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.

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.

Cake Plaza, near Prestige, Ngong Road, Nairobi June 2011

This idyllic garden paradise is our favourite hangout and interestingly enough, our cyber cafe, in the literal sense of the words, since it provides free wifi along with your coffee and butter cream cake. Given our recent single minded obsession with internet access and cyber cafes, it was only natural to fall into a conversation with Cake Plaza’s personable young manager, Ken about his wifi set up and his observations. Ironically (or naturally) this short exchange gave us much food for thought.

In summary, the free wifi is part of Cake Plaza’s marketing budget and it was installed exactly one year ago. In this time, Ken has noticed more people using their phones to browse – they have to request the password for wifi access but he’s also noticed an increase in people coming in with laptops – his thinking is that people enjoy the sense of space and privacy offered by sitting at one of the tables over the conventional cramped cyber experience. In fact, there are groups from out of town who’ve taken up the private room by the week as a temporary work space, paying 1000 Ksh (approx US$ 10) a day for the privilege of reserving it for their use.

Individuals tend to come in the evenings after work, may or maynot have their own mobile broadband modem but it seemed as though after the work day was over, this was where they relaxed with personal browsing for an hour or two before heading home for their dinners. He does have a policy of switching off the internet access for those customers whom the waitrons notice don’t order anything from the menu.

It was this last part that clicked with Muchiri, who, by the way, has the past experience of setting up a successful cyber and selling it as a going concern.  The fact that wifi usage is dependant on purchase implied a business model. While Cake Plaza is an excellent bakery (the owner is an experienced Korean chef) in its own right and not in the cyber business per se, it did have a policy (and password) for its excellent free wifi.

This meant that for many of the evening browsers  making the trade off  between spending a 100 Ksh on a cup of coffee for 60 minutes of browsing may often be a preferable choice to spending just 60Ksh in the local cyber. That is, it was the experience that was drawing the wifi seeking traffic – we can attest to that because we did it often enough ourselves, usually spending far more than we would have at a cyber for the equivalent amount of time.

This reflects back to what I wrote about Robert’s concept of a spacious business center in downtown Mombasa offering comfort and convenience to transient CNF agents and highly mobile urban professionals. As the industry has matured, Muchiri said, it was not about “The Internet” anymore but the customer experience.  Indeed, there may not be cybers in the traditional sense eventually but instead there’ll be business centers, work spaces, hot spots and coffee shops etc – just the way they are found in Singapore or San Francisco.  And if so, then this evolution has already begun here in Nairobi, Kenya.

Reading about Cisco’s move to Bangalore in BW’s breathless prose, this interchange struck me forcibly.

“It will give them some exposure and it’s a glamorous job … but it could create an Ivy League-type clique of expats who are richer than the locals,” Kay said. “I doubt that most of them will stay long enough to learn a language beyond ordering food and beer. They’re not ‘going native’ and getting deep expertise in the Indian market.”

Leo Scrivner, Cisco vice president of human resources, disagrees.

The United States Department of State has extensive literature and information available for their foreign service personnel, their families and children on what to expect when moving to a new culture. Expat websites, newspaper sections and discussion groups abound, particularly as global nomads – children who spent a significant portion of their developmental years outside of their passport countries due to their parents profession – discover the power of the internet to maintain close friendships made from around the world. Expat managers run multinational offices around the world, and their children go to international schools catering to their needs. This, I believe, is an overlooked talent pool for US corporations seeking to truly link to the rest of the world.

Manuel Toscano – who moved every three years until his teens – and I coauthored an article last fall called “Lessons from Walmart: 5 common mistakes when brands cross borders“. These five points are not just for companies, brands or products, they very much apply to human beings as well. More so, since much of our discussion and debate  during the writing focused around our own life experiences in multiple cultures and countries, what we refer to as a highly mobile childhood. Let me summarize them again here,

