Mckinsey Report 2007.

Become rich by designing products for the poor?

Earlier this year, Amit Gulati, who runs Incubis Consultants, invited me to participate in an interactive session to think through design ideas for a low-cost washing machine. The workshop brought out some very interesting and fascinating ‘ways of seeing’ that completely overturned the engineering / tech / product way of approaching design problems. Did we need to redesign the washing machine (Product) under stricter constraints [this is the way most people think – start with an existing product, strip it of features, use cheaper materials and processes, reduce quality and make it low-cost], or did we need to go up a level and reframe the problem itself.

Orbits of Influence

 

Image Courtesy: Incubis Consultants 2013.

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In the old days — as recently as the dying years of the last century — technology was trying to keep up with our needs. But instead of playing catch up, its pace overtook our needs. In the end, technology, especially those products that were powered by the silicon chip, won the race. Today we have more technology than we need and yet, rather than using what already exists to solve societal problems, we still go after creating more and more technology for the narrowest part of the pyramid — the top.

I suspect this has more to do with where the dollars come from than the fact that a lot of existing technology can easily be reconfigured for the underserved sections of society. Personally, the clichéd BoP social impact solutions we hear of are likely to be outmoded even before they see the light of day. But that won’t keep the incumbent interests from flogging the proverbial dead horse. We have become masters of leveraging information asymmetry even in the Internet era and will continue to exploit the ignorance of customer with impunity.

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Markets have shifted from the West;

India is predicted to become the 5th largest market in the world by 2025.

Mckinsey Report 2007.
Mckinsey Report 2007.

Rural India’s income is expected to grow at 3.6% per year from now till 2025 — people’s aspirations will grow. More disposable money will make them the largest potential consumers of goods and services.

But the question really is whether the consumerist model of the rest of the world is the right fit. Look at what it has done to the US. While on the one hand it seems clear that India will be one of the largest markets in the world, on the other there’s the question of what to make available to this burgeoning segment and how much.

Also at what cost to the larger social and ecological environment.

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Borderless trade has reconfigured market size for products, and ‘placeless work’ has obliterated geo-anchors for service delivery. Except for a few localization tweaks, most of what is consumed is largely uniform across continents and down societal hierarchies. India still lags behind in providing its citizens basics – education, healthcare, livelihood, food and shelter. Our very own ‘roti, kapda aur makaan’ [Hindi for ‘food, clothing and shelter’] forms the base of Maslow’s famous pyramid.

The effects of recent financial reforms are visible in the westernized lifestyle of our cities. They have provided the velocity of capital needed to fulfill the rising aspirations of the middle class. It is very easy to fall prey to conventional wisdom of ‘exporting’ this to smaller towns and villages. We need not only to shape markets but also reshape the patterns of consumption to conform to sustainability guidelines and eco-friendly practices.

Leveraging the Internet to empower individuals and enable small businesses in semi-urban and rural areas is a fool-proof strategy. The reducing cost of Internet, increased access to low-cost, high-speed connectivity in rural areas and cheaper access to content in a hyperlocal way become powerful change agents in the way information will be delivered, consumed and shared to up the ante in fulfilling basic human needs.

Throw in a smartphone and you have a winner. Much of the rural urban divide is accentuated by lack or lag of information availability. Smartphones, even the cheapest on the market today, will ensure that the consumer is ‘always on’.

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  • Is it important for electronics companies to tap the market at the bottom of the pyramid? Why?

That’s an easy one. The answer is size. Simply size. And it’s growing.

On one side, the share of wallet of each player is shrinking with increased competition. Overseas markets may not be shrinking but have gotten saturated. India is one of the best hunting grounds for large international companies, not just owing to market size (and the fact that it is one of the fastest growing) also that the semi-urban and rural consumers are beginning to aspire for better lifestyles, therefore better products.

The fact that more than two-thirds of the Indian population lives in rural parts is another driving factor. Up until now, rural has been seen as an unviable marketplace. This is because our calculations have been done on numbers that are not even a fraction of the rural population.

