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New Mindset to Open New Markets

The Economic Times - March 2, 2012

Renaming 'the poor' as 'modest-income' consumers (MIC) helps remind us that these are regular consumers, who do have a little money apiece to spend. The task of making markets work for them is to enable their money to stretch and buy them the things that they need.

Some ways to achieve this:
Remove additional middlemen, who thrive in MIC areas, where because the total demand is too low for viability, regular company distribution channels stay away; middlemen also provide the service of breaking economically viable large packs and selling smaller parts, but at higher price per gram e.g. biscuits or edible oil.

Removing the middle man, yet offering the same quality and price as for other customers, is the challenge to make markets work better for MIC.

Financial services are creating techheavy, people-light systems to do this. Hindustan Unilever is creating new, low-cost, company-controlled, lastmile channels like Shakti Ammas.

Indian Railways is doing this through Internet-based ticketing, which removes asymmetry of information that worked against MIC. They created a swathe of authorised agents to bring the ticket booth closer to the MIC, saving money spent on futile trips and earning loss due to standing in queues. E-governance kiosks did the same.

Facilitate the MIC's consumption pattern - typically, a small quantity, consumed infrequently though regularly. The celebrated shampoo sachet does this. Sachet-isation applies to durables too e.g. laundromats, custom hiring of tractors, and more generally, pay-as-you-use models. For example a small solar power system is owned by one person who charges battery operated appliances for a small fee.

However, implementing such businesses requires a multi-player ecosystem, built and managed by an ethical company, willing to apply the same standards of quality to MIC as it does to high income consumers, investment in capex, and the stomach to play a low price-low margin- large volume game. Only really large volumes will impact many MICs and create enough value for good companies, but it is a long haul requiring patient capital and long horizon thinking. Distance healthcare, which holds the promise of making the healthcare market work better for the MIC, has few takers to invest and aggregate the complex ecosystem needed - doctors, micro insurance, data and video connectivity etc.

The toughest challenge is to design appropriate price-performance-margin right products / services that are win-win for MIC and for companies. Acceptable performance, though a popular phrase, is better substituted by "appropriate performance".

Acceptability is about stripping out features, appropriateness is about designing features that add value to customers. MIC are not backward. They live in a networked world, know what is possible, and will not settle for less. They strive for more and innovate to get there.

Think of the 'missed call' and check out many more (National Innovation Foundation / Grass root entrepreneurs / Honey Bee Network). They also have complex needs, all of which makes it very hard to serve them profitably, with a low price tag. The interpretation of 'financial inclusion' by banks to mean opening bank accounts is woefully inappropriate for complex MIC needs (when you have less money you need to juggle more), and is also not profitable for Banks, the way their current business system works. To make financial markets work for the MIC, understanding of consumer needs has to be the starting point, maybe chit funds is the killer app inclusion product and not the bank account!

Getting all these ducks in a row - designing adequate performance for complex needs of modern age MICs, designing affordable price points or pricing mechanisms based on different ownership / usership models, creating a low cost system of 'manufacturing' and distribution to get it to the consumer - is the way markets can be made to work for MIC .

We are far from this goal, although we have made considerable progress in bits and pieces of these. What is needed is specialised, focused business organisations and leaders with mindsets and passion to experiment and build capabilities to do all this.