August 13, 2014

The African Consumer Market: Where the Informal meets the Formal

Informal Business: Township Hair Salon, South Africa, January 2008 Photo Credit: Niti Bhan
Formal retail:Haircare products, South Africa, January 2008 Photo Credit: Niti Bhan
While still largely based in the informal economy, the African haircare business has become a multi-billion dollar industry that stretches to China and India and has drawn global giants such as L'Oreal and Unilever. ~ Reuters, 6 Aug 2014

This snippet captures what I'd said in my HBR article on the challenge to marketing posed by the African consumer market. The size and value of the opportunities are undeniable as are the impact and influence of the informal sector.

Chaos, uncertainty, word of mouth, personal relationships and far too much flexibility is how those accustomed to the muted muzak of their local supermarket would describe an open air bazaar bustling with matrons ready to haggle with their favourite merchants over the price of onions while tramping through the narrow muddy paths in between the umbrellas and the rickety wooden structures.

This stymies the multinationals accustomed to ever increasing efficiencies in supply chains and distribution. L'Oreal's website goes as far as to explicate all the challenges faced in distribution. The demand is there, how do we satisfice it in a profitable manner? seems to be the message.

Fragmentation of the retail space, prevalence of informal markets, a preference for 'break bulk' shopping daily in small quantities, all add up to a distinctly different consumer culture - an African one - that has been evolving quietly under the radar. It is only now that Africans are being perceived as consumers in their own right and the emerging middle classes capturing the attention of global giants. The hair care industry's size and value, is not so much an overnight development as it being taken seriously as a viable opportunity.

If we go by the plethora of management consulting reports highlighting the African consumer market's opportunities,  there's an underlying assumption common to all that existing systems can simply be put into place, if only there wasn't so much informality. Is that a realistic wish in the near term given the vacuum of infrastructure? 

Simply building a supermarket in suitable locations will not work, as Shoprite discovered in Arusha, Tanzania, people's purchasing patterns were influenced by so many more factors than just a lack of modern retail. It makes sense, then, to look at the consumer culture that exists, than to bemoan the fact that its completely unlike what 'global giants' are accustomed to dealing with, or to attempt to introduce solutions without taking the entire ecosystem into account.

If we are indeed to begin to address the challenge of satisfying the demands of Africa's emerging markets, then we need to step back and look at it from an entirely different perspective. CK Prahalad once described what he called the tyranny of dominant logic and offered an alternate way to look at the challenge of dealing with the fragmentation, informality and inadequate infrastructure of the developing world. He proposed turning the problem on its head and looking at it from the lens of the constraints and conditions that are existing, then innovating to meet the criteria rather than attempting to force fit success metrics from one operating environment into the context of a wholly different one.

What if we were to do the same for the African consumer market? To begin from the point of view of understanding entire ecosystem of trade and how it works, mapping the existing landscape, and then seeking to develop solutions that would fit contextually.

This conversation will be continued. 

July 25, 2014

Why social enterprise marketing tends to fail - hidden competition, invisible consumers

A couple of years ago, I was frequently in East Africa, consulting with a consumer product company  set up as a social enterprise in the renewable energy sector. An extensive distribution network across Kenya had been established through what they called TT - traditional trade. Yet their sales were nowhere near the figures one would expect from such an extensive exposure to the market. They were struggling to reach their target audience efficiently and cost effectively. Soon after starting fieldwork, I began to get the sense that there are some fundamental issues with the way social enterprises were developing, creating and implementing their market entry strategies.

Many of these issues also apply to consumer product companies targeting the emerging middle class, given the size of the 'floating class' and the prevalence of informal retail. Purchasing power assessments as well as hard currency conversion create their own confusion regarding consumer segmentation as "poor". Some may choose to set the bar at 5euros a day, to identify those at the "Bottom of the Pyramid" (BoP) while the African Development Bank pegs the same amount as "middle class".

Assuming there’s no competition

 Most of these firms, particularly those coming in from the outside and seeking to serve the ‘poor’ in the developing world seem to be operating in a vacuum. Observing their market entry actions point to an underlying assumption that they are entering a virgin market where no competing solutions for their product or service exist.  If this fundamental premise is mistaken then every element of their marketing, communication, distribution and pricing strategy will naturally suffer.

A caveat here is that it might indeed be a virgin market for branded international solutions for that product category in the formal market but this is where overlooking the informal markets and existing practices in user behaviour can be far more dangerous since this is where the competition will come from in the form of substitutes or alternate solutions.

Because of the above assumption, little effort is made to uncover information about the customer, the market or competition or the operating environment. Whether this is due to a vacuum of information on lower income markets or the developing world, or this subject simply not being taken into consideration in a social enterprise, the fact remains that this oversight then gives rise to a series of errors (like the domino effect) – those in marketing strategy viz., marketing communications, value propositions and positioning not to mention pricing.

Conflating company mission with marketing strategy

While this is most commonly found among well meaning social enterprises entering these markets for the first time with their life saving products for the poor, large multinationals with previous experience in the developing world are not immune the minute they choose to focus particularly on the mass (or "poor") market.

Tata Nano is the most obvious example of this although here one wonders how much of this had to do with their actual marketing communications and advertising for the Nano and how much to do with all the media hype around the car being specially for the ‘common man’? All the positioning and branding in the world through formal advertising and communication channels could not overcome the public perception of the Nano as the ‘poor man’s car’ created by every other article – from engineering news to international styling.

