The Semacraft Blog

Consumer electronics stall in informal market, Nairobi Kenya 23 January 2012

Increasingly I have been getting the sense that there are some fundamental issues with the way BoP focused organizations are developing, creating and implementing their market entry strategies.  Here are four of the most obvious errors that I’m seeing:

Assuming there’s no competition

Most of these firms, particularly those coming in from the outside and seeking to serve the ‘poor’ in the developing world seem to be operating in a vacuum. Observing their market entry actions point to an underlying assumption that they are entering a virgin market where  no competing solutions for their product or service exist.  If this fundamental premise is mistaken then every element of their marketing, communication, distribution and pricing strategy will naturally suffer.

A caveat here is that it might indeed be a virgin market for branded international solutions in the formal market but this is where overlooking the informal markets and existing practices in user behaviour can be far more dangerous since this is where the competition will come from in the form of substitutes or alternate solutions.

Because of the above assumption, little effort is made to uncover information about the customer, the market or competition or the operating environment. Whether this is due to a vacuum of information on BoP markets or the developing world, or this subject simply not being taken into consideration, the fact remains that this oversight then gives rise to a series of errors (like the domino effect) – those in marketing strategy viz., marketing communications, value propositions and positioning not to mention pricing.

Conflating company mission with marketing strategy

While this is most commonly found among well meaning social enterprises entering these markets for the first time with their life saving products for the poor, large multinationals with previous experience in the developing world are not immune the minute they choose to focus particularly on the BoP (or poor) market.

Tata Nano is the most obvious example of this although here one wonders how much of this had to do with their actual marketing communications and advertising for the Nano and how much to do with all the media hype around the car being specially for the ‘common man’? All the positioning and branding in the world through formal advertising and communication channels could not overcome the public perception of the ‘poor man’s car’ created by every other article – from engineering news to international styling – on the Nano.

Similarly, if all the marketing communications, press reports and online information is geared towards the ‘poverty alleviating” mission of the company then this lack of clear focus or understanding of who the target audience is will come through in the positioning and branding of the product in the marketplace.  And no one will aspire to buy the ‘poor man’s product’ if it means a clear signal of having failed to succeed or admitting defeat among their friends and neighbours.

Confusing value proposition with need

This lack of clarity and understanding about the target audience for a product or service and thus, its marketing communications and messaging then snowballs into incorrect positioning of the product or incorrectly identifying the value proposition for the end user.

The end result might be the same – the customer choosing to buy your product – but the pain points may differ tremendously across geographies and regions, not to mention socioeconomic strata. An example is water saving flush toilet mechanisms being sold in Nairobi as a sustainable, greener alternative – that is, the same positioning and value proposition as that used in the eco-conscious parts of the Northern European continent. Sales are sluggish. But when you take into consideration that there is a water shortage or that many communities need to purchase water in tankers to fill their household storage tanks, a simple shift in positioning to “Spend less money flushing down the toilet” or some such clever quip could in fact make a more sensible approach in this situation for the very same product.

This gets more obvious the lower down the income stream you go – Mama Mboga with her vegetable stand may not have the same priorities nor relate to the same value propositions that social impact investors do.

Overestimating the ability of a faceless brand to communicate value

There is probably a snappier sentence to capture this aspect but at this stage of understanding the BoP markets and their challenges its perhaps better to be clear than pithy.  Some have called this issue one of Trust and in the past, I’ve referred to it as Commitment but the fact remains that this aspect is the most challenging and difficult to overcome as a barrier to acceptance.

Even megabrands accustomed to instant global recognition such as Google may find that not only is their brand unknown and unheard of in these new and emerging markets but others may have gotten there before them.  Which, in a way, brings us back to the first point in the assumptions made at the very beginning of considering market entry strategies in the rising global middle class.

Photo credit: Muchiri Nyaggah, May 2011

I have been meaning to write this post for quite some time now, percolating as it has in the back of my mind but it was Mark Kaigwa’s recent comment that finally spurred this writing. This is not all about MPesa, though it will take a look at some of the issues why its runaway success in Kenya has not yet been duplicated elsewhere, beyond the obvious brought up in most articles of “its the banking regulations” or “its the distribution network”.

