Fast Lessons: expensive consumer goods

Only 15% of the informal sector have the use of a refrigerator, an appliance which is generally accepted as the first type of domestic electrical appliances which consumers buy for themselves.

Refrigeration is a major concern in the townships. Not being able to preserve food increases health risks and drives up costs for consumers as they travel to buy on a daily basis - many do without even though they could afford to buy the goods.

Consider a washing machine. In the developed economy it may be used for a few hours a week. Perhaps, over a 30 day period, it is used for a cumulative 4 days in a month. The cost of purchasing becomes extremely expensive for the poor; but collective purchase and use is definitely an option - but how many white-goods retailers would sell to a stokvel?

There are a wide range of products that the poor cannot afford directly. That doesn't mean they don't want them or cannot afford them if they are simply packaged differently.

Funding problems have grounded iBurst's plan to establish 20 000 Internet cafés by 2010, eight months after the project was announced. iBurst, in partnership with Tradepage, outlined its plan in July 2006, with CEO Thami Mtshali saying 100 cafés were being set up immediately, with 1 000 to be rolled out in the next couple of months. Soweto was the starting point, expanding to other townships where iBurst already has coverage, he said.

IBurst's problems relate to their assumption that the exact same model used in the developed economy will work in the informal sector - it won't. They have bandwidth limits and each centre will cost R 30 000 to build. These prices and limits need to be completely re-examined. The first investigation should be what township residents really want from Internet cafés. Even more importantly, though, is the spread of IT fraud through Internet cafés that could further undermine informal market acceptance of the product. However, when it works, it works brilliantly.

“Even if you took our computer away, we would save and buy another. For it has opened our world and increased our profits,” says a peasant farmer, in a shed housing a battered desktop PC, surrounded by other nodding farmers. ITC, one of India’s largest diversified companies, has re-engineered their soya procurement and processing chain by supplying Internet-connected computers to rural villagers. ITC felt that, if farmers had greater access to information, they would be able to supply ITC with a better quality of product at a better range of prices. - C K Prahalad

Computers were readily accepted here, and were sold with a specific objective in mind, not simply placed in communities to entertain themselves. In other words, you can benefit by assisting a community to solve a problem they already have.

Fast lessons for expensive consumer goods:

• Don't simply try and sell your products into the informal sector - first find out what problems the community has and then find a way to deliver according to their means (e.g. refrigeration services)
• Develop relationships with local traders and NGOs who can purchase your products and then rent them out to ensure distribution of costs.
• Recognise the limitations of your consumers and produce simpler products aimed at bulk use by a wide range of people
• Electricty may not be consistently available, when it is available at all - like the rest of the country - but Eskom doesn't put three-phase power into the townships and limits output supply as well - reduce your power requirements; it will make your product more popular and save your consumers money