however changed my tune when I came across headlines highlighting recent findings from Crisil, the Indian subsidiary of Standard & Poor’s.

The Financial Times puts it succinctly:

Rural India spent $67.4bn more over that period, compared to $53.8bn for urban India.

It’s no surprise that rural India – where around 65 per cent of India’s 1.2bn people live in mostly dire circumstances – spend more on goods and services, thanks to their greater numbers. But the economic reforms of the early 1990s disproportionately benefited the urban, elite and already rich, boosting growth in those areas beyond that of rural areas. That has changed, Roopa Kudva, Crisil managing director, said in a release, because of increased rural incomes and government intervention.

“Underpinning this growth in rural consumption is a strong increase in rural incomes due to rising non-farm employment opportunities and the government’s rural focus through employment generation schemes,” Kudva said.

For instance, the Mahatma Gandhi National Rural Employment Guarantee Act that guarantees 100 days of unskilled non-farming paid work to one member of every rural family injected $9bn in the last fiscal year, benefiting 55m households, according to official data.

The Hindu, extracted August 30th 2012

The Hindu goes on to inform us that increasing migration and rising incomes are, however, unevenly distributed:

One of the outcomes of the higher level of income has been an increase in discretionary spends, a marked departure from the earlier trend of need-based consumption. About one in every two rural households across the country now owns a mobile phone, though in the case of states such as Bihar and Orissa, the ratio is about one phone for every three households. What is more, nearly 42 per cent of rural households owned a television set (up from 26 per cent five years before) and 14 per cent had a two-wheeler for conveyance (twice the level seen in 2004-05). In fact, more than half of India’s stock of consumer durables such as electric fans, TV sets and two-wheelers is now in rural areas.

However, the higher incomes in rich states do seem to skew the all-India average figures. For example, while one in two households in rural Punjab has a two or four-wheeler, a ratio higher than even urban Maharashtra and Karnataka, only six per cent of Bihar’s villagers own a two-or four-wheeler. 

But this is simply the tip of the rural iceberg. Deeper changes are afoot.

Not only is consumption on the rise in rural India, its complexion is also changing, rapidly, due to the influence of aspirational messages, telecommunications in addition to rising incomes and increased migration and thus, remittances:

“Rural shoppers are much more connected than they were 3 years back. Better employment opportunities, more money flowing back into the villages, awareness of large format retail has meant increased exposure and awareness (to the urban way of living).”

In Gupte’s view, “The rural audience no longer wants to be seen as poor second cousins of their urban counterparts. They have the money and they are willing to experiment.”

Yet the story of India, as the most recent findings emerging from India’s Census 2011 “Houses, Household Amenities and Assets,” report, summarized so carefully by  The Atlantic Cities shows, is still that of lack and scarcity:

  • 46.5 percent have mud floors
  • 39.4 percent are one-room households
  • 43.5 percent of households have tap water (though 26.5 percent of those are receiving water from untreated sources)
  • 33.5 percent of households get their water from handpumps
  • 67.2 percent of households have electric lighting (in urban households, that rate is 92.7 percent)
  • 31.4 percent rely on kerosene for lighting
  • 53.1 percent of households have no latrine facilities. 49.8 percent of households are left with no option but to urinate and defecate in the open

demonstrating that opportunities still abound for those seeking to serve the bottom, however, it seems as though the challenges have changed. Finding relevant and appropriate ways and means to serve this potential market profitably will take a shift in perception of who this customer actually is, in the context of the 21st century. Its the rural boat that’s been lifting all others.

Already we see that not only is mobile phone use still growing at a fast clip, but Bharat (as rural India tends to be fondly called by marketing researchers and advertising agencies) is rapidly going online primarily for fun and entertainment. All they lack is local language content and the plethora of services we’ve gotten accustomed to on our English language internet.

At this point, all I can say is that the numbers are in and if they don’t show the genuine upward mobility of the vast majority of the Indian population i.e economic development, in real and absolute numbers, Great Galloping Global Recession or no, then I suffer to think of what will. This elephant has taken one step forward, and I’m looking forward to understanding what it all means. For 2/3 of India lives in her villages and its all very informal, economically speaking, over there.

What price brand? No pretence about “fakes”

One of the most fascinating things that emerged from my immersion in the informal trade of China made consumer electronics in Kenya last month was the role played by “fakes”.

We assume that cheaper copies of well known brands attempt to fool the customers. Packaging and brand names echo the look and feel of the original as far as they are able and the entire exercise is one of “bait and switch”. In fact, this is not the case at all. Nobody is fooled and people know exactly what they are buying.

