Posts Tagged ‘user research’

Exploratory User Research in the Rural Economy

When I first began developing the attributes by which to select representative user profiles for the original fieldwork to begin understanding the “prepaid economy”, that is, household financial management in rural India, The Philippines and Malawi, it was based on people’s ability to plan and budget.

Sustainable Value Chain 8

One can plan best when one is certain of the amount of money incoming and its date of arrival, thus one is best able to manage household expenses on a regular salary on a periodic calender based schedule.  If we cluster rural residents by their ability to accurately estimate the amount of money against its arrival, then the salaried employee is at one of the continuum of certainty. He or she knows exactly how much they will receive and on which date. The other end, however, is the most uncertain, such as the case of the daily wages labourer who may or may not be called for work on a particular day or week.

The farmer, if experienced, tends to fall in between these two points, as they are usually able to look at their crops and estimate approximately the yield and readiness of the harvest. This simple framework of time and money allowed for a reasonably representative sample of any particular region where geography is responsible for the climate and the seasons. The uncertainties faced by local farmers were broadly the same.

Now, we hope to take a closer look at this segmentation model to better refine our understanding of rural economies. At which point did a farm transition from mere subsistence towards aspirations? How? What distinguished a member of the global emerging middle class (GEMs) from one who was barely able to hold house and hearth together? Which other actors were critical to the rural economy, delineated in this case as the last mile of the agricultural value chain, and who were the supporting cast ? All farmers in a region are not alike – how would we begin to cluster sub-segments and which additional attributes would help us?

As a starting point, here are some of the key insights that have already been consistently identified:

  1. The greater the span of control the end user had over their time and money in a payment plan – the amount, whether it was in cash or kind; and its timing i.e. the frequency, periodicity and duration, the greater the likelihood of its success.
  2. Seasonality was a fact of life and cash flows over the course of the natural year reflected this aspect. High seasons and low; wet seasons and dry – the rural economy was closely tied to the land, the ebb and flows of income affecting everyone in the farming community, from shopkeepers to truck drivers.
  3. Liquidity does not reflect wealth, nor cash expenditures a signal of purchasing power.
  4. Affordability is less a matter of absolute price and more dependent on the flexibility of the payment pattern.
  5. In the majority of the developing world, the rural economy is flexible, informal, local, social and interdependent. Trusted social networks were the basis of looking upon the community as insurance in bad times and resilience in the face of uncertainty and adversity a recurring characteristic.

Exploring the concept of user inspired policy planning

Getting up close and personal with Farmer Pedro at the Minbuza

Since late September I’ve been collaborating with Bart Doorneweert on an exploratory project for the Dutch government, taking a closer look at the design process for policy and planning related to private sector development of sustainable agriculture value chains. We’ve been thinking a lot about the user, the end user or the producer, that little guy at the bottom of the pyramid and where and how he fits into the grand scheme of things.

Bart’s most recent posts have been giving me much food for thought as they articulate the familiar (user centred design process, planning and thinking) in a wholly new way and I’d like to share some key snippets here:

Immersion is a project development time allowance for identifying patterns of behavior and capturing unpolluted data, which explain current behavior (also called exploratory user research).Even before you start working on developing a potential solution, you begin with finding focus by asking what would define the problem you are trying to solve.Immersion is a form of subjective inference: something, which depends entirely on an individual’s perception. However, if patterns check out and tend to repeat themselves in other circumstances, or replicate concisely, then subjective judgment is compounded to a more objective phenomenon, and becomes verifiable by others.It is then, when actionable insight appears, because the pattern has provided an insight and become a structure that organization can use to craft solutions.
[…]
The purpose of immersion is to discover patterns, which can evolve to a new basis for objective decision making.

Immersion can be seen as a mechanism for mitigating the constraint that uncertainty imposes on organizational decision-making.

With the pace of change accelerating, the immersion exercise increases in value and in necessity. It will need to be done more widely and frequently to update our current objective decision making frameworks, and prevent them from becoming an obsolete representation of the actual world.

What I liked about the way he’s framed this activity of Immersion (call it exploratory user research or simply fieldwork), the first phase in the user centered design process, is how he has connected its relevance to dealing with the challenge of uncertainty and rapid change.