Similarly, if all the marketing communications, press reports and online information is geared towards the ‘poverty alleviating” mission of the company or product line then this lack of clear focus or understanding of who the target audience is will come through in the positioning and branding of the product in the marketplace.  The vast majority of social enterprise messaging is targeted towards their funders and investors not their potential customers.

And no one will aspire to buy the ‘poor man’s product’ if it means a clear signal of having failed to succeed or admitting defeat among their friends and neighbours. Everyone aspires to a better quality of life, regardless of perceived income segmentation.

Confusing value proposition with need

This lack of clarity and understanding about the target audience for a product or service and thus, its marketing communications and messaging then snowballs into incorrect positioning of the product or incorrectly identifying the value proposition for the end user.

The end result might be the same – the customer choosing to buy your product – but the pain points may differ tremendously across geographies and regions, not to mention socioeconomic strata. An example is water saving flush toilet mechanisms being sold in Nairobi as a sustainable, greener alternative – that is, the same positioning and value proposition as that used in the eco-conscious parts of the Northern European continent. Sales are sluggish. But when you take into consideration that there is a water shortage or that many communities need to purchase water in tankers to fill their household storage tanks, a simple shift in positioning to “Spend less money flushing down the toilet” or some such clever quip could in fact make a more sensible approach in this situation for the very same product.

This gets more obvious the lower down the income stream you go – Mama Mboga with her vegetable stand may not have the same priorities nor relate to the same value propositions that social impact investors do.

Winning awards vs building a trusted brand

And finally, this lack of customer orientation manifests itself in the development of the company's brand. Awards may be won, and brand recognition created online with press mentions and social media, but the company still remains an unknown entity that nobody has heard of in the markets in which it should be sold.

In a sense, its overestimating the ability of a faceless brand to communicate value to the target audience. Some have called this issue one of Trust and in the past, I’ve referred to it as Commitment but the fact remains that this aspect is the most challenging and difficult to overcome as a barrier to acceptance. Even megabrands accustomed to instant global recognition such as Google may find that not only is their brand unknown and unheard of in these new and emerging markets but others may have gotten there before them.

Which, in a way, brings us back to the first point in the assumptions made at the very beginning of considering market entry strategies in the rising global middle class.

July 19, 2014

Human centered design for financial inclusion: Lessons from fieldwork in rural India, The Phillipines and Kenya


Financial inclusion has become mainstream thinking in economic development. The vast majority of the unbanked live in the developing world, and a significant proportion of this population are rural residents. One can easily surmise, without recourse to statistics, that the bulk of the target audience for institutions seeking to offer them affordable and accessible financial services are part of the rural economy.

Now, the role of human centered design and its toolbox of methods and processes is being recognized as mission critical for successfully enabling these initiatives. So little is understood about the rural economy, particularly that of the developing world, that without the insights that design ethnography (also known as user research or more broadly, exploratory user research) among the end users can provide, barriers to adoption will remain unaddressed.

With this in mind, I thought to share lessons learnt during the past 6 years of experience in the application of human centered design processes in order to observe and understand household financial management behaviour in rural Africa and Asia.

Human Centered Design

Human centered design traditionally applies the insights from user research to inform and inspire the design of a product or service. At the Institute of Design, IIT Chicago, there were scores of methods and frameworks for every step of the entire process. In particular, the analysis and synthesis phase after fieldwork was completed was considered critical in identifying the actionable insights that would drive the conceptual design and subsequent development of solutions. All of this required that we frame the problem correctly at the very beginning, in order to ensure that our findings would be relevant and appropriate. Here's a diagram that captures the entire concept:

Adapting human centered design for understanding rural household financial behaviour

Back in late 2008, when I first began framing the original problem statement for the iBoP Asia Project's first Small Grants Competition, I quickly realized that the methods and tools as developed and disseminated in Chicago, could not be directly applied without adaptation to the distinctly different operating environment, and, the then unusual objectives of business model design.

Firstly, the tools and techniques for user research developed and refined in a first world sophisticated consumer market accustomed to decades of market research, telemarketing and surveys of all stripes wouldn't work among lower income rural residents in a developing world context. They had little or no exposure to market research or design research of any sort, and surveys and questionnaires tended to imply government census takers or some kind of social study by an NGO. After all, it is only now that we are taking the "financially excluded" seriously as potential customers with wants and needs in their own right.

Secondly, back then, nobody had yet applied human centered design methods for intangible outcomes such as insights on household financial behaviour or the conceptual design of a payment plan for a community. User research conducted as part of the human centered design process was for consumer facing client companies looking to improve existing products or develop new ones i.e. very tangible outcomes. My research question was:
What insights can we derive from observing and understanding how those at the BoP currently manage their household budgets to inspire new transaction models or pricing strategies for businesses wishing to serve the poor more effectively, yet profitably?
Thus, I found myself not only having to adapt the methods and tools available to me, but also develop frameworks to sample a representative segment of the rural economy given the conditions and criteria of the operating environment. This I will share now for everyone else who will now be using the human centered design  approach for financial inclusion.

Framing the problem correctly

This was the most important element in ensuring the successful outcome. Tina Seelig has written on how REframing a problem can unlock innovation, a valuable insight when you're already immersed in your own environment like a fish in water. But when we step outside of our accustomed operating environment to one which is dramatically different - a poor rural region for example, we can so often be overwhelmed by the sensory overload that we are unable to contextualize the challenge from the end user's perspective. We're too busy noticing all the differences and unable to distinguish the important from the mundane or identify macro patterns of behaviour because we are distracted by the minutiae of daily life.

