These ideas are still fresh (which is another way of saying that they are unfinished), so take with a grain of salt.
Apparently there’s gold rush over there in India and China. They want stuff, lots of stuff, and we only just have to sell it to them. Well not so fast there Tex. There are two factors to consider: demand, and capacity to satisfy demand (and where people have limited capacity, they must then prioritize thier demands)
Sure places like India and China are experiencing both rising demand and rising capacity to pay for their demands. However what they demand, thier capacity to satisfay demand, and how they prioritize thier demands in the face capacity limitations, are all very different from what we find here in the west. To succeed in introducing new products to bottom of the pyramid markets means understanding how approach these issues.
For instance, cell phones are an incredibly popular product in developing countries, despite the fact that their cost relative to income makes them very expensive. Certainly part of the reason is a lacking wireline communication infrastructure. But this is only helps explain demand, not either thier capacity to pay for a cell phone nore the high priority placed on cell phone ownership.
What allows people in developing countries to afford the high relative cost of a cell phone is the fact that these devices provide an actual return on investment–they make money. Cell phones do this by accelerating the flow of existing wealth within an economy.
If you have $1 it takes a year from the day you spend it for it to come back to you (you buy a loaf of bread from a baker who buys some wheat form from a farmer who buys the charcoal from you), you will not be in a hurry to spend that $1. However if it takes only a day for the $1 to come back, you won’t think twice about spending it.
Now, what makes cell phone ownership a high priority for people of limited capacity? Cell phones acclerate the flow of wealth which grows purchasing power without having to first increase the total money supply in the economy. This gets into all sorts of arcane macro economics, so lets keep this practical. Imagine you live in a part of the world where it can take weeks just to negotiate a replacement part for your broken tractor. It costs you the same price for the part, but getting it this part tomorrow means harveting your crops on time, while getting it in three weeks means getting a lower price for over ripe produce.
Accelerating the flow of wealth like this is almost like getting something for nothing: increased purchasing power with no foreign direct investment, no charity and no bloating work hours.
Toothpaste, dvd players, and even dishwashers will not have this same kind of direct and immediate effect on an economy. So while folks in bottom of the pyramid market may want such things, they can neither pay for no will they priority such purchases because these kinds of products don’t repay their investment price the way a cell phone does.
Distinguishing products this way (those that accelerate the flow of wealth vs. those that don’t) seems to provide a lot of insight into what kinds of new products will and won’t succeed in bottom of the pyramid markets. However, like i warned, this theory is still pretty fresh (it may even have to go back in the oven for a while).
I like it; half baked or not. I like getting something for nothing; especially in a business idea. The practical example makes sense to me (and apparently millions of my countrymen who buy cellphones). It’s a great tool for evaluating the prospects of a potential BoP product or service. Actually its a great tool for evaluating any product or service isn’t it?
Absolutely. One of the key things that emerged from the recent Design with India Conference in New Delhi [http://www.ciionline.org/designwithindia] was the focus – both by leading members of industry as well as design studios – on “consumerism”. That too, without considered thought given to what the impact and effects of rampant consumerism might mean if it continues unchecked amongst India’s not inconsiderable population. More on these thoughts soon.
On the cellphone, we documented the purchase and activation of a MOTO cellphone with FM radio for our driver, B. Mandal, in whom, you could see the palpable change once he found that the cell freed him from the tyranny of waiting around for us, and restoring his dignity, i.e. his control over his own time that this little piece of technology gave him. Plus he could keep score as South Africa beat the pants off the Indian cricket team in Tasos’ hometown last week. 😛
Well if you look at the average lower middle class American you will notice that their appetite for consuming is not a good indication of their gained ability to have upwards mobility in the social ladder, I would actually state that in most cases is the cause for the opposite.
We should remember though that in emerging economies the first priority is often education, family and improved health. But I would also state that people at the bottom of the pyramid (especially women) have proven to be more savvy and more focused on long term returns than the average American consumer…..
Good post. I think the understanding the differences, both socially and economically, of emerging countries like the BRIC (Brazil, Russia, India and China) is extremelly important if you want to carry business on those locations.