What is interesting, however, is how these “fakes” are sold.

Shopkeepers – whether the upcountry retailers catering to their local, rural customer base or the wholesalers back in the Central Business District dealing with rural stockists – offer you a choice. They display both the original brand, a genuine product of quality with warranties and whatnot, and the “fake” version, whose only guarantee is caveat emptor, and leave it up to you to assess your willingness to take a risk.

Their words often follow along the lines of “Here is the original Nokia, costing so much and doing this, this and this, while here is the China made product closely resembling the above but has these additional features and costs only so much”. Everyone is completely aware of the lifetime value of either product and the risk involved in ending up with a dud.

It is upto the customer to decide if they want to spend for durability and reliability and quality or make the tradeoff for a short term gain in features, upfront cost and the caveat of a short lifespan.

This approach seems to fit within the constraints of the informal economy’s cash flow volatility as well as the customer demographic’s mindset around brand value and product performance. No one that I spoke to, either at the wholesaler, the shopkeeper or the customer level, seemed to feel that the “fakes” were an attempt to defraud them in anyway.

Its a pragmatic approach to affordability and aspirational ownership.

The continued curse of Cargo Cult marketing in emerging markets

The concept of Cargo Cult marketing is not unknown yet its impact and influence in the emerging markets in which I operate, can be and is, much worse. The so called “Bottom of the Pyramid” (AKA the BoP) markets have conditions that are even more likely to give rise to this blind adherence to conventional wisdom, particularly since they are still the frontier lands, untapped and not fully established or formed, unlike the sophisticated mainstream consumer culture in which the rest of us are immersed. Additionally, they lack the supporting information mechanisms for effective and accurate feedback from the market on the effect of any monies invested in activities.

What is Cargo Cult thinking?

The best known derivation of the basic concept of a Cargo Cult is Richard Feynman’s speech on Cargo Cult Science, from which all other applications have flowed. In a nutshell, unquestioningly recreating the look and feel of an action in order to cause an equivalent result, without comprehending the ‘why’ behind the ‘what’ is what this is about. That is, the underlying principles are not understood and the form overshadows the substance. From the Wikipedia entry:

An example of cargo cult science is an experiment that uses another researcher’s results in lieu of an experimental control. Since the other researcher’s conditions might differ from those of the present experiment in unknown ways, differences in the outcome might have no relation to the independent variable under consideration.

Similarly, in situations which I will describe in greater detail below, a standard set of marketing actions are applied, regardless of whether the conditions may be the same or very significantly different. Conditions, in this case, include not only the very different operating environments between developed nations where most of these techniques and strategies were evolved, but also such elements as product categories, consumer demographics, media reach and consumption behaviour, not to mention cash flow, purchasing patterns and access to consumer credit.

Cargo Cult marketing in the informal economy

While the sachetization of everything is a great example of Cargo Cult marketing in the informal economy, the problem is deeper than simply a cosmetic change to the packaging or size of an SKU. Its the unquestioned application of a preconfigured set of activities that form the part of a marketing plan or strategy in a context and situation wholly different from the original.

Take Coca Cola for example. It is a fast moving consumer good (FMCG), an impulse buy or luxury, not a critical need for human survival, it is a ubiquitious global brand with the marketing firepower to pay for advertising on every single media available in every single country they are in and yes, in the commodity category that is sugar water, it is a brand that must be continuously hammered home and built.

Demand creation, market creation, distribution channels and consumer awareness are long established even in the untapped or underserved markets of the lower income demographic or the BoP or the rural customer in Africa or Asia. Directly or indirectly, the world has heard of Coca Cola.

“Build brand”, “Push a single message”, “Radio spots”, “Banners, stands and marketing collateral” are the elements of the Cargo Cult that are then replicated for any other product regardless of category – is it an FMCG or consumable like a soft drink? or existing demand – is it a brand new product category or do people even know this product exists and how it might benefit them?

These questions and others like them are overlooked in the belief that if we follow a Coca Cola’s steps exactly, we too will have a brand just like them (in far less than a 100 years) and consumers will come ask for our new product introduction by name (for far less than the billions of marketing dollars spent annually).

But wait, we developed this strategy following the textbook exactly

Kotler’s operating environment is Chicago. I have met with and spoken to him at NorthWestern. The decades of consumer insights leading the development of marketing principles and approaches were not developed in isolation from the information flows and experience that the context of a generations old and extremely sophisticated consumer culture provides.