Much credit of the fundamental thinking that will underlie this post’s premise must go to Wambura Kimunyu of Cellulant with whom I’ve discussed these issues in Twitter.  Furthermore, I believe that if we can frame the problem (and thus the potential solution) correctly, we may be onto something that could in fact make a big difference to the many ways  we attempt to enable and support social and economic development.

Some background
The topic today is the mobile phone (which I’ll also refer to as the mobile platform, since the phone aspect is but a feature of this handheld device) and its role among what is popularly known as the BoP or those at the Base or Bottom of the Pyramid, yet when I think about the very many pilot programs and attempts to spur development via the mobile platform or, as in the case of MPesa, to launch game changing mobile money transfer et al systems elsewhere, what immediately comes to my mind is a reflection on the issues that plagued the analysis of the success of Asus’ eeePC when it was first launched back in late 2007.

We take very affordable and very portable netbooks for granted today but back then in time, the category did not exist until Asus launched their 7″ linux based, open source, rugged and durable beauty for around USD 400.  It was referred to as a “subnotebook” back then and caused much head scratching among the developed world’s leading lights, even as it spurred all manner of competitors to focus on the two most obvious elements of its perceived success criteria – “price” and “form factor”.  Whereas I argued, that what made the Asus eeePC so successful was its fundamental premise – to be an easy to use affordable device squarely aimed at emerging markets and how it was this positioning that drove every other element, including its form factor and price. By focusing only on the obvious, without taking the holistic thinking and underlying value proposition into consideration, competitors were overlooking many of the details that supported its initial success.

Some framing
I see something similar happening with one of the most obvious success stories in the “Mobile as a platform for economic development of the BoP” bandwagon.  MPesa shows up in most analyses of “Business models or mobile thingies that are helping the poor” reports churned out so faithfully by researchers everywhere, yet the question arises, should it be even considered in that sandbox of things that help the poor in the first place? And by doing so, are we overlooking some of the factors of what makes it work so well in Kenya as well as misinterpreting that it was meant to be used only by the poor?

When the first reports of MPesa’s hiccups in South Africa came to light, it was then that Wambura first tweeted about the lack of the banked that were critical to spur the unbanked and thus the overall uptake of the service.  That is, if the MPesa ecosystem did not have enough banked people with money to circulate, then there wouldn’t be enough unbanked nor would there be enough money to circulate etc etc leading to the challenges that they are facing in South Africa now.  You needed the banked to bank the unbanked.  It sounded counter intuitive to me back then but over time as I observed many different facets of this activity across different strata in Kenya it came to me just how much sense this made and also how relevant this aspect was for the success of anything that should be considered as a means to improve incomes among the BoP when using the mobile platform (or otherwise, to be honest).

Why so?

Some systems thinking
That is, for any solution designed to enable the flow of wealth – mobile money transfer for example – or improve wealth creation at the BoP – it was not enough to simply target the poor alone. It would not work as a “Solution for the BoP” primarily because the BoP do not have any liquidity,  even if they do indeed have assets especially in rural areas, or they do not have the cash for it to flow through the system in the first place. Thus solutions aimed at improving economic activity for the poor needed ‘non poor’ actors in the ecosystem in order to inject cash into the system and thus make it flow (and one hopes, grow).

Taking this thought one step further, MPesa – assessed as a holistic ecosystem for financial transactions – has been so very obviously successful in the Kenyan context primarily because it is used by everyone, regardless of their economic standing or bankedness (if I may coin a non word).  In fact I believe that the number of banked actually surpasses the number of the unbanked – there is a link there that right now is not in the scope of this post but we can look at it later.

And thus, when ‘Solutions on the mobile to help the BoP or poor’ are considered, they should be looked at in terms of the complete ecosystem including the critical question of Where will the money come from into the system in the first place?  Without which, they will limp along as a cash poor system with little wealth to circulate, achieving nothing for the BoP in question. Look at this article on MPesa repositioning itself in South Africa towards higher income brackets and away from the original target audience of poor rural women. QED.

Solutions meant to improve economic conditions for the BoP cannot be focused only on the BoP.
Rather the focus needs to shift to complete ecosystems that fill a vacuum of need – usually in infrastructure or services – that include actors from differing socio economic strata in order to make a viable difference to larger population involved.  Not only is MPesa a clear example of this framing – it filled the vacuum of “how to securely and affordably send money” – but it did so for everyone and anyone who wanted to do so.