 The impetus for this line of research came from observing the success of the prepaid business model as mobile phone sales took off across the developing world. So my initial problem statement had been "What makes prepaid mobile airtime work so well for this demographic and what can we learn from this successful adoption to inspire business models and payment plans for other products and services?"

That emphasis on the mobile phone and its attendant business model would have narrowed the focus of my research and thus, influenced my questionnaire and observations. On the other hand, by shifting the focus away from what interested me, and broadening it to encompass the challenges of daily life, I would be able to perceive the entire context within which any particular business model or payment plan worked. That is, I took a step back from just the mobile phone or any one particular payment plan to understand the rhythm and the patterns of the rural economy. I framed the research as follows:
The focus of our exploratory and user research in the field will be to understand the challenge of planning household expenses and budgeting when incomes are mostly irregular and unpredictable.
This allowed me look at the larger patterns at play in the rural economy and as I was find out later, provided a foundation for understanding the cash based informal sector prevalent in both urban and rural regions of the developing world. That is, it formed the basis for understanding what makes the informal economy tick, something that I wouldn't have been able to do if I'd kept the original focus as narrow as why prepaid airtime enabled the rapid adoption of mobile phones among the lower income demographic.

Takeaway for framing the design research problem statement

When you approach your client's particular interest area in the broad space of financial inclusion, don't just focus on their specific interests without considering the entire ecosystem within which the intended produce or service will reside.*

Rapid prototyping to test research protocol and questionnaire

The beauty of the human centered design is that nothing is expected to work the first time its built. Prototyping and refining the design based on user feedback and observation is embedded in the iterative nature of the process. This is also part of design thinking - the willingness to experiment to see what works, usually with the participation of the end users.

Thus, when I first set out to use design methods in this wholly new way (seeking to understand household financial management among the rural poor), I insisted on a 'prototype' location first. This allowed me to test the questionnaire - it was completely thrown out right after the very first attempt to interview someone - as well as develop the framework for sampling uncertainty in the informal sector. 

Don't imagine that your carefully prepared questionnaire and the rest of your research protocol will hold up in the field. Be prepared to evolve it in order to see what works. That's why its so important to frame the problem statement first so that you know what you're trying to understand. We're talking about sensitive topics when researching for financial inclusion, and our goal should be tread respectfully towards greater understanding rather than rigidly following research protocol.

User profile identification matrix for sampling a representative pool

Design ethnography aims to gather an in-depth understanding of human behavior and the reasons that govern such behavior. The qualitative method investigates the why and how of decision making, not just what, where, when. Hence, smaller but focused and representative samples are more often needed, rather than large random samples.

Since the object was to understand how those on irregular incomes planned and managed their household expenses, a variety of claimed income sources such as farming, shopkeeping, job or minicab driving was deemed important to be identified in each location.

In order to ensure that the sample best represented the local context and situation, a qualifying chart was developed ad hoc in the prototype location (India) as a method to approximately evaluate an individual's ability to predict the timing and amount of their income, and thus plan their expenses.

This found to be useful in ensuring that the widest possible variety of local influences on cash flow were represented in the sample pool, not merely the majority of the population who were farmers, all of whose fields of wheat or rice would tend to ripen for harvest around the same time.

For example, in the Philippines, the representative sample pool, by primary stated source of income, included a rice farmer, a minicab owner/operator, a sari sari shop owner, a door to door frozen food seller and a furniture craftsman with his own workshop.

It was also ensured that the range of remittances (from zero to only for savings) received by the individuals was also varied. Individuals with full-time jobs were not considered nor were those whose sole source of income was remittence from abroad.

Takeaway for developing your own matrix for sampling the local populace

This chart formed the basis for sampling across various income streams. The employed have a regular salary, they are able to say with accuracy exactly how much money to expect and on which day. The odd jobs labourer, at the other end of the spectrum, cannot predict if he will get work on any particular day nor how much work. The farmer (generalized here) is able to estimate approximately when the harvest will be ready for sale and its value, though naturally not as accurately as a regular paycheck.

If you are only looking at farmers' incomes then consider a spread across cash crops, size of harvest, crop mix and produce sales patterns. There are high potential farms and low potential ones.  The idea is not to end up with your entire pool of people with similar patterns of cash flow. If you're looking at a village or rural population cluster, consider agribusiness services such as shopkeepers and transporters, as well as other service providers such as water delivery, small kiosk, market traders etc.

The reason for this is due to the variance in people's ability to plan for savings, loans, mortgages, credit or other financial products based on their ability to predict their cash flow. The more uncertain your income stream, the more risk averse you're likely to be. 

Locations in country

Choosing locations to sample depends on the aim of the design research study - are you looking at the  entire country? Or just one particular region? Based on geography, different parts of the country may have more or less food security, so again it makes sense to sample from at least two if not three distinctly different areas based on their economic standing.

From the perspective of financial inclusion, it doesn't make  sense to only look at two similar economic regions with cash crops, unless your study's focus is a middle or higher income level demographic.You may also wish to consider a spread of profiles based on their distance to the nearest market town or financial services institution. Patterns of behaviour will differ based on time and money it takes to travel. For instance, even if your income streams gave you the confidence to consider a loan, the cost of travel may not make it worth the effort.

Final thoughts

The informal and rural economies are far more sophisticated in their financial management than we are able to perceive in the first instance. Designing solutions that work with the rhythms of the natural seasonality are more likely to be adopted than those which impose calender schedules. Negotiable flexibility and trust based webs of cooperation are part and parcel of the hyper local rural economies. How can we retain these pillars of community life and resilience in the face of adversity and uncertainty even as we seek to include the marginalized with our modern tools and technologies?