Uncertainty is the only certainty, I’ve often said, when it comes to the conditions in the operating environment at the Bottom of the Pyramid, and strategies demand flexibility and responsiveness in order to cope effectively with the perceived chaos of the developing world.  But what he’s added here is this little insight from the perspective of policy and planning for sustainable development programmes:

It was once the wish of social engineering to control for uncertainty in the social environment. The premise was that you could make decisions based on a certain desired outcome, and hedge against the risk of it turning out otherwise. But through a couple of decades of iterating on the concept of social engineering we now know that it can only achieve so much. The power to coerce people to choose one type of behavior over another dissipates under change and uncertainty. The framework has shown to be ineffective, or too costly at best, and the social environment has increased in dynamics thereby making it less controllable.

It has been said that 96% of innovations fail and much of it is a hit and miss spaghetti on the wall affair. Human centered design planning has claimed to increase the success rate of the new – whether a product or service – by starting with understanding the intended target audience i.e. user research, exploratory and broadly focused, in order to identify opportunity spaces (and unmet needs) for design and development of products or services that offer value and resonate with users’ worldview.  This is critical for ensuring that relevant, appropriate and affordable solutions are ultimately designed for the intended target audience. The aim, naturally, is to lower the barriers to adoption and decrease the dropout rate.

Conceptually we can take this thought one step further by applying the same approach to solution development for policy and planning of sustainable programmes for development in the agricultural value chain. We can begin our user centered approach by questioning and validating our assumptions about Farmer Pedro and refreshing our perceptions of his current day status, situation and aspirations, as much as any multinational mobile manufacturer, but in practice, how would this work in an arena that has traditionally been top down and on a grand scale?

Is it enough to be inspired by the human centered process, in a complex multi-stakeholder context such as this, to simply remember his presence in the meeting rooms of the first world, or is there a way to add his voice, far away though he may be, to the design and development process?

As Bart has written, too many programmes fail to continue once donor support is withdrawn i.e. they are not sustainable in and of themselves:

Rather than focusing on the results of a project, I propose to take a different perspective on the purpose of private sector development. The task of a private sector development project is to create a temporary organizational vehicle, which is geared to search for the new business model that will deliver replicable and scalable ppp impact. In other words, it’s not the impact itself we’re after, it’s the business model that will deliver the impact. Private sector development, as a complementary coalition of for-profit, and non-profits, should limit its resources to validating such a model, ie. a feasible, viable, and desirable model.Exit comes after such validation.

Prioritizing whom you put at the center of the strategy and why

The tacit mandate for companies interested in the BoP market is that your product or service must either fill an ‘unmet’ need (of which the poor have many), or provide a way for them to enhance their livelihood or quality of life. Why else would they divert their limited and hard-earned cash for your product or service? So the fundamental consideration before design would be to focus on the benefit to the BoP: Is there an opportunity for social or economic development?

Next, the solution must be well designed—contextually relevant, appropriate, and of course, affordable. But the best designed product or service in the world will not sell if your customer is unable to find it. Since logistics and transportation is as much of an infrastructural challenge in the developing world, distribution becomes critical in ensuring the availability of the product. The entire supply chain might have to be built from scratch.

Once you’ve made the right product and got it out to where its needs to be, are your customers aware of its existence, what benefits it may provide for them, and the reasons why they should think about purchasing it? Is there a demand for this product, or can one be created? Does the value proposition of your offer resonate with the value system and worldview of those at the BoP?

And finally, the whole offering must cohesively hinge upon preserving and ensuring the dignity of your new customers. The poor are not looking for handouts, but rather opportunities; providing them with such products or services through a filter of ‘charity’ or ‘social work’ serves no one.

Our work in the field observing those at the base of the pyramid had led us to conclude that their life of adversity—managing in challenging conditions—evidenced a very different value system and worldview from what is commonly considered mainstream consumer culture. Their buying behaviour and decision-making criteria imply that those in the lower income strata—particularly in the developing world—are not ‘consumers’ but in fact extremely careful ‘money managers’ for whom an expense is often an investment whose return must be maximized. They tend to be risk averse and seek greater value from their purchases.
So an integrated strategy—one that looks beyond the design of the product or service for the other 90% but also takes distribution, demand, development and dignity into account while touching the core values of the BoP customer—could be considered a framework for best practice. ~ The 5Ds of BoP Marketing: Touchpoints for a holistic, human centered strategy

Why?