Price, Product, Promotion and Place are the 4Ps that may not change as elements to be considered when looking at the marketing strategy for a new product introduction in the informal economy, but if we overlook the vast difference in context and thus leave questions of whether what we are blindly replicating is relevant, appropriate or even, affordable, unanswered, we are doing no better than the original South Sea islanders whose Cargo Cult religion led them to build a facsimile of an aeroplane landing strip in the hopes that flights bearing valuable cargo will arrive.

You can build a brand all you like, throwing thousands of dollars in plastering your name across the village or town but if its relevance to your customer’s lifestyle is unknown, will they ever even notice it or care?

You can play around with price and the psychology of price, but if all the principles you learn about and apply emerged from studying behaviour in a consumer market where disposable income and consumer credit cards are implicitly assumed, what difference will it make to subsistence farmer Joe whose cow will be kept unsold until its time to pay school fees for his children?

You can place yourself in hundreds of supermarkets across the country but your if intended target audience shops in their own informal and traditional markets, your efforts will only lead to a very expensive last mile problem.

You can continue to throw more and more money at the problem but without understanding who your customer is, how they shop and the decisions they make, in the context of their daily lives and environment, you will still feel the gap of an overwhelming lack of response. At that point, remind yourself of what Einstein once said,

“The definition of insanity is doing the same thing over and over and expecting different results.”

Marketing without understanding the basic principles of what and why and thus, how best to reach one’s customers, is Cargo Cult marketing.

If you must copy Coca Cola slavishly, then copy their willingness to be inspired by what their customers were actually doing, not what they thought the customer should be doing or imagined they were doing.

New Product Introductions in Informal Markets

“What’s new?” I asked Peter who runs this mari mari shop in a makeshift market just yards from Nairobi’s famous Kibera, and he proudly showed off the various features of this television set cum DVD player that can run on a small battery if need be. Yours for just $100. Don’t miss the bright pink amplifier on display or the rest of the ‘shiny shiny’ that Peter brings from the wholesalers in the Central Business District.

China made goods flood the informal markets across rural Africa while mainstream media turns itself inside out wondering how they’re doing it, so easily, so cheaply and so well, even as global brands and well meaning social enterprises struggle to get their life changing products to market.

For a sure signal of the emerging global ‘middle class’ and their aspirations, just take a careful look at what entrepreneurs like Peter are stocking for sale. Unsold inventory is a luxury he cannot afford and will work to minimize risk when it comes to new products and innovation. The Chinese manufacturers know this so they offer good on commission to the wholesale shops, leaving stock on display and returning to visit weekly to collect cash and check up on what’s moving fast and what isn’t of interest to customers like Peter.

Warranties? Return policy? Customer service? That’s the tradeoff the informal economy makes in return for affordable luxuries.

Marketing principles for the informal economies of the emerging world

This will be the working title of the book I plan to sit down and start writing the latest by January 2013. And I can’t start earlier than November this year because I need to see the results in the market start to come in first before I can pontificate on the topic, but naturally as they say.

I was mentioning to someone on a call just yesterday that we cannot define the informal economy, or rather it has been our attempts to do so that have led to more barriers between the formal and the informal. Why not try to describe it, give it some characteristics and possibly propose a principle or two that underlays the design?

I think that the seeming chaos of the informal economies across the rural and peri urban parts of less developed regions seems to imply automatically to those more accustomed to neat and clean systems that work in their home locations that there are no rules to this economy nor any commonly agreed standards or measures i.e. economic anarchy

This is so not true.

This old post of mine illustrates different types of “socially agreed upon” weights and measures in the informal market, not only is the variety astounding but the quantities and measures are similar across the country. Every single cyber cafe, big or small, across the country charges a shilling a minute as standard rate unless they have high competition in the neighbourhood that might make them lower it but I’ve only seen it twice in all the cybers we covered in last year’s Village Telco project.

Flexibility is the key to understanding how this economy works, and its carefully crafted hyper local “guidelines” rather than rules, as in they are socially enforced rather than through formal channels available to consumers elsewhere more privileged.

In your tiny social network/community/income source pool, you cannot afford to gain a bad reputation in transactions, work will be hard to come by. This is the basis of the naturally evolved checks and balances prevalent in the ‘systeme D’.

And so on and so forth, as you can see, it apparently seems I do have a lot to say but I’m waiting for all the anecdata that qualitative research relies upon to come in.