Smallest size in Kenya, October 2011
An all too common a question blurted out in frustration by well intentioned social enterprises attempting to crack the code of the informal economy at the base of the pyramid, usually ending with the rejoinder “when they can spend double the amount on a phone!”
So why aren’t people sensibly rushing out with their hard earned shillings or kwacha or rupee to bring home that life saving potable water gadget or heart warming bit of solar sunshine to add to their clean and efficient cookstove in their kitchens?
There are two separate questions being conflated in that exasperation. One of the fundamental errors in evaluating this dilemma lies in assuming the mobile phone as an object of ownership equals any one of these artifacts i.e. you’re comparing apples to oranges. You may as well ask why someone could spend money on medication for a sick child instead of on your [insert BoP product here].
What seems like a very long time ago, back in 2006 when I first started pondering the BoP and their consumer habits more closely, an online colleague who blogs as niblettes put forth an answer. I’m yet to find a better explanation than his – from a December 2006 post titled “Wealth flow key to BoP product success“:
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 their capacity to pay for a cell phone nor 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 accelerate 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 nor will they prioritize 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).
Well, I think its time to bring this idea out of the oven now – I can attest to this finding after having looked at how those at the BoP managed their household incomes on uncertain income streams – their cellphones did indeed help them accelerate their decision making and the responses i.e. accelerate the cash flow, primarily because they increased their span of control over time – periodicity and frequency or money – in cash or kind.
There are of course numerous other nuances at play in choice of purchases including social status, but sadly, in the case of social enterprises, the majority of their offerings tend not fall under the category of “bling”. But at the very least, we would be doing ourselves a disservice if we consider a mobile phone just another consumer product, at least on this side of the planet.
The other issue, or question, is then “Why aren’t they buying X or Y, when X will save more money for them in the long run and emit less smoke/more light/clean the windows/prevent diarrhea?”
Embedded in this question are frames of reference and as yet undiscovered value judgments – from our perspective, it seems like it should be common sense to make this sensible purchase – I hesitate to call them subtle patronization even though in some cases that may also be a factor.
One of the elements that had emerged from the Prepaid Economy work was the concept of “willingness to pay” vs. “ability to pay” – that is, we should not assume that the ability to pay for a product implies a willingness to pay for it. Conventional frameworks such as disposable income and whatnot operate on this implicit assumption, but once we tease out the underlying influence of mainstream consumer culture, so carefully cultivated over three or more generations, we can take a clearer look across the ‘values gap’ into the BoP consumer’s mindset and values, as a discerning and demanding customer in his or her own right who is making ends meet and a better life for their children in very challenging environments.
I believe framing it this way would then allow for an indepth look at the area of “Demand” – not demand creation, which implies an artificial stimulus of ‘want’ rather than ‘need’ but instead the existing patterns of behaviour, tradeoffs made, the Why behind the decisions to continue to use something instead of replacing it with the socially beneficial solution. One can then see why there is no demand, or if the demand exists, what are the barriers to purchase. In plain English, what’s really going on if we are not to simply assume entire populations lack the common sense of the product’s creators.