 

Lets take the example of your average social enterprise seeking to sell a cookstove or solar lamp to the erstwhile BoP customer. Do you know where he or she goes shopping? If you’re targeting rural customers in Sub Saharan Africa or South Asia, what are the odds of there being formal retail within accessible distance?

What are the odds of your subsistence farmer dropping by a supermarket when he’s in town next for market day? What kind of a difference will it make to your distribution strategy or demand creation and customer awareness program if it were designed from the point of view of your intended customers and their daily life, environment and buyer behaviour?

What if these assumptions were validated prior to investing thousands of dollars in setting up traditional distribution channels, per the conventional product introduction strategies as developed in the more sophisticated mainstream consumer markets?

Most social impact programs, whether they offer a new product or a service, or a program for socio-economic development of some sort, tend to focus their efforts on meeting the perceived needs of their most visible stakeholders. Rarely are these the intended recipients or end users, that is, the customers who would be purchasing the product or participating in the program or service.

Thus, when when there is little or no traction in sales and/or use of product or service, its always a head-scratching surprise. No wonder, when marketing may focus on value propositions that attract funders or changes in design are based on intermediary feedback, with little or no resonance with the actual needs or challenges faced by those among the intended target audience.

Human centered design, which inspires this holistic approach to the design of a strategy or plan, provides us with an approach which prioritizes the needs and challenges of the people considered most important for success or failure. Over and over, we learn expensive lessons when little or no impact is observed. Experience shows that the most dangerous assumption at the start of planning a program or crafting a strategy is that there is no difference in context between BoP markets and mainstream ones.

Whom do you choose to respond to? 

Prioritizing a particular user group allows for more relevant design and development. Iteration after initial implementation, that is, testing the prototypes in the field, need to be based on accurate feedback and if this aspect is not considered critically, then strategies get misaligned as multiple voices may offer conflicting or indirect information.

What do you choose to focus on?

Time and money are not unlimited. Prioritizing which set of voices to listen to and what context or needs your service or program is meant to serve helps increase the focus of the efforts and the resources.

As our most recent experience with agricultural value chain innovation in the context of social and economic development for Bottom of the Pyramid markets shows us, the lack of clarity and understanding of who exactly is the “User” ie. not having a specific focal point for planning and for program design leads to a cascading series of challenges from initial implementation through to end result, and thus, impact.

What essential aspects of the approach, philosophy and methodology from human centered design can offer value to such program development for donors?

Putting people first: the difference between “what” and “why”

Pondering the topic of contracts and creativity in yesterday’s post made me think about problem areas, how they’re identified and how they may be deconstructed. In simpler terms, the difference between the “what” and the “why”.

Take two regions in a country, one far more fertile and having a better overall economy than the other. Yet both areas face the same lack or unmet need. Take a product which fills this need. Yet it’s sales in the far more economically challenged area are more than double that of the first region. Why?

The numbers gave the company a means to identify a problem but are not able to provide any explanation for the discrepancy. It was these very same metrics that originally identified the first region as one which would be a good location to launch a product – average income was higher, unmet need was felt by almost 90% of the population, retail outlets were numerous etc.

This is where the need for exploratory user observations in the field, in order to understand the customer base and their behaviour made sense, as the company’s sales data (contradictory to initial performance estimates) needed explanation that only the people generating those same numbers could answer themselves.

Data, charts, graphs, metrics and numbers all have a role to play but when they are about human beings (and not just the number of cars per minute produced in an automated factory line) I believe that role is a supporting one, not the Oscar winning star of the show.

Low Income Household consumer research in rural Kenya

Roadside clothing shop, somewhere between Emali and Wote, Kenya Nov 2011

In a couple of weeks, I’ll be starting a whole new set of fieldwork in rural Kenya.  This time we’re doing something closer to the better known applications of our human centered design approach for increasing our understanding of people. It will be among rural ‘BoP’ households on behalf of a consumer product that’s retailed in leading supermarkets. While our previous client project allowed us to delve deeply into a topic that interests us both – mobiles, internets and cyber cafes – I’m looking forward to the opportunity being made available to me to finally be able to do something approaching the ‘prepaid economy project‘ from two years ago.

