Scott Anderson

Weekly Roundup – 8/23/14: From cola to credit, the customer is always right

“Low-income consumers are not excluded from the formal economy; on the contrary they are incorporated and included on highly disadvantageous and adverse terms. They are not at the “base of the pyramid” awaiting rapturous ascension into market relations: they have long been customers and clients. Their difficulty is not their estrangement from the market; it is quite simply the quality of their connection to it.”

– David Neves, senior researcher at the Institute for Poverty, Land and Agrarian Studies at the University of the Western Cape.

While I don’t necessarily agree with everything Neves writes in his essay “‘Save, save’ mantra ignores ways the poor are milked,” his above point is incredibly relevant and, for the context of this week, fairly timely. Just because a product or service is available, it doesn’t mean it’s appropriate to the customer, particularly the low-income customer.

I was reminded of this point of view a second time this week in this excellent video interview with Timothy Ogden, who is leading the massive U.S. Financial Diaries project. Emulating the methodology of the book Portfolios of the Poor, the diaries tracked the financial activity of 250 lower-income American households for a full year with the long-term goal of developing financial products and services to meet their needs. Ogden is the managing director of the Financial Access Initiative (FAI) at New York University, which is working with the Center for Financial Services Innovation (CFSI) and Bankable Frontier Associates on the project.

Ogden told NextBillion Financial Innovation editor James Militzer that his assumption going into the research was that lower-income individuals have less complex financial lives. As a result, poor people would have fewer needs for financial products – or so the line of thought would conclude.

“In fact, we see the exact opposite: people lower on the income ladder conduct a lot more transactions, and they have to have a much more complex financial life to make ends meet,” he says. “But if you don’t use those same kinds of services and have to do the same sorts of things, all of the work that those people are doing to manage their financial lives may not be apparent. And so you don’t see the market opportunity because you don’t see what’s happening.”

Ogden and his colleagues are doing the hard work to ferret out the answers. But it all starts with challenging established assumptions. It would seem that big financial institutions, which are supporting his research as well as many other initiatives to bring products to low-income people, are moving quickly on this front. They might do well to study the example of Marketing Lessons for Coke from Peru’s Big Cola, by Amitava Chattopadhyay, the GlaxoSmithKline Chaired Professor of Corporate Innovation at INSEAD, which details the case of Peruvian soft drink maker AJE.

Multinational companies Coca Cola and PepsiCo have watched sales stagnate, and have opted to acquire other beverage companies in pursuit of growth. But AJE, a family-launched soft drink business borne of the strife created during the guerrilla movement in the 1980s, has enjoyed sales growth of, on average, 22 percent each year between 2000-2013 – reaching $2 billion last year, led by its best-known drink: Kola Real.

“From the very begin-ning, AJE focused on serv-ing less afflu-ent con-sumers, offer-ing lower prices. For exam-ple, to enter Lima in 1999, the Kola Real cam-paign posi-tioned the brand as “The Fair Price Drink,” Chattopadhyay writes. “And Kola Real prices are approx-i-mately 25 percent lower than that of its main MNC (multinational corporation) com-peti-tors’ offer-ings.”

Now in Mexico, Venezuela, Ecuador, India, Vietnam, Indonesia and the United States, AJE offers a wide variety of flavors and varieties. The company goes to great lengths to customize its products for local markets. In addition to marketing to low-income customers, according to Chattopadhyay, AJE has been able to keep prices lower than its multinational competitors because it manufactures its own beverages. By contrast, its MNC com-peti-tors depend on a vast net-work of inde-pen-dent bot-tlers. All of this leads Chattopadhyay to paint a dire picture for the big sugar water purveyors.

“Sur-pris-ingly, Pep-siCo and Coca-Cola do not seem to be sen-si-tive to these learn-ings! The future of growth is in the emerg-ing mar-kets and among the bot-tom of the pyra-mid con-sumers there. Fail-ure to learn these lessons and deploy strate-gies based on them to com-pete effec-tively in these mar-kets and among bot-tom of the pyra-mid con-sumers is likely to be per-ilous for the future.”

Despite the many and ongoing debates in economic and academic circles, there’s a role to play for multinationals, startups, and small and medium sized companies in alleviating poverty and reaching the underserved. But as AJE seemingly has figured out – creating thousands of jobs and an affordable product in the process – it starts and ends with the customer.

Scott Anderson is the managing editor of NextBillion.

In Case You Missed It … This Week on NextBillion

NexThought Monday – We’re in this Together: With the Practical Impact Alliance, MIT building broad network to support BoP enterprise development

Saving for Change: Why is it so difficult for people of all income levels to save money – and how can financial institutions help?

It’s About Time, It’s Also About Culture: How do varying cultural perspectives about time and productivity impact social enterprises?

When a Cure Isn’t Enough: Exploring the challenges of tuberculosis treatment

A Year in the Life: The U.S. Financial Diaries Project’s groundbreaking exploration of the financial activities of low and moderate-income Americans

Three Steps to Jumpstart Agriculture Mobile Payments: Step 3 – Overcoming farmers’ illiteracy, financial illiteracy and lack of trust

The Companies Act has Promise, but Will India Inc. Cash In?: Business value and social good can converge if companies shift focus from compliance to results

Taking Gender Integration Further: Giving women the skills they need to compete in markets

Smart Loan Products, Smarter Lending Approach: Kazakhstan’s Asian Credit Fund serves the country’s financially underserved, rural poor

FEATURED EVENT: The 17th Microcredit Summit, September 3-5 in Mérida, Mexico