* See the problems with introducing Google's Beba Pay design without taking entire ecosystem into consideration

July 14, 2014

What is The Prepaid Economy anyway and does it even have a future?

Young Kenyan digital currency blogger Michael Kimani has been asking questions on the future of the "Prepaid" economy, given the rapidly evolving financial landscape of his home country. While Twitter might be good enough for a rapid give and take, it's constrained as a platform for any meaningful dialogue requiring more than 140 characters at a time. This post is an attempt to synthesize my own thinking about The Prepaid Economy - a project name that evolved beyond its original research mandate of "Why does the prepaid business model work so well for the low income demographic?" - and what I've learned since 2008.

Background and origins of the concept

Back in 2006-7, when the rapid adoption of mobile phones across the developing world was making headlines (and profits for emerging market pioneers Nokia), I used to live in the pre-iPhone United States. There was something very different happening in the GSM world of SIM cards and SMS. These millions of new phone owners weren't signing up for unlimited monthly plans or subscriber billing (i.e. postpaid) paying extra to send a text message. Instead, they were purchasing airtime blocks in advance, to be used for as long as it lasted.

It seemed as though it was the prepaid business model propelling the extremely rapid adoption of mobile handset use lower and lower down the income stream.

Back in 2008, thanks to CK Prahalad's groundbreaking work, the concept of the Bottom of the Pyramid aka the BoP was trending. We were going to do business with the poor, and together, sustainable social enterprises would alleviate poverty through profitable business models, offering myriads of goods and services to the vast majority of the world's population. But very quickly, a challenge was observed, and I framed it so:
The challenge posed by current business models and payment plans is not the amount that must be paid but the inherent conflict between the regularity of the payments, usually on fixed schedules, against the unpredictability of funds available and irregularity of cash flow.
Yet this very same demographic had embraced the prepaid business model enthusiastically. In South Africa, you could purchase electricity and in Malawi, watch satellite TV. I summarized my findings thus:

What made prepaid work so well for those who managed their household finances on irregular and unpredictable income streams? 

And what could we learn from this in order to inspire business models and payment plans for the majority who managed without regular paychecks and access to credit cards and other financial tools?

There is no "Bottom of the Pyramid" market

Back then I conflated the prepaid business model and its adoption by those on irregular income streams (both rural and urban) with the Base of the Pyramid. I assumed that the informal economy and the Bottom of the Pyramid's "survival markets" were one and the same. It took a series of projects in the field, undertaken from summer 2010 through to the end of 2012 that opened my eyes to the realization that the cash based, informal markets operated on their own rhythm and patterns.

And, increasingly, as the insights from my own observations and interviews demonstrated, I realized that there was not only no such thing as "the BoP" - the concept itself often hampered the success of enterprises seeking to serve this intended audience. The consumer mindset and buyer behaviour that I'd observed (and erroneously labeled as "bottom of the pyramid") was an outcome of a variety of factors, not just income level or purchasing power.

Then GSMA's 2013 Mobile Economy report showed the global preference for the prepaid business model, not just in Africa. There was a 'prepaid economy' that seemed to be more related to the informal economy rather than poverty per se. I took a look from various angles.

At the time, I was lucky enough to be involved in a project that let me observe and compare the performance of 4 pilot programs meant to test payment plan and business model variations in two different East African countries for a client's current and future product range. It led me conclude that what seemed to work for the majority of the customers was linked to the degree of flexibility inherent in the design.

Flexibility is the underlying principle of the prepaid economy

The vast majority of transactions across the continent are still in cash money (although this may change, given current innovations) and the informal sector dominates, especially in retail, in most countries in sub Saharan Africa. Bank accounts and plastic are not yet the norm.

Your purchasing patterns are linked to the amount of cash you have in hand, at any given time. 

Prepaid puts you in control of your spending

This combination of factors drives the preference for payment plans that put the greatest amount of control in the hands of the end users. The prepaid model's attractiveness has less to do with paying in advance and more to do with the span of control over when you spend, how much you spend, how often you spend. There is no mystery bill at the end of the month, more so when you have no idea how much you're likely to make this month or week or day. 

Will mobile money change this behaviour? 

On one hand, the fact that a mobile money account allows you to keep some float implies that you are now able to consider purchases unrelated to the amount of cash money you have in your pocket. Michael points out various forms of consumer credit being made available and how that is already changing spending patterns. Once an ecosystem of financial services evolve around the core mobile money transfer (payment systems), credit ratings would be available spurring further debt fueled consumption. Would this encourage people to move to postpaid billing? The data from across the world seems to imply not.

What are your thoughts?

June 16, 2014

How can a bank account help the unemployed?

Wizzit solves this problem by using what it calls Wizzkids, who help new subscribers sign up and show them through the system. In cases such as Johannes', a pilot like Coetzee flies in to do the paperwork. Coetzee was invited to Elandslaagte Farm by its co-owner Marisa van der Heever. She not only wanted to give her employees access to banking, but also to reduce the hard cash in circulation, which is often a target for rural criminals. It also allows workers to save their money more easily, she says. What's more, Coetzee was able to open accounts for her 54 workers in less than an hour.
Once a Wizzit account is open, deposits can be made electronically and transferred to other Wizzit users or to pay accounts, including such things as utilities accounts. Wizzit has a range of retailers and stores who accept payment from it, as well as Maestro debit cards and access to internet banking and ATM-based banking. ~ Receiver Magazine, Toby Shapshak
This paragraph from Toby Shapshak's article on mobile banking and digital currency in Africa in the latest Receiver magazine inspired me to share a story of a man we met in Alexandra township, one of the most dangerous parts of Johannesburg, South Africa. Dave and I were meeting someone in connection to our project with Experientia in January and Father Nazareth (not his real name) dropped by our host's house.