That is, I’ll have the chance to find out how those on irregular income streams manage their household finances and share this openly on the blog. Since it is also a rural location, it maps on almost exactly to the criteria of the previous locations in The Philippines and in India thus permitting an excellent opportunity for contrast and comparison. What’s exciting me however is that this will be in Kenya, home of the mPesa mobile money transfer system, and I want to see if it will be mentioned by any of the respondents in their answers to the same set of questions I’d used previously.

That is, without any mention of it from my side, I want to see if MPesa has made any difference to the way rural folk deal with emergencies or planned expenses or any other aspect of their daily life.  If there’s anything of note, my hope is to be able to write a comparitive paper on it and extend the findings from the previous research. Of course, our current client will also receive what they have asked us to find out for them – its just that its all under an NDA.

This series will be categorized under the Project category titled “Prepaid Kenya series” and I’ll be using “prepaidkenya” as a tag to all relevant posts, if you’d like to follow along.

M-PESA and the service innovation framework (extract)

A former student of mine just mailed me this article “Extracting Key Lessons in Service Innovation” (pdf) by S.Wooder and S. Baker, recently published in the Journal of Product Innovation Management, January 2012 edition. Here is the abstract of the article:

This paper describes how Sagentia—working with Vodafone, Safaricom, and other organizations—played a significant role in the creation and delivery of a landmark mobile money transfer and payment service for emerging markets, starting in Kenya. In this profile we examine the organization aspects and approach that contributed to the success of the service: the lessons we learned as the technology provider and how the experience has informed and strengthened our service innovation processes.

Reading through, what I found most valuable among the basic principles so simply and clearly articulated, was this insightful description of service innovation, as pertaining to the ways that a human centered design innovation team can work to improve the customer experience for any company, large or small:

What Is Service Innovation?  Creating and Delivering Value

We are familiar with service innovation examples such as music download, loyalty programs, franchise chains, ticket/check-in kiosks, and online tax returns.

Service innovation can be described as a combination of technology innovation, business model innovation, social-organizational innovation, and demand innovation, with the objective of improving existing services (incremental innovation), creating new value propositions (offerings), or creating new service systems (radical or transformational innovation) (IfM and IBM, 2008). The key components of service innovation can be distilled down to “participative” value delivery; […]

So if the service is considered to be:

• something that may or may not entail physical product delivery or consumption
• a value delivery mechanism that connects the enterprise to the customer
• the combination of a value proposition, a delivery mechanism, and a customer’s experience

Then service innovation is simply innovation applied to one or more of the following areas:

• new concepts and/or value propositions
• new delivery mechanisms and/or business models
• new experiences

[…] Successful service or product innovation encompasses progress from the creative act (the so-called fuzzy front end) to the commercialization act (execution) and beyond that to sustainability and evolution of the innovation. Our simple framework for service innovation is shown in Figure 3

Service-Innovation-FrameworkAnd finally, they share with us the mapping of MPESA on to this service innovation framework.

mpesa matrix

The authors conclude their informative article with the following words:

Key lessons that were highlighted by our experience with M-PESA include:

• Learning in a detailed sense the needs of users in new markets and ensuring that it is possible to implement these needs and requirements as part of a pilot process;
• “Keeping it simple”; particularly in the early stages of the service, it is important to focus on a small set of compelling, marketable functions and features;
• Ensure that flexibility and agility, the ability to react and to respond to changes in the business model, are designed into the system; and
• For a service to succeed, it requires a critical mass of users as soon as possible; identifying mechanisms to motivate users to take up the service is an important part of the service innovation process.

The results of the study cannot claim to be generally applicable; however, it has allowed the “usefulness” of the conceptual stages in the service innovation framework to be empirically tested in a real-world example, and the vulnerabilities and strengths are better understood as a result.

In conclusion: Lessons from The Village Telco project in Kenya

We’ve finally reached the point in our work for Village Telco where there’s been enough time for some reflection after the intense weeks of travel and observations across Kenya.  I can cluster our learning into three broad areas: our approach, methodology and team work; Kenya’s people and the informal economy; and finally, the role of the mobile phone and the internet across the country.

