Flexibility is the key to affordability

Kitui, Eastern Kenya 5th July 2012

What makes a product unaffordable to those who manage on irregular income streams from a variety of sources? Is it the absolute price that must be paid or is it the requirement that the entire amount be available upfront?

Increasingly, I am reaching the conclusion that there is a link between affordability and flexibility. What do I mean by this?

If my business model is inflexible i.e. it imposes a non negotiable payment plan on the customer – you must pay this fixed amount every Friday OR you must pay this lumpsum upfront (usually in cash money) – it becomes unaffordable to someone whose cash flow may prevent them from accepting this plan. This is not the same as “I cannot afford this, it is too expensive”.

On the other hand, when the purchaser had made the decision that they wish to own something, be it a cow, a motorcycle or a kerosene lamp, then the concept of affordability is more closely related to the mechanism (how) they will pay for this purchase than the total amount required for this asset to be owned.

“I cannot afford to buy this item because it requires me to have 5000 shillings available as a lumpsum in cash” vs “My friend the shopkeeper has allowed me to pay for this asset over time, in small amounts available to me, as and when I am able”.

Thus, my friend the shopkeeper has lowered the barrier to purchase and made this affordable for me.  This is a different assessment of purchase pricing than simply the absolute cost, this is why we hear so often from shopkeepers that “price is not the problem”.

Affordability of a product for the lower income market has most often been understood to be the actual price and companies exert great efforts to lower their costs. But the difference between $8 and $12 is rarely $4 in a cash based economy where credit cards do not exist to cover the difference so much as the barrier thrown up by the need to have the entire amount available at one time. Willingness to pay the price and inability to purchase are closely related to cash flow and seasonality and so, the flexibility to negotiate payment plans is what makes a purchase affordable to the end user.

This entry was posted in Africa, Airtime, Assumption filter, Base of the Pyramid, Business Models, Consumer Behaviour, Economy, Informal & Flexible, Research, User research. Bookmark the permalink. Post a comment or leave a trackback: Trackback URL.

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