Making Customers out of the Poor

(Seeing as I am here in Kenya working in international development, this post is the first of several where I’m going to consider my experiences through a slightly more academic lens. Hopefully it’s still interesting. If you’re looking for photos and a more narrative-y discussion of my first full week, check back Monday, when I’ll have better internet.)

While driving up the highway from Nairobi to Nanyuki, our matatu (bus/van) passed by a number of slums, and other neighborhoods that were clearly very poor. One of the things that struck me about the experience was how commercialized it was by a few brands. In the midst of several of the slums, there were restaurants selling Coca-Cola, bars offering Tusker (the local beer) and, perhaps more than anything else, shops from the telecommunications provider Safaricom, offering mobile phone services, and MPESA (a payment system via your cell phone that I’ll almost certainly commit an entire blog post into the future).

When pictures or discussions of slums are presented in news sources, on tv, or are featured by NGOs to compel people to donate, the vulnerability of the individuals living there is almost always the point of emphasis. It’s much more common to hear a discussion about how unfortunate it is that they don’t have running water than it is to hear about the sort of business opportunities available by selling to them.

And yet, looking at the stores that are available to them suggest that, unsurprisingly, those living in vulnerable conditions have the same sort of preferences as individuals living in much high income settings. Taking stock of any strip mall in middle-class America will almost certainly show similar products—restaurants, places selling drinks, stores with tech products, somewhere to withdraw money. While none of these services is hailed as a bringer-about of social transformation, I think it’s safe to say that the availability of these products and services makes our lives better, by offering us more choices on things we want.

I think the same is true of products like Coca-Cola. While you can criticize the nutritional value of soda and say that it’d be better if those same people could buy healthier products, Coke is offering a product that people want to a market where few large-scale producers will enter. It is my hope that over time, more large firms will see low-income individuals as a market worth investing in. Even if they have a lot less money than the average customer in a wealthier nation, they still have money, they still have things they want, meaning there is a market to be had.

A great example of tailoring products that I read about took place in India, with Johnson and Johnson. They began selling single-serving shampoos to low-income customers there, to great success. While at first blush, it seems like an odd product, a more thorough consideration proves it to be a logical product. Imagine you are living day-to-day. While having shampooed hair is a nice thing to have, it’s probably not at the very top of your priority list, as far as investments to make. If you’re unsure as to whether or not you’ll have enough to make more essential purchases in the future, it’s really hard to justify investing in a massive container of shampoo. However, in situations where you do have a surplus, a single-serving shampoo is something you can buy, without having to worry about having a bunch of excess shampoo in times that are leaner.

Like Johnson and Johnson and like cell phone service providers, there are all sorts of products that the poor are likely to want, where they are not considered buyers because of their income limitations. However, through clever adaptations like Johnson and Johnson, there are ways to tailor products to the needs of the would-be customers and to make them affordable. There are, all told, more than 2 billion people living under $2 a day, many of whom living in densely populated, urban settings. By making customers out of the poor, it’s possible to make a profit while simultaneously improving their freedom of choice, and therefore the quality of their life.

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10 Responses to Making Customers out of the Poor

  1. Macro Dude! says:

    But where do you draw the line? Is all choice good?

    If coke is unhealthy, but is another choice for the poor. Surgery Candy? Tobacco? Alcohol? Guns? Lottery tickets? Gambling in general?

    • nate0316 says:

      It’s a fair point, that choice is not unequivocally good. Without being paternalistic though, I think the ideal long term goal would be a diversity of choice, where people have both healthy and unhealthy options available to them. There’s a fine balance between giving people the freedom they want to make decisions, while encouraging healthy behavior. The policy option that much of the US seems to have decided on is making some sort of nutritional information required. I think we’re a long way from that being available to certain parts of Kenya though, so not sure that’s feasible. I think another option might be to remove the regulatory burden for firms that offer healthy products, so that a store selling healthy goods can more easily invest in an emerging market.

  2. burningthecouch says:

    Have you considered these “large firms” or transnational corporations (or more broadly, globalisation and capitalism) might just be what keep people poor in the first place? BM

    • nate0316 says:

      While I think there’s certainly a case to be made for MNCs and the fair trade system promoting inequality in some instances, I don’t think they’re really to blame in the case of those living in the slums of Nairobi. I would argue if anything, one of their main challenges is a lack of access to markets–they have a limited number of places to purchase from, and limited number of avenues through which to sell. As products are imported from abroad, they are able to get access to more choices, at more affordable prices. Not to say that MNCs are blameless again, but I think in some situations, one cannot discount the positive impact they’ve had.