1. Interpret, don’t translate – Take a moment to understand the intent of the other person’s message, not just their choice of words or linguistic flexibility. Words are powerful. They carry semantic meaning that differs from culture to culture. To only take the meaning of their choice of words, particularly if English is not their or your mother tongue, may lose the true meaning of their attempt to communicate. If you think that the message is inappropriate to the situation at hand, take a moment to ask the other what their intent was, what meaning did they intend to convey?
2. Value is contextual – Geert Hofstede and Edward T.Hall are the people to research and read when it comes to how different cultures place value on different things. So what may seem to you as as the other person’s lack of response or empathy might simply stem from the other not valuing [thus not understanding] what ever it was that was bothering you. For example, the concept of personal space is highly valued in the United States, but almost non existent in India. The British might never dream of asking someone if they were married or how many children they had at first meeting but in Singapore the shopkeeper will cheerfully ask you if you are married, all the while haggling over price.
3. Playing follow the leader – What may have worked in one culture may not work in another. And even if people look the same or share the same ethnicity there is no guarantee that their cultural and social cues are going to be the same. Human cultures and societies evolve over time – an ethnic Chinese Singaporean friend working in Shanghai noticed the difference in San Francisco’s Chinatown. That while all three locales ostensibly shared the same cultural symbols, there were differences in nuance and attitude that were poles apart. Similarly, ethnic Indians in Malaysia and Singapore are very different from those in South Africa, yet in many ways the same. Similarly, the Australians and Canadians are uniquely different yet in some ways very similar to the British.
4. Making assumptions. I am an engineer from Bangalore university. I carry an Indian passport. I live in the Bay Area. What is my area of specialization?
5. Ineffectual leadership – Have you selected the right person for the relocation? From the article,

Whether it is selecting the right local partners or vendors to work with or the employee in charge of the project, the quality of the individuals can often make or break a new market entry strategy. Your brand manager may not have any exposure to the new market or its culture, or may be too inexperienced to question the agency’s decisions. Remember that a large agency may have an international presence but this does not guarantee that their local offices have influence in shaping the strategy of the brand in their market. Think first about who is working on your project and review their approach are they arrogant? are they culturally sensitive? All of these and more are highly relevant to finding the appropriate person or partner for a very different market.

And finally, don’t be in a hurry to see results. While market forces may require quarterly sales figures be constantly monitored, entering a new market, particularly one very different from your own, is a matter of respect, patience and perseverance. Witness Toyota’s successful application of these very qualities in the world today.

 

First published Sunday, 07 Jan 2007 on Perspective (some links may have moved)

Jakarta, Indonesia March 2010

The Monitor Group has made available the complete HBR article “Is the Bottom of the Pyramid Really for you?” (PDF) where the authors frame the debate for multinationals questioning whether to consider entering this challenging though untapped segment of the global marketplace.  They list some of the common barriers faced by executives during their attempts to serve this demographic, the majority of whom live in the developing world:

1. Uncertain cash flow.
2. Gauging demand.
3. Sales and distribution challenges.
4. Disaggregated providers.
5. Undeveloped Ecosystems.

Issues of demand and distribution as barriers are part of the undeveloped ecosystem – or rather, to reframe these barriers in the context of the local operating environment, all the points are elements of the informal markets that currently serve their customers needs.  They become barriers to entry for organizations accustomed to sophisticated information and delivery systems, that is, from their perspective, there is no pre-existing consumer market and one must then create entire value chains from scratch.

And yet, another way of looking at this would be to embrace rather than attempt to replace the elements of the informal ecosystems that exist. How can you leverage the characteristics of what makes them suit the needs of customers who live in conditions of uncertainty?  Flexibility, adaptability, improvization – all of these have been mentioned numerous times in as many reports and articles.  This PDF recommends in conclusion that the most successful companies have been those that have created new kinds of businesses:

The most encouraging business-model innovations at the bottom of the pyramid manage to surmount multiple barriers at the same time. They represent not incremental adaptations but new, groundbreaking, end-to-end strategies.

Leapfrogging conventional wisdom just the way technology has been leapfrogging the inadequate infrastructure in most these locales. But where can we seek the ways in which to inspire such innovation? Imho the challenge that also exists for all these multinationals and their esteemed consultants is that their frame of reference and understanding is so well grounded in the frameworks and structures of the formal economy in which they’ve trained and learnt to operate.

This slide presentation by Gerry van Dyck (source) offers some fascinating insights on informal markets from the perspective of global FMCG brands. Mr van Dyck’s key point being:

if the market woman can succeed in the fierce competitive environment in the unbranded produce sector to create loyal customers then it is possible to use them as a reliable ally in driving change among consumers

Why stop at simply using them as an ally – lets take the thought a step further and see if we can learn from this study on buyer behaviour in the informal sector. Here’s a snapshot of a slide from Mr van Dyck’s presentation:

In a crowded market with numerous shops all selling the same unlabeled, unbranded produce how does a customer differentiate and choose to purchase? Through relationships – personal interactions over time build a rapport between customer and shopkeeper and ultimately it is this bond that drives the purchasing decisions.  In other words, it is the people and the personalities that ultimately matter, not anonymous communications from faceless entities.

And that’s something I see very little mention of in all the fancy documents and presentations being made on how to address the undeniable opportunities available in this space – where are the people? And why aren’t they the starting point for innovation?