Curious to more about what we were doing, he shared with us that he was a Wizzit account holder! Naturally I offered to buy him lunch if he'd share his story with us. He painted a picture of life under apartheid - he is in his fifth decade - and his struggles both within the system and later, as a member of the militant arm of the ANC. He seemed resigned to the fate that his past as a 'freedom fighter' was held against him in this new South Africa, seen as a 'trouble maker' he was more often unemployed than not. Both he and his wife had Wizzit accounts although neither had a working phone at the moment. Nor any money in the account. But he added, the beauty of the account was that it wouldn't expire just because no transactions had been made - it seems regular banks in South Africa cancel accounts if there has been no activity for the preceding 6 months. And opening the account had been so easy - no paychecks, proof of residence or regular income was required, just his ID and his mobile phone number.

At that point, he looked up from his pizza (he only ate half of it and planned to take the rest home with him to share the treat with his youngest children still at home) and asked me a question that led to a conversation that totally changed my perspective of him. In an instant he went from an unemployed artist and initerant preacher to a visionary with dreams of changing the quality of life in his community and instilling civic pride amongst the residents again.

How can a bank account help the unemployed, you tell me?

When I asked him what difference did having a bank account make when he had no money he talked about the sense of empowerment that comes from having this tangible symbol of being part of the mainstream establishment. Though unemployed and supporting his family through odd jobs and piecework, he was now a bank account holder! They were part of Wizzit's community and he felt it added value to his standing in his church - he is the leader of a 1000 member church and his community. Now the question was how could this kind of bank account - easy to open and easy to own - with all the intangible benefits that having a bank account, something that seemed out of reach for the majority of the residents in Alex township become a platform for civic development. Just like the story mentioned by Shapshak above, Father Nazareth had a vision.

"If you remove temptation, "he said, "you will remove the motive for the robbers."

Then he took his background as a trade union leader and organizer to start brainstorming around using mobile phone bank accounts and the local civic organization to work towards a community based solution for lowering crime.

Community cash deposit system to help lower crime in townships

The temptation being the cash that everyone is forced to keep or carry, including spaza shop owners, tavern owners, tuck shops and all the hair salons in the township as well as all the other residents who work infrequently or irregularly and thus do not have bank accounts. He was began talking excitedly about organizing all the shop owners together, getting them access to their own accounts with Wizzit and then organizing daily protection for collections or deposits so that there would be no money at the end of the day in cash form that can be easily robbed or stolen.

He could see the potential for lowered crime rates if every earner in the township could have an account and even they went out to do some piece work for daily wages, they could deposit the money before walking home from the train or bus (majority of robberies take place at the bus or train station at night when they know people come back from work). He began mapping out a way the old civic street and yard model of organization back in the 'bad' old days could be used to coordinate and manage the activities, giving people a sense of security instead of everyone having to sleep with hard cash under their mattress.

He said crime was so bad at night that if he stepped out to the corner shop at night he would carry his old phone in his pocket just for the tsotses (literally means 'bad men') - they'd kill him if he had nothing to give them, he added. At that point, our conversation had to end but I had a feeling that Father Nazareth had left me with insight on exactly what the real power of possessing a bank account meant to the underemployed and those at the bottom of the pyramid. In turn, he'd designed himself a concept that just might make a real difference if it can be prototyped and then scaled up across the country using the same principles of grassroots organization that they had already developed during their freedom struggle.

This article was first written in July 2008. 

May 31, 2014

Kenya: Leapfrogging the informal economy into the digital economy (without MPesa)

With Equity Bank's recent announcement of the upcoming launch of their MVNO, one can easily surmise that we're going to see a whole new kind of leapfrogging of legacy infrastructure take place in East Africa's foremost economy.

The initiatives planned by Equity have the potential to trigger the cash based, informal economy's catapult over traditional means of formalization, straight into a cashless digital economy, that too on the mobile platform.

Speculation has been rife ever since Equity won a license for mobile virtual network operations (MVNO) that the bank would compete with telcos for a share of Kenya's highly competitive and forward looking mobile telephone business. But if one listens carefully to their livestreamed press launch earlier this week, one can see where their emphasis truly lies.

This MVNO has been established in order to provide the bank with a wholly new distribution channel in addition to their existing points of service. Forming  their own mobile operations allows them to ensure secure, stable and reliable IT infrastructure and data services. In fact, they've just announced the establishment of a new $34 million data centre in addition to their existing facilities. 

Their objective is not to compete with telcoms or mobile money transfer, said CEO James Mwangi during his presentation, it was to compete with cash. That is, Equity Bank has identified their potential opportunity space in the fact that 96% of transactions currently taking place in the region are made with cash money. To quote the Daily Nation from February 2014,
The market for cashless payments in Kenya is expected to expand significantly in the coming months. Last year, President Uhuru Kenyatta directed that cash payments be banned from the public sector beginning April 1, 2014. By the end of July, all public transport vehicles are expected to be using electronic payments, according to regulations gazetted by the National Transport Safety Authority earlier this year.
Therefore, if Equity Bank can provide the market with an integrated ecosystem with which to handle all these payments seamlessly, then this could provide a fresh and robust revenue stream. The management knows the benefits of going mobile.

