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.

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