Similarly, when I consider my favourite example of the Mumias Sugar Company and their payroll management pilot program for their daily wage sugar cane cutters, I see the same potential for a greater impact on social and economic development for the lower income demographic involved in this system. The solution is one that is win win for all stake holders – from the company who doesn’t need to send armed guards with cash into the fields to the workers who now not only have savings accounts but don’t need to carry lumpsums of cash around with them on payday.

I also hear that real time inventory management and other enterprise level solutions for supply chain management are also moving onto the MPesa/mobile platform in Kenya – again involving the tiniest duka as well as the big name manufacturers or distributors.  Again we can see the potential impact on inventory management and thus, cash flow, even at the bottom of the retail pyramid, where its most critically needed and we can project the potential that it will improve the economic standing or at least help smoothen the variability of income streams that these smallest players in the informal economy require.

Will all stakeholders benefit? Yes. And will the members of the ecosystem who happen to fall into the so called BoP category benefit? Most likely. And more likely than if only the lowest segment was involved in a system of this sort rather than participating in the larger ecosystem of buyers and sellers.

Bottom line
Bringing all this back to the framing of the solution space or rather, the analysis of the success factors, I believe that a simple shift away from seeing only the obvious – mobiles! money! BoP! -  system level solutions that fill critical infrastructural and service gaps in locales where there are few or inadequate alternates and that serve many including the BoP can and will do far better to improve the economic wellbeing across the board of society that those that focus on one demographic alone.

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.

Semacraft Consulting Partners
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. In short, Muchiri and I spent 6 intense weeks in the field, for the first time ever together and we actually want to do it again.

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.

It struck me while browsing through some ‘design for social impact’ product websites recently that while their focus might be on the poor, their communication and messaging was geared towards the Western or top of the pyramid audience.  I’d rather not link to nor name names, select your favourite cookstove/solar lantern/water purifier social enterprise and look at it from the point of view of their intended customers – the erstwhile poor in the developing world.

Their marketing communications tend to look and feel no different from that of the big name charitable organizations – big eyed brown child seeking your help to drink water/study/eat food etc.

Modern technology helps Muchiri navigate Nairobi's terrible traffic jams thus giving him less of a headache*

Whats the problem, you say, these are well meant start ups and they need all the help we can give them to get these wonderful life changing products out to make that better world for the 99% er 90%, whatever?

The problem comes down to the value propositions that these organizations identify as being critical for their target audience.

“Cooking with cow dung gives Mrs Rajarani terrible hacking coughs everyday, SupercleanCookStove helps ensure her lungs are healthy enough to do all the housework”*

“Kerosene emits enough noxious fumes to equal smoking 2 packs of filthy cigarettes a day, our CleanFreshBriteLite takes over the burden of keeping encroaching darkness away”*

et cetera

Where’s the problem, you continue asking me, these products are well designed modern technology that will help alleviate these side effects?

Agreed, but is the value proposition being made one that resonates with you, dear reader on the broadband internet, browsing their photoshopped website, ready to donate a few extra lamps/stoves/watercoolers or one that will resonate with their intended customer?

Who is the customer? What do they want? What value proposition resonates with them?

And how many entrepreneurs have been frustratedly asking “Why aren’t they putting down good money for this fantastic product of mine?”

Because the demand being addressed by these messages is not that of the target audience, who are ultimately the ones for whom these products are made.

Everyday, research shows that the barriers to adoption include:

Improved cookstoves rank poorly on all three dimensions: their benefits are rarely valued highly by customers at the outset, they are expensive, and they require a significant change in lifestyle to be put into use.

Lets start with benefits alone – which is where the topic of identifying the correct value propositions for the target audience comes in. If your messaging and marketing is all about the best selling drill addressing an audience of home improvement contractors but what your actual customers need is a hole in the wall, how will you manage to bridge this gap in communication when you face your customers directly?

By focusing on the value propositions – be they environmental, healthcare related or otherwise – meant for every other stakeholder but the end users aka the customers of the product themselves – organizations may never quite identify nor refine the benefits as they relate to the poor customer, in the context of their lives, and their decision to purchase and use the said products.

