Analysis of mobile platform business models for lower income customers by Monitor Group

The Monitor Group has released a report analyzing business models across Sub Saharan Africa meant for the BoP (Base or Bottom of the Pyramid, that is the survival markets living on $2 or less a day shown above).   For comparison,  the percentage of population who fall under the category of emerging middle class market (defined as people able to spend $2 to $20 a day) is as follows for the East African region:

In East Africa, the figure comes to a total of about 29.3 million, representing an average of 22.6 per cent of the population; 44.9 per cent of Kenya’s population, 18.7 per cent in Uganda, 12.1 per cent in Tanzania, 7.7 per cent in Rwanda, and 5.3 per cent in Burundi.

And so it varies, but according to the Monitor report, approximately half a billion people in Africa fall into this category and aspects of their findings will certainly apply to any product or service seeking to scale into the mass market.  They found 3 successful SSA specific models and looked at 3 more promising ones – from the report on Kilimo Salama from Kenya:

Low-income farmers in Kenya typically don’t trust — or understand — agricultural insurance products, which in any case tend to be too expensive to access. Syngenta Foundation’s Kilimo Salama initiative overcomes these challenges by bundling agri-insurance with the sale of agri-inputs to farmers. The model is built on the use of mobile phones: there are no forms, brokers, or eligibility criteria upon  application, and there is an automatic claims and payment process, based on information transmitted from remote weather stations. The venture’s early success, however, is due to the fact that it leverages agro-dealers, who are trusted by the farmer, to act as the contact point for the intangible insurance offering, and bundles insurance into the purchase of a larger item like fertiliser. Kilimo Salama currently reaches approximately 11,000 poor farmers in Kenya, targeting another 50,000 by end of 2011.

On the other hand, here are some challenges that were faced by the non financial mobile based services that Monitor studied:

Business model design

Designing business models effective for market-based solutions in SSA is a precise art. Success requires a sophisticated understanding so products and services are customised to the circumstances, wants, and behaviours in the target segment, and contact channels (distribution, sales, produce collection) are both economical and able to reach BoP consumers and producers at scale.

Pricing

Customers showed high sensitivity to prices, reducing expenditure or shifting to substitutes in response to price increases. This uncertainty about willingness to pay creates a pricing dilemma for MBSs already battling to cover costs. The situation is perhaps even more challenging when a product or service provides no immediate pay-off or offers intangible benefits to the consumer.

Research at 12 providers of mobile-enabled services for low-income customers revealed that only five were able to charge prices covering the full cost of the service. In Uganda, Google launched a range of information-based services aimed at the BoP, initially free of charge. Once prices were introduced, only Google Tips, a service offering health and agriculture information for which there was no real substitute, managed to retain a meaningful customer base, and even this declined by over a third, from more than 500,000 hits per month at its peak to 360,000.

Customer behaviour (verified )

On average, the households of BoP users in our sample spent $4.75 per week — nearly 20 per cent of their income — on mobile services. Because this spending already is proportionately high, the BoP are discerning users, and their willingness to pay for additional services cannot be taken for granted. It is difficult to get them to pay for any m-enabled service. Even the cost of a call or an SMS raised concerns for some consumers we interviewed.

Consequently some operators like KenCall’s Farmers’ Helpline rely on “call back” (a service in which agricultural experts call customers back with answers to questions rather than looking for answers in real time during a call initiated by the farmer) as the primary means of contact, to reduce customer airtime costs. Given cash flow constraints, not surprisingly, BoP customers require a high burden of proof that a service is worth paying for regularly, and will often independently verify in the early days whether the information received on their mobile is correct. Several farmers in Ghana described testing price information by calling relatives with access to the markets for confirmation.

But do these challenges imply that there is no scope to scale like an MPesa or do they provide an opportunity for well crafted business propositions offering tangible value with clear benefits to specific customer segments?

The report does have this to add:

And the mobile revolution is not restricted to higher income groups; in our sample of BoP mobile users, more than 60 per cent owned their own handset (out of those living on $2 a day or less). Africa has led the world in the adoption and penetration of mobile-based money transfer solutions — M-PESA, Zap, Wizzit, and others have charted innovations in mobile applications to extend access to financial services. We observed far more mobile-enabled activity in Africa than in India.

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