Seasonality in incomes still underrated as influence on purchasing patterns

By | May 26, 2012

While the BBC has begun questioning the oft quoted “$1 a day” statistic used most often to demonstrate the bottom billion below the global poverty line, they barely touch upon the impact of seasonality on the population segment’s cash flow, and thus, their bottom line.

And surprisingly perhaps, people who live on $1 a day do not spend all of it on that basket of food – on staying alive. They typically spend about 40 cents on other things, says Professor Abhijit Banerjee of MIT.

“Even though they could actually buy enough calories, the fact is they don’t. If you look at the people especially in South Asia who live on $1 a day – huge malnutrition.

“They sacrifice calories to buy some entertainment, some pleasure. It’s a balance between survivalist behaviour and pleasure-seeking behaviour. I think as human beings we need both.”

The $1 figure is also an average.

“Poor families… may earn $10 a day and then nothing for two weeks,” says Professor Jonathan Morduch of the Wagner School at New York University.

“One season they may earn a lot, one season they may earn very little.”

The World Bank’s first report on people living on $1 a day came out in 1993. Regular updates since then have played an important role in focusing attention on the world’s poor.

This gives rise to the implicit assumptions that underwrite such HBR articles as “Segmenting the Base of the Pyramid” which divides the world’s lower income demographic into monetary segments like so:

Segmenting by Living Standard

The simplest way to analyze the base of the pyramid is to recognize that the income level of $1 a day separates the extremely poor from everyone else, and that people above that demarcation can be roughly divided into those earning $1 to $3 a day and those earning $3 to $5 a day. It’s not the only way to categorize this tier of the pyramid, but it’s a useful one.

How useful is it, really, if one day you make $5 and the next, just $1? Or if you’re living on your land in rural somewhere developing, your harvest season is your time of abundance (and thus planned as the timing for major purchases) while your planting season the tightest period while you invest all available resources into seeds, fertilizer and manpower?

And, given the commonality of characteristics that influence the daily lives of the next 4 billion people – inadequate infrastructure, chaotic systems, informal and cash based markets, irregular income streams from a variety of sources – will the buyer behaviour of someone in that $3-5 segment be very different from his brother a couple of dollars below? Perhaps the bottom billion, those who struggle below the poverty line, are indeed different, but even they, as Banerjee says in the BBC article above, find the cash for some fun in their life, going without a meal for a ringtone or song…

Human beings all dream and aspire and hope… regardless of the lines drawn on paper by distant academics and analysts.  Strategy for the next billion must take their common humanity into account, not simply focus on their wallet’s limitations.

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