Facebook
Top of mind, what I would really like to do is take a deeper look at all the factors Why a social networking site like Facebook has become so popular – is it like Mxit, a far more affordable and convenient way to stay in touch with extended social networks or are there reasons beyond the obvious?  Given the variance in socio economic backgrounds and education among all those who were active on this platform, I wonder whether there are learnings of value for the larger goals of what ICT can do to enable social and economic development. Instinctively I feel its not Facebook per se that is the critical factor, like a Mxit in South Africa or an Orkut in Brazil, it simply happened to be there. However, given my approach to increasing understanding of a particular demographic or validating a hypothesis, my first principle is to question my own instinct and subsequent assumptions.

Mobile Phones and the Internet
Our assumptions and inferences from the surplus of information and data available on mobile phone use in Kenya, for both online use as well as regular use, were seriously jolted. You could say we had the veil torn from our eyes.  A future post that has been percolating is one that turns my entire thinking about the Mobile and the BoP upside down, from the point of view of “the mobile as a platform for social and economic development” for the individual.

A big realization was that it was technically impossible for people to go online  – if it wasn’t just  the initial peek at Google or Yahoo or what have you – from their mobile device without visiting a cyber cafe (or using a computer) first. If you are a first time internet user and plan to use the mobile as your primary device to check your email and update your status in Facebook, you are unable – at this moment in time – to create your email account, and subsequently your Facebook page, without the use of the personal computer.

The second was that very few of these new internet users were cognizant of the way mobile operators structure the cost of browsing and data bundles. Safaricom, the country’s largest operator, had at least 3 different prices that I’d seen on their billboards and posters – Ksh 4 per minute if you simply went online, Ksh 2 per minute if you sent an sms for data conversion and finally, purchasing a data bundle or browsing package (unlimited by the day or bundle) which brought the cost down further. Thus many reverted back to browsing at cyber cafes where at least one knew what one’s cost would be or could estimate it in advance. Consumer education will be more critical for the uptake of the mobile internet since it is currently not to the benefit of either the operators or the cyber cafes to inform users about their cheaper options.

Kenya is different
We sensed this, we discussed it with Steve Song and we also heard it from others with years of experience of doing business in Sub Sahara. Kenya, as a representative sample of Sub Sahara or even East Africa, is a very different kettle of fish, all in a good way. It wasn’t just luck that most of the cyber cafe owners we met around the country were enterprising, articulate and opportunistic. Neither was it chance that very rarely was I unable to communicate – at least the basics – in English, no matter where we went.

Internet costs, mobile data and voice costs are significantly lower than in most countries and this factor, taken together with the maturity of the urban cyber cafe market and penetration of computing devices – laptops and desktops – meant that this was a very sophisticated market regionally. One cannot generalize our findings for other countries, in fact one would hesitate to do so. Rather, as we discussed with Steve, we’ll take Kenya as a leading indicator of shifts to come in the near future for the rest of the region. For example, VoIP as a service has atrophied into two or three neighbourhoods ever since international calling rates have stabilized at around Ksh 3 a minute (USD 3 cents or thereabouts) on the other hand, wifi is slowly demonstrating its future ubiquity.

However, some other factors would also play a part in this – literacy is at 85% here; what kind of difference does that make when it comes to uptake and popularity of text based communication mechanisms such Facebook, email and of course, the SMS.  Education makes a difference, since most of the time, even when passing by some of the technically most impoverished parts of the country, I kept feeling that it was in far better shape relative to similar locales in India. This is all good and bodes well for the future of the nation and the region – if I had to launch a wholly new product for the Sub Saharan market, I’d select Kenya for an environment with the lowest barriers to the adoption of innovation. The BoP market is sophisticated and mature while still demonstrating the core values and buyer behaviour seen everywhere else I’ve been.

In conclusion
We now have an innate sense of the Kenyan landscape when it comes to ICT: the technology, the internet and the phone. A gut feel for the where and how and why the diffusion is taking place, outward from the urban metro that is Nairobi and an instinct for the pulse of the country’s progress. The critical role of the cyber cafe was made apparent by the focus of this project and our philosophy and methodology in approaching this problem to be solved – answering Steve’s questions – has been validated and refined. For example, we found that the figure for our estimate for proportional penetration of internet between two regions differed from the Kenya ICT Board’s Access Gap Analysis data only by 0.2

We learnt that no two projects will ever be alike and the only certainty is uncertainty. There are no prepackaged ready made solutions or processes for the challenges we’ll face in our chosen line of work, however we’re on the right path for discovering the ways and means to use the tools available at our disposal in order to best address them.

