From Charity to Investment

In 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.

Despite this, Vodacom still does not take their telephone centres seriously and has not used them as a resource from which to sell additional products. MTN doesn't even have a similar product available in South Africa at all.

For much of the past decade business has kept their corporate and social interests very much apart. Commercial investments were at the centre of market strategy and the poor were delegated to the Corporate Social Investment department, kept in another building.

In 2005 Professor CK Prahalad, of the University of Michigan Business School, released a book entitled "The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits" and suddenly nothing was the same anymore. Suddenly the Indians and Chinese weren't outcompeting the West based on cheap labour, but because their own people were so poor that their manufacturers had no choice but to develop efficient low-cost high-value products for them.

Prahalad's central points are as follows:

• the poor have significant aggregated purchasing power, some $ 5 trillion annually, according to an IFC and WRI report
• the poor are significantly more urban than ever and distribution costs have plummeted
• the poor are extremely brand and value-conscious
• the poor are connected, networked and technology savvy
• the poor are very comfortable with advanced technology - cell phone sales amongst the poor are phenominal
• the poor need to be accessed differently
• building trust relationships is a prerequisite to building new business relationships

Consider a predominant view about the poor: that they will buy bulk quantities of goods because they appreciate that this will save them money. It's wrong. According to the HSRC more than 40% of employed South Africans earn less than R 1,000 a month. Paying R 50 for a large bottle of shampoo isn't an option. Spaza shops in the townships specialise in going to large cash-and-carries, such as Makro, and buying industrial-sized volumes. Back in the townships they decant quantities into small containers. Along the way, they dilute it to make it go further. If you ever wondered why your cleaning lady uses a quarter of a bottle of Sunlight soap to wash a single sink of dishes, it's because she's used to soap being cut with water.

What's the point of bringing out hyper-concentrated soap for the rich market if the people washing the dishes expect it to be diluted? Both the rich and the poor wind up frustrated. And your brand is in the middle.

Not only is your current "value" sales strategy not working, but it is also acting to tarnish your brand by introducing middle-men who interfere with the quality of your product. The poor feel ripped off by the major brands, but they also value their own cash so highly that they are unable to try unknown products. They have "learned" helplessness which business must overcome to regain their trust.