To quote an old post about the Tata Group’s approach to low income customers,

Their primary criteria – as a business – for the design and development of this product was to take the concept of the Bottom of the Pyramid as a viable demographic to serve, setting the design criteria and constraints for both the product itself as well as their revenue model and pricing structure accordingly. The fact that it will “do good” or “improve life” is as important but this aspect has not been permitted to overshadow the need for the product to be competitively priced and attractive to the consumer, offering value for their hard earned rupee, even as it prevents their children from suffering from diarrhea.

By taking their BoP customers as seriously as they would any other demographic, they focus on delivering a clearly identified and on target customer value proposition, thus a clearly defined benefit, to the end user. This aspect will show up in their marketing and communications as well.

What strikes me the most is that these are the basics of marketing and strategy, imparted in any MBA program around the world.

Siim Esko wrote a short piece on his blog BoP Strategies after a conversation we recently had. Since much of his work focuses on the BoP in India and I’d just returned from the Kenyan tour, it was but natural for us to compare and contrast the challenges and the conditions of the lower income demographic in both these countries.  He refers to recent posts on NextBillion.net when he starts:

Ashoka is targeting the top of the BoP with their Housing for All project, but they can still say they are targeting the base of the pyramid – those who can’t afford current housing solution, but who are not the poorest of the poor. But Aneel Karnani talks about the destitute poor and how the BoP is misconstrued. It’s apples and oranges.

Its apples and oranges indeed but by only referring to them as fruit, that is, the BoP, one tends to forget that this acronym actually refers to the more than 4 if not 5 billion of the entire planet’s population. And they are not all alike in any way, shape or form.  And that’s why I told him that I’m increasingly concerned about unqualified use of the general term BoP for this market.  Siim continues in his post:

There is much use for there being one definition for what we used to call the poor segment. But it seems like people get confused by the ‘bottom’ in ‘bottom of the pyramid’. In fact, it’s a rabbit hole and the rabbit hole goes deep.

We don’t take the whole World and consider that our market. You will never get VC funding with an idea like that. We zoom in on the continent, which can be divided into countries, which divide into regions, into areas. The people in different micromarkets have different buying behaviour, different wants and aspirations. And catering to those wants and needs is different. Selling snow mobiles in Helsinki is different than selling them in the north of Finland where Santa Claus lives. For one, it is entertainment, for the other, about survival. We know that. Think of the BoP in the same way – divided into tiny segments all over. Some marketing strategies are replicable across areas, income segments and sexes, but many are not.

And maybe the use of the term by an Ashoka in their own context of what they are trying to achieve – affordable housing or by Karnani in what he’s attempting to say may work but in the context of the entire global community of people who are increasingly focused on this space (that is, for example, the audience of a site such as a NextBillion) it implies that one BoP reference is the same as another. And why not, they are all the Base of the Pyramid you say?

Kenya is very different from India, and Africa from Asia. Yet due to the singular BoP label, the implications often are that one’s BoP experience with big bad messy India will prepare one for those in Kenya (or that success in a favela necessarily implies success in the basti). How different is this current situation from the early days of globalization and mass production of consumer goods across the world, based on the now debunked theory that Theodore Levitt espoused?

Any global advertising agency will tell you that localization and understanding regional differences is critical for the sales of your detergent or shampoo – the challenges that multinationals who rushed into India and China in the closing years of the previous century are well documented. Those hundreds of millions of middle class housewives were, in fact, nothing like Mrs Saunderson back in Toledo or Cincinnati, were they? So why, now, as we extend our reach down the income stream to the rest of the world’s population, are we on the point of making the same expensive errors of judgment and assumption?

In the early days of awareness creation, that here was a world changing opportunity to effect positive change and impact wellbeing, the concept of the 4 billion micro producers, consumers and creators at the base of the global economic pyramid was a valuable and compelling visualization. It captured the imagination of many and much good has come out of this – CK Prahalad has left us with a legacy.

However, as the BoP market matures and competition increases, it will only get more difficult if this single label continues to be used – it implies a single monolithic entity, segmentable only by “income” – in itself a challenging proposition in an environment where most are on irregular income streams from a variety of sources and unable for the most part to evaluate what their weekly/monthly/annual income may be, much less feel they have $2 or $3 or $5 to spend each day.  We see this in our work and we see it in the field.

If there are truly to be outstanding successes in this area, then perhaps its time to consider this market with the same degree of seriousness that advertising does its audience, regardless of whether you are making a profit, sustaining yourself or simply giving it all away.