Going early to a market that’s ready and eager simply makes good business sense.

  • How do you go about addressing Bottom of Pyramid (BoP)?

It makes sense to go bottom up; create a portfolio of products and services to fulfill basic needs before going after the goodies.

My list of ‘basic’ has

  1. Healthcare, Education, Finance at a category level;
  2. those areas that create better living conditions such as sanitation, clean water, food, energy at the next; and
  3. communication as a means to keep abreast with the world as well as a channel for feedback, fun and information exchange.

I’m not saying bottom of the pyramid is either easy or that it will be any cheaper. Quite the opposite. There’s no intelligence required if all we have to do is to strip the product down to its essentials to reduce quality.

I’m also not a big advocate for inventing niche products to go into these markets. These products must be simple, intuitive, safe and sexy — aka world-class. I don’t see why not. Prof. Anil Gupta famously says, “the minds at the margins are not marginal minds.”

The questions we need to ask ourselves are

Ought we pamper the bottom half of the pyramid while clandestinely reaching into their pockets giving them products that they don’t really need? Where will the energy to power these products come from? Is there an equivalent Maslow’s hierarchy that maps needs to products and services?

Some of the products we saw in the movie 3 Idiots are pointers for the kind that we need to look at. Not jugaad, but ‘concerted reuse of available and existing technologies’ to take these prototypes to commercialization with the help of interdisciplinary experts and groups.

  • How does one make a low-cost product — is it about ground-up re-design with a cost focus, or about using low-cost components?

The most important part is context.

Context is about culture, geography, climate, behavior, resources, energy within the boundaries of environmental friendliness and ecology.

Everything else is secondary – design, materials, processes, technology and finally economic considerations. I have on purpose kept economics at the bottom of the list.

Call it ‘inversion thinking’.

Economics drives everything in today’s world, whereas it is merely a function of supply and demand. In my view, the concept of low-cost itself is deeply flawed. What we should really concern ourselves with is lower price and, however counterintuitive it may seem, lower price is not simply lower cost. I’m no economist but my business sense tells me that I can drive the price down by increasing volumes and reducing profits. Besides, adopting newer business models such as crowdsourcing, collaborative manufacturing and other such innovation, points to ways of addressing this key issue.

Low-cost is different from cost-effective is different from value added. Unless the envisaged product enhances value, low-cost has no meaning.

Secondly, sometimes, the problem itself needs to be reframed. A case in point is the UID (Aadhaar) project. Has anybody even bothered to look at alternatives? Is the goal merely digitization?

Here’s a thought experiment —

imagine Nandan went up to any smartphone manufacturer and placed an order for 700 million smartphones and then told all telecom operators to use their distributors to give these away for free. Caveat: KYC (Know-your-customer) norms must adhered to. He’d probably have even Apple and AT&T eating out of his hand. Now, if you did a back-of-napkin calculation of what the current method of UID creation costs, I reckon you could give away a smartphone for free and still have some money left for the launch party. But economics aside, see what you would have gone and done, every person in the BoP category would have a phone – whose utility goes way beyond a piece of plastic — and would have unequalled aspiration fulfillment for the recipient. No rocket science here, just some plain old common sense.

If I were to look at transportation for the lower half of the pyramid, would I produce a low-cost car? That’s what Tata thought and look what happened to the Nano. We don’t need a low-cost car, what we need really is low-cost transportation. See what I mean?

Takeaway

Recast the needs of this segment into their context first and address other considerations subsequently.

  1. To strip down or not! Janani Gopalakrishnan Vikram’s piece in EFY, Dec 2103.
  2. Evolution of Rural Customer Emergence of rural India as a viable market.
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Sunil Malhotra

Sunil doubles as Chief of Creative and Culture at Ideafarms. An Entrepreneur, a Consultant-at-large, an avid reader and a passionate speaker has a key objective to bring design-led user sensitivity to the Information Technology business. His belief in individual talent and an interdisciplinary mix provided the impetus to his founding Ideafarms. You can also follow him @SunilMalhotra