      Also, I think there’s little doubt that while Safaricom is a large firm (it’s a subsidiary of Vodafone in Kenya), it has had a huge, positive impact on the Kenyan economy, and Africa in general. The introduction of MPESA, a mobile cash transfer system, has dramatically improved the economy (more to come on this later!). It’s much easier and safer for Kenyans to send remittances home (improving they’re ability to migrate to find work), they can more safely make purchases by not having to carry money with them, and the poor and unbanked are able to have a place to accumulate savings, other than under their mattress. Mobile money is a good example of a purely private sector innovation, fueled by MNCs, that have dramatically improved the lives of many.

      • burningthecouch says:

        It’s interesting to hear your views contextualised by your experiences in a country I’ve never been to (and of course don’t pertain to speak for). Thanks for your reply 🙂 Still, I feel that even if there is a lack of choice as you claim, it would be far more prudent and sustainable to be encouraging locally grown solutions, instead of placing more money and power in the hand of multinationals.

        Without knowing too much about MPESA as well, I feel that yes, while communication and mobile money systems fall under the banner of a ‘product’, we have to make some distinction between something that facilitates cross-country and international connectivity which has, as you point out, a variety of wide-reaching benefits, and transnational corps coming in just to make a buck under the guise of giving people ‘more choice’.

        I am not denying that having real choices (in general, and as a consumer) is a good thing, and that for the majority of those living in poverty these choices are extremely limited in many ways. Though if we are to attempt to change the systemic power structures that collude (consciously and unconsciously) to keep poor people poor, we must be encouraging home grown solutions.

        It’s far more empowering to have ‘control’ than to have ‘choice’.

      • nate0316 says:

        I think there’s something to be said for locally grown solutions–the problem arises when the products that locals are likely to demand are unlikely to be readily supplied at the local level, such as in the case of mobile phones. Some products and services can best be done locally, but there are also times where it is appropriate to take advantage of the comparative advantage that the free trade system offers.

        MPESA is something definitely worth reading more about. While Safaricom didn’t create the service with altruistic intentions (they essentially accidentally realized that their service that allowed people to transfer phone credit was being used like cash in exchange for products and services) there is little doubt but that this private sector service has dramatically changed society, to the point where agencies like USAID and DfID are subsidizing the development of mobile payment systems, for instance in Haiti.

        I think the empowerment of choice shouldn’t be understated, particularly when it comes to deciding how much you want to produce yourself locally, and how much you would rather buy from elsewhere.

      • burningthecouch says:

        Also, you mean *free trade (typo!) Eesh don’t know what’s wrong with my account, but I’m maintaining a similar blog to you at http://www.burningthecouch.wordpress.com – a mixture of my experiences working in development (currently in Morocco) and opinion pieces on development principles and methods etc… You might be interested to drop by. Cheers again for posting ! BM

  3. Lord Reaper of Pyke says:

    If you’re doing posts about REAL things, I will be doing guest posts. Welcome. My daughter Asha has butchered hundreds along the way to Deepwood Motte, and “The King of the North’s” grasp is tenuous at best. I have taken the boy king’s posting at the IRON price. (which I may remind you has gone up considerably). What is dead may never die.

  4. interested read from a fellow intl developmenter. As part of the development community we need a better metric for success. Your comment about shampoo was interesting but I disagree with your view. Economies of scale are what enable prices to go down, and provide all around a “higher tier” of products available to the masses. While shampoo isn’t a need, it is the availability of these products that allows a society to grow its economy.

    • nate0316 says:

      All fair points. I agree with your assessment that economies of scale are needed, which is one of the motivating factors behind what I’m trying to say. A lot of firms choose not to invest in low-income areas on the basis that the market size is too small. However, in spite of the fact people living in these areas are quite poor, their quantity leads me to believe that it’s possible for firms to achieve the scale necessary to realize profitability, as Coke, Safaricom and other firms have successfully done. Once more firms recognize that selling to a densely populated group of the (poor) population can be profitable, more products will be available to them. My hope is that it’s sooner rather than later.

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