| By Gavin Chait,
on 10 April 2007
|
 See beyond dominant logic ... Strategies for Businesses reaching out to Informal MarketsIn 1997, as part of the conditions they agreed upon for getting their cellular licence, Vodacom developed a sophisticated telephone call-centre. Technology created by Psitek, and housed in old shipping containers, allowed for the distribution of fixed location cell-phones that could purchase airtime directly over the Vodacom network. Call costs were limited to 29 cents per minute. Vodacom expected it to be a marketing give-away; to build reputation while selling contracts as their main revenue stream. Instead it became a multi-billion Rand industry, stimulated the pre-pay market, and still is the third most-profitable source of Vodacom’s revenue.
The South African informal sector is worth 6.5% of GDP -R 100 billion a year - and it is growing at 10.9% per annum
Tata plans to introduce a R 15 000 car; Haier markets a R 150 fridge. Chinese and Indian companies are already here leveraging the lessons they learned from their own 2-billion-strong home markets, taking on local incumbents and winning!
Will your company be overwhelmed by these powerful and ambitious competitors? How do you combine the latest communication technologies with the aspirations of 20 million South Africans living in the informal economy? What do we have to do to unlock the awesome market on our doorstep?
Unlocking the Fortune at the Bottom of the Pyramid is a two-hour presentation on the techniques and strategies used by South Africa’s most successful emerging-market firms.
As companies adapt their businesses to sell to the poorest, they also become astonishingly competitive in their traditional markets.
Even if you choose to ignore the informal sector, what new innovations may come out of that market to radically alter your business environment? What happens when your competitors reduce their prices – not by 5% or 10% - but by 50 times?
Unlocking the Fortune at the Bottom of the Pyramid is divided into three parts:
1. The poor are intelligent and sophisticated consumers- The poor love high-quality brands; they cannot afford to risk their money and will not experiment on new products unless there is an overwhelming reason to do so
- Stokvels are complex and well-run financial services co-operatives that give the poor a hedge over short-term income fluctuations
- Spaza shops are profitable ventures, worth an aggregated R 30 billion annually, that repackage branded goods into volume sizes most affordable to the poor
- The taxi industry is a vast and under-appreciated network of business owners worth R 21 billion a year
2. Change your revenue model- Recognise the truth of informal markets: contracts are unenforceable; pricing debt-defaults into goods dramatically increases costs; infrastructure limits make product support and delivery expensive
- Either your product can be repackaged to reduce the price dramatically, or it cannot; which of two strategies will you follow to adapt?
3. Change your distribution and business model- It is not possible to own the entire distribution and business chain; how are you going to form partnerships with the communities in which you sell?
- Co-creation of your products will require a whole new focus on HR and product development; never before will the cultural differences through your value-chain be so stark
- Try and imagine a 25-year-old business graduate having to learn from the 25-year experience of a township trader in order to develop a new market; now imagine ... how will they communicate?
For more information on how Unlocking the Fortune at the Bottom of the Pyramid can benefit your firm, please contact us to book a presentation.
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