Today, we’re confident enough to put it in writing that if you’re seeking answers to the unknown, in untapped or overlooked markets and when none of the regular methods and frameworks for addressing your marketing, strategy or design needs seem to work – give us a call or drop us a line. I believe we can help you.

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.

The White Man’s Burden by William Easterly – a user centered approach to aid programmes

Approaching William Easterly’s recent book on foreign aid and economic development challenges in the ‘third’ or ‘developing’ world from the design thinker’s point of view has been an eye opening exercise. Nobel Laureate Amartya Sen has written a mixed review evaluating Easterly’s thesis and approach, while other reviews include the London Book Review’s balanced summation.

While written about developmental economics, poverty, foreign aid and the grand plans designed to save the poor from themselves, Easterly proposes an alternate approach based on the principles of the user centered approach to design of systems and solutions.

Do exploratory research, understand the needs of the users, observe them and the systems they already have in place for addressing the issue or existing grassroots solutions [jugaad or bottom up innovation], use these as prototypes for the design of replicable successful programs, cross pollinate ideas that work across different regions or countries, adapt programs and plans to local culture and social customs – basically the user centered approach to the implementation of aid programs.

But Easterly doesn’t actually use any of these terms that we may be familiar with, he classifies the top down, traditional global foreign aid approach as one designed by “Planners” and the bottom up, grassroots, user centered approach which relies on feedback mechanisms and accountability as one developed by “Searchers”. Look at the way he describes the approach of each,

“In foreign aid, Planners announce good intentions but don’t motivate anyone to carry them out; Searchers find things that work and get some reward. Planners raise expectations but take no responsibility for meeting them; Searchers accept responsibility for their actions. Planners determine what to supply; Searchers find out what is in demand. Planners apply global blueprints; Searchers adapt to local conditions. Planners at the top lack knowledge of the bottom; Searchers find out what the reality is at the bottom. Planners never hear whether the planned got what it needed; Searchers find out whether the customer is satisfied.”

Don’t the Searchers – who adapt to local conditions, find out what the reality is at the bottom, obtain user feedback etc – sound just like the ideal user oriented consumer product companies who seek to design and develop products to fill gaps in the market or meet an unmet need, discovered by observation and understanding local culture?

Reading further, the takeaway seems to be three key approaches to successful developmental programs –

  • Design programs for local needs and local culture, adapting them to each locale and environment
  • Observe local solutions developed to address the issue successfully, particularly if they adapt the “official” way to do things to the needs of the local culture or customs
  • Then cross pollinate by taking concepts that have worked at the grassroots level – call it bottom up innovation – and scale them or adapt them for other regions or countries

Therefore, while I may not be in a position to evaluate his entire thesis on the global developmental economics platform the way Shri Amartya Sen might be able to, incisively, in his review of Easterly’s book, I do conclude that there is a powerful message here that the very same methods and tools that profit making global multinationals are beginning to use to successfully enter new markets, such as ethnographic research and understanding local culture and conditions before launching products or services without a clue, would also be extremely powerful ways for the design and development of a variety of aid programmes that actually respond to the actual needs of the local populace.

Sen concludes in his review as well,

In his wholesale praise of “searchers” over “planners,” Easterly says, “Planners determine what to supply; Searchers find out what is in demand.” This may be just so, but there is a radical difference (of which Easterly is surely aware, judging from what he writes elsewhere in the book) between the enterprise of supplying “what is in demand” — which is integrally linked to the buyers’ ability to pay — and that of supplying needed goods and services to people whose income and wealth do not allow a need to be converted into a market demand.

None of this, however, negates the importance of Easterly’s general praise of searchers. There is much merit in ground-level explorations of what is feasible — even when addressing problems that are a thousand times more difficult than selling Harry Potter books to buyers who are willing and able to pay for them. Information and initiatives have to come from many sources, including the deprived themselves (this is why studies such as Voices of the Poor are so important), and without constant searching for what the problems are and how they can be addressed, global aid efforts end up being far less effective than they could be.

 

NB: This review was first published on Perspective 2.0 on December 13, 2007

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