“To really bank the unbanked, we need to go cashless because the biggest cost of doing financial transactions is actually cash,” Mr Staley added.
Earlier, I'd covered Beba Pay, their joint initiative with Google to provide NFC enabled cashless bus fares and speculated on the challenge faced by introducing technology requiring massive behavioural change by the end users. There had been resistance to adoption by transporters and the scheme wasn't turning out to be as popular as imagined.

Why should this launch be any different, and why am I framing this initiative as a genuine disruption of  both the informal economy as well as financial services, both on and off the mobile platform?

From my earlier post:
From the commuter's perspective

Cash in your pocket is the most flexible payment mechanism when managing daily expenses. A prepaid card locks in your cash, particularly if its only usable for one type of purchase. For example, you might need to purchase milk and bread on the way and make a decision trading off your matatu fare for food, choosing to walk home instead.  At the moment, prepaid payment cards have not yet scaled beyond the transport sector, so if you have 200 shillings in your Bebapay card, it becomes an inflexible tool without options for alternatives. How likely are you to lock in extra cash when you're accustomed to the flexibility required to manage expenses, especially if you too are employed in the informal economy? And how convenient is it to top up your card at the nearest Equity Agent as opposed to jumping on the nearest bus with cash in hand?

From thinking about today to planning for tomorrow, without the accompanying infrastructure.

The system imposes planning for the future out of context of the entire 'prepaid' or kadogo economy's rhythms. This is a huge change in behaviour required from all the end users of the system. To go from the daily rhythms of irregular income streams where coping mechanisms are habituated to minimize the volatility between expenses and cash flow to suddenly budgeting transport costs, planning in advance to top up your matatu card, changing the way you think about money is far more complicated and challenging than simply adopting a new transport payment service.
 Essentially what I'd been saying back then was that the cashless transport payment solution had been introduced in isolation from the entire ecosystem of the cash based informal economy. Now when we look at what Equity is proposing to launch in July, we see an entire payment ecosystem. One that seems to offer the flexibility of cash without the friction of being locked into a system.

 In addition to the infrastructure, they are lowering the barriers to adoption by offering a few key freebies:

1. A special SIM to all 8 million of their customers, a good majority of whom are among the lower income segments or part of the rural economy, an act of inclusion on which they've  made their name.
 “Users who want to stick with their current mobile lines and at the same time enjoy Equity’s banking solution will be able to do so with our slim card,” Equity Bank chief executive officer James Mwangi said in an interview. “The SIM Skin gets married to the existing card and turns your phone into a dual SIM although it has only one slot. If somebody calls you on your Equity line, you can pick it and if they call your other network, you do the same.”
 It comes with the mobile wallet and allows secure mobile banking and payments.

2. At the same time, they are distributing 300,000 NFC enabled smartphones to merchants around the country.
On Monday 21st April 2014, Equity Bank announced it will distribute 300,000 NFC-enabled smartphones free of charge to supermarkets, restaurants, kiosks and barbershops as it seeks to boost income from the payments processing business.
Taken together, you can see the seeding of a critical mass of technology being made available among buyers and sellers for cashless transactions. Frictionless payment processing comes into being when the costs of the middleman's infrastructure are able to be absorbed by the single window provision that a bank which is also a telco can enable.

When the myriads of other details of their strategy are taken into account - opening a new Equity account would be as easy as sending a shortcode message, or the content platform hinted at during the press conference but yet to be revealed, one can conjecture the potential for disruption inherent in this space when everything goes live in July. There's mention of offering mobile innovators a global payments platform to further spur commercial activity.

This won't just stay within Kenya like Safaricom's MPesa. Both Equity and their mobile infrastructure partner, Airtel, refer to their operations across the East African region, which when seen in light of the increasing regional integration taking place for trade and cooperation, imply scale in the forthcoming near future that will impact socio-economic development as much as the mobile phone originally did.  This just might finally put that bank in your pocket. 

May 15, 2014

Questions for the emerging future of the African consumer market

Should a nation develop itself first? Be able to proudly provide potable water, sufficient food, adequate shelter and employment for all citizens who shelter under its protective umbrella, as President Kalam dreams for India in 2020?

Or should the markets be developed, to provide choice, convenience and consumer goods, to those who can afford? How does one support the other? How do they integrate? Should development of each side of the equation – the market and the nation – be balanced in order to moderate their relative equal growth? Or left unchecked, for short term gains and profits, let one outstrip the other, leaving tens of millions behind?

Or alternately, can one be grown to provide the profits that could then be invested in developing the nation, or at least a percentage thereof? Call it the Corporate Social Opportunity Tax, one that says, that if you reap profits from the benefits of doing business within the supportive environment of this country, here is the balancing tax you must pay back in order to support the simultaneous development of that country. Not just its markets.

And its a win win scenario, or could be, in the longer term. Why? Because as you invest back into development – be it education, infrastructure or planning – your ROI, your return on your investment, will only be an increase in the numbers of the population who could then afford your product or service, thus growing your market indirectly rather than directly by putting that money into more advertising billboards or commercials aired on primetime cable.

May 5, 2014

Social Media Marketing: Lessons from the Informal Economy

The informal economy's markets are ecosystems, not individuals or discrete customer segments. There is little mass media or formal marketing of brands in the bazaars of the developing world. Instead, the emphasis is on personal relationships, word of mouth, trusted references and introductions.

Your brand is your reputation among your social network, and for the vast majority, their customers are members of their local community. Showing up matters as does engagement and relationship building.

How different is this from what big brands are trying to do on social media today?

