Sunday, November 30, 2008

Layaway Plans - Solution to Cultural/Economic Barriers to Consumption

by Karen Coppock

The San Francisco Chronicle wrote about the resurgence of layaway plans in the United States (US) due to the current economic situation and tightening up of credit.

Vital Wave Consulting had recommended using layaway plans to finance technology purchases - mobile handsets and PCs - in emerging markets in its November 2007 report, Strategies to Accelerate Handset Financing in Emerging Markets. The resurgence of layaway plans in the US confirms that this approach is viable even in developed countries when recessionary constraints make the environment similar to that of emerging markets. Most emerging-market citizens have no access to credit, or in the case of the Chinese and those that practice Sharia law, will not or cannot use traditional credit. Layaway plans, however, overcome both the logistical and cultural barriers to credit. Layaway plans generally do not charge interest (hence are compliant with Sharia law) and could be considered a savings plan, which would make them more palatable for the credit-averse Chinese. Layaway plans do not require a credit history, fixed income or mailing address, all of which are generally required for a credit card.

The challenge with technology-oriented layaway plans is the dynamