How to Profit from Constrained Consumption
There's an art to giving new markets access to products that were previously unavailable to them – and growing your business as a result.
The ambition to disrupt markets with new innovative products and services is on the rise. This is especially prevalent in Silicon Valley, where entrepreneurs love to talk about disruption — though few understand the term.
There is an important distinction between efficient, sustainable and disruptive innovations — namely that instead of making products better or more affordable, disruptive innovations give a market access to a product that was previously unavailable to them. Enter constrained consumption.
African consumers are aspirational by nature. The challenge, however, is that the man in the street has to overcome barriers and constraints to achieve their aspirations. If these constraints can be accurately identified by entrepreneurs and brands, they have a huge opportunity to capitalise on them.
The Disruptive Opportunity
When it comes to making a true dent in the world , perhaps the biggest opportunity for disruptive innovations lies in emerging markets, where examples of constrained consumption can be found everywhere you look .
This represents fertile ground for entrepreneurs and brands to disrupt markets and create monopolies around new innovative products and services. This opportunity is compounded by the impact of ‘the rising billion’; the estimated three to five billion people who will connect to the Internet for the first time by 2020.
Unpacking Constrained Consumption
Below are just a few examples of constrained consumption, and how entrepreneurs and brands can take advantage of them.
1. Wealth Constraints
Arguably one of the most common addressable constraints in emerging markets is the wealth constraint. Smartphone adoption in emerging markets is largely constrained by the affordability of smartphone devices. The world’s cheapest Android smartphone (the Freedom 251) by Indian company, Ringing Bells, is a disruptive product that removes this constraint even in remote areas where some consumers earn below $10 a month.
2. Access Constraints
There are more people in Africa with access to mobile phones than clean drinking water. The same can be said when it comes to electricity access. In many instances, the ability to charge a mobile phone is restricted, and sometimes non-existent.
The $5 wind-powered phone charger for bicycles, developed by a sixteen year old Danish student, is a disruptive innovation that addresses the access constraint in a simple and DIY fashion.
3. Complexity Constraints
If a technology product is complex by nature the technology adoption curve by users is often extended. There are some who argue that the launch of the smartphone has extended the technology adoption curve, not shortened it.
The reality is that if a complex feature of a smartphone can be transformed into something simpler, and then provided to the constrained users, the technology adoption curve can be shortened or removed. MTN has done this by enabling feature phone users in Africa to access tweets from Twitter via SMS.
4. Educational Constraints
South Africa’s population is currently around 55 million people, but, according to 2015 statistics, only 550 127 full-time learners took the National Senior Certificate (NSC). What if this status quo could be disrupted through peer-to-peer video streaming technology, such as Meerkat/Periscope?
By enabling lessons to be streamed to a broader set of remote students, educational barriers could be substantially removed. It could also disrupt the underlying business model, with educational institutions creating an additional revenue stream by charging 25% of the normal tuitional fees to remote students (subscribers).
5. Health Constraints
The simple act of getting to a medical healthcare professional or doctor is often out of reach for many Africans. The connection of doctors to patients in a remote and digital context can remove this barrier. While the commercial model won’t work in Africa, given its price points, iCouch.me is a Web app that pairs users with healthcare professionals who typically charge between $65 and $90 for 50 minutes of video chat time.
A solution like this would disrupt the entire value chain through partnerships with companies, hospitals, and insurance companies.
6. Banking Constraints
The lack of banking infrastructure has seen disruptive mobile banking solutions launch across Africa. Most notable is mPesa in Kenya and EVP Plus in Somalia, but more start-ups are entering financial services with disruptive innovations.
Why does this matter? Access to affordable financial services is linked to increasing economic growth, reducing income disparities, and alleviating poverty. But in most emerging markets, access is limited by high fees, product constraints, and lack of trust. The Barclays Accelerator start-up, GetWala, is on a mission to bring digital banking solutions to emerging markets.
7. Funding Constraints
For many start-ups and small businesses in emerging markets, the lack of funding is often a primary barrier to growth. The rise of crowdfunding and social funding has solved the funding dilemma of many start-ups. But the emerging opportunity lies with the traditional institutions and today’s modern disruptive companies.
Barclay’s Africa has recently launched its own accelerator and is in the process of opening up its business model to disruptive innovators. Even WeChat Africa has announced its own seed fund for promising mobile start-ups.
Future-proof your business
Disruptive companies that put innovation at the heart of their culture are future-proofing their businesses, and the importance of culture generally increases in proportion to the competition in the market. Success and profit are largely dependent on the right culture mix. Spotting constrained consumption is just the first step towards realising a disruptive ambition and a pre-cursor to creating a dent in the world as we know it.