April 23, 2014

Assessing the Impact of the Mobile Phone on African Consumer Markets

68% of @Twitter users in #Africa rely on this platform as a primary source of information on national news ~ The Mo Ibrahim Foundation
Lets start with everyone's favourite topic, the mobile phone of Africa. It used to be a secondhand candybar Nokia but today it could be anything from an iPhone to Samsung's latest or some lesser known Chinese make full of bells and whistles. This isn't meant to be the definitive article so much as an exploratory one attempting to capture the various aspects of the mobile platform* influence that will have impact on marketing and market entry strategies for the African consumer market.

The Mobile Platform as a Financial Tool

The phone is your credit card in Africa. Its your identity, your bank account, your bus ticket and your barbershop bill. I don't need to write a laundry list of initiatives and innovations that are changing the financial services landscape of Africa due to the prevalence and ubiquity of the mobile phone. If you're reading this with any interest whatsoever, you are probably already aware of this fact.

A tidbit, that serves as an example, is yesterday's news that Kenya's Equity Bank will distribute 300,000 Near Field Communication enabled smartphones to merchants in lieu of far more expensive Point of Sale devices for contactless swiping of their newest ATM cards in bid to capture the nascent yet emergent payments processing business currently monopolized by the telco Safaricom and its MPesa platform of products.

Prepaid Mobile Plans for Voice and Data

Africans prefer to pay as they go for their use of mobile phone voice, text and data services. "Prefer" is an understatement as a quick search turns up stats like less than 1% of Kenyan mobile phone users were on a post-paid contract or that the GSMA's 2013 data shows that across the whole continent, 96% of all mobile phone users were using prepaid services.

This is not a meaningless statistic or one relevant only for telcom or phone related stuff but the visible demonstration of an entire continent's purchasing patterns and buyer behaviour observed in a variety of different contexts. This will have impact on business models, payment plans, pricing and even marketing communications, for both goods and services, especially in the online world. I'll stop this paragraph here as this is a topic I'll come back to in more detail.

Innovation and Development on the Mobile Platform

The hottest thing across the continent is the emergence of the tech startup as a viable career choice for youth. Incubators, accelerators, hubs, demo camps, developer schools, training programs, venture capital, conferences and competitions have all but taken over as teh topic du jour for anyone wondering what young, educated Africans are upto these days. Silicon as a prefix has been applied to a wide variety of geographical features, from the lagoon in Lagos to teh savannah outside of Nairobi.

The point is that the tech savvy are beginning to grab and take ownership of their information and communication future. The impact of their work and their voice on the web, served up through their favourite phones and pads, is as yet unpredictable but will be undeniable, on everything from new product introductions to customer service for any brand wishing to enter these markets. Overlooking home grown solutions to age old marketing challenges would be a grievous mistake.
"Social media may well end up having an outsize impact on Africa, because of the huge penetration of the mobile phone," says Allan Kamau, head of Portland Nairobi. "Africans have got used to doing everything on their mobiles: sending money, chatting, campaigning, complaining." ~ #Africa Trending
The Mobile Phone as an Information and Communication Tool

Interestingly, this personal device might end up being the most complicated medium for mass communication in Africa. Again, there is much to be found online on everything from advertising and marketing on mobile to doing market research. What I do want to point out here, however, is what the phone is actually doing is scaling the scope and reach of an existing behaviour, one that can be seen at the most hyper local level in the most rural regions. And that is the sense of connection and community through the ongoing conversation at the corner store, in the market place or the homestead, where information is exchanged, opinions gathered and word of mouth and trusted referrals play a far more critical role than is currently prevalent in the developed world's markets.

This is the core of the informal market economy, the local ecosystem in which the community thrives and survives, in part, an element of the resilience and survival instinct of the human being. Community as insurance against times of need has been observed as part and parcel of the African mobile experience, one of the critical reasons that sales and adoption of the mobile phone grew so rapidly across the whole continent, regardless of the individual's economic standing. GSMA's Mobile Economy report shows the phone's contribution to African GDPs is as much as 6%.

The phone is the ultimate communication and information tool - both directly from your own social network, as well as indirectly by the way of going online. Its teh portal to every other communication service and social media that marketers are beginning to use everywhere else. But how to use it and when and where will be teh challenge for marketing  because the patterns emerging from the local markets may not be the same as those in the domestic markets of new brands seeking the African consumer opportunity. Metrics and mass production have no place where personal response and trusted communication is the norm. I'll end this with a screen cap of a tweet I saw today.

* The mobile as a post industrial platform for innovation in emerging markets has been a personal obsession since 2006 so I have be careful not to get carried away in my blather and to remember to stick to the point ;p

April 21, 2014

Why the African consumer market opportunity will force marketing to reinvent itself

Mass markets were a shorthand forced on marketers who had too little time or information or leverage to treat different people differently. They are the result of the mass merchant, the mass media and mass production. But humans aren't a homogeneous mass, we are individuals, as individual as we dare to be. ~ Seth Godin
To continue my series on the challenge and the opportunity waiting for the enterprising in the emerging economies of the African continent, I'm going to explore another element of the unease I've picked up in current day coverage by mainstream business media and management consultancies. Based on my experience consulting with startups and companies targeting the African consumer market, I believe that marketing, as a discipline and as an industry, will be forced to reinvent itself, from the ground up, starting with the fundamental assumptions on which the entire framework rests.


The sad fact that Africa has always been misperceived as one homogenous mass (see Africa is not a country) is another underlying reason why her emerging markets are being treated in the same manner as the those of India and China. Unlike the two Asian countries, the African continent consists of 54 diverse and disparate nations, comprising very different cultures, societies, languages and histories. Even though India has as much diversity and disparity, it is still one nation with a single set of laws and regulations for trade and commerce. This is not true of Africa.

This diversity has been noted as a challenge for marketing and advertising but I think its going to become a bigger issue than simply regional localization and more market research. Its not just a matter of different cultures and languages, but also social and economic diversity leading a wholly different mindset and worldview, and thus, buyer behaviour. As the linked FT article quotes:
It is early days, but foreign executives from consumer companies privately acknowledge that they will have to adapt, and quickly. “It’s only just now that people are beginning to see Africans as consumers,” says a European corporate executive.
“The time is coming when we and everybody else are going to have to tailor and adapt brands – advertising and marketing, both – to the different Africa markets,” the executive says.
There's still an implicit assumption however, that though the concept of Africans as consumers is new, once they're seen as such, developing a consumer market strategy can follow the same old approach as for any other consumer market. The real challenge, imho, for marketers and brand managers of all stripes and sizes, will be their struggle to grasp the complexity of the opportunity within the frame of reference of traditional marketing and sales.


Without questioning the underlying premise behind their methods, what CK Prahalad had referred to once as the 'tyranny of dominant logic', there is the danger of attempting to apply frameworks and tools from one operating environment in order to make sense of a wholly different one.

For example, for a "European corporate executive", a small solar charger retailing at 30 euros could be said to be an off the shelf purchase in a department store. He wouldn't be surprised to find it in a blister pack, hanging from a hook. This would not be considered a major household consumer durable purchase like a dishwasher or air conditioner, requiring face time with customer service or decision making with his spouse. One can walk in, choose one's preferred charger and take it to the payment aisle.

The very same product at the same price point is in fact a major household purchase for a subsistence farmer living off the electric grid, for whom this may be his first installation of a modern energy supply. Three thousand shillings could be half his monthly cash flow, thus requiring the joint efforts of the entire household. That small solar charger can provide lighting, mobile phone charging and even power a radio for news and entertainment.

That singular decision to categorize a product as a Consumer Durable or as a Fast Moving Consumer Good (FMCG) can make or break a brand's entire distribution, marketing and sales strategy. Worse, it may not even be a considered decision but instead the result of an entire series of implicit assumptions left unquestioned. The product ends up being sold without any manual or brochures, with little or no customer service or training in its use, while being distributed in supermarkets. The end user for whom it was meant to serve, the hardworking chap living in some remote rural African farm without electricity, rarely ends up benefiting from it.

Formulaic assumptions

Yet it is these sort of fundamental assumptions in marketing that are not being questioned, even as brands and market research seeks to identify and segment the African consumer opportunity. In fact, market segmentation itself will be a whole different ballgame when it comes to the prevalence and impact of the cash based informal economy and its own particular characteristics. These are not your grandmother's consumers and they are going to be some of the most demanding customers you have ever served. Standard concepts just won't fly and only lead to millions of euros lost and companies folding up shop.
Traditionally, research has been lacking in Africa, with much being ad hoc or proprietary studies done by fast moving consumer goods companies, which lack the objectivity to make them entirely reliable. While Namibia, Ghana and Kenya have surveys analogous to those of the South African Audience Research Foundation (Saarf), research is still too scarce and fragmented, say sources. [...]
As a developing market with an ever-younger population, Africa is seen as the last frontier for global brands. Media in Africa is exploding, with channels like mobile presenting new and unexpected opportunities for marketers. In a fragmented and inconsistent media research landscape, the key to the future is developing homogenised data that is comparable across markets. ~ Africa, the final media frontier
Will homogenised data be the key to the future when exactly the reverse is beginning to happen in more developed markets due to the impact of social media and smartphones? Fragmentation as a fact of life for mass marketing is a global challenge for marketers everywhere, not just in Africa. The very same legacy infrastructure that Africa leapfrogged on its way to embracing the mobile platform is what still provides the somewhat shaky foundations for mass communication and marketing in the established markets of the developed world. And here, I include South Africa, as its only now that it has begun to consider itself part of this continent and not a breakaway faction of the first world.

There is no "mass" market and now its too late to create one

For the rest of Africa, the combination of the "youth bulge", the lack of legacy infrastructure in consumer insights, and the mobile phone are on their way to creating a perfect storm for the future of marketing right now, and its going manifest itself in this very same emerging consumer market opportunity. To go back to Seth Godin's words I quoted at the start of this article, mass markets were the result of mass media, mass production and the mass merchant. All of these are part of the legacy that Africa has already leapfrogged or may never establish.

Already, Facebook is seen as business promotion platform in Ethiopia, something I'd heard an entrepreneurial young Kenyan woman in Mombasa also tell me back in late 2011. A snippet,
A similar technique has attracted a sizable number of customers to Yonas Gulelat, 24, who makes and designs traditional dresses to sell at his shop in the Shiro Meda area in Gulele District, on Algeria Street. Facebook, he says, has provided him with a more viable and cheaper alternative to advertising, than electronic or print media.
“Facebook promotes business more swiftly and has helped me to sell anywhere between 15 and 25 traditional dresses every week,” said Yonas.
The only thing that social media and communication technology have done is scale the reach and scope of the way the existing local and fragmented informal markets were already communicating; through word of mouth, trusted references and proof of performance through the experiences of others. Where the informal meets the formal will be the operating environment of the African consumer markets, and the arena where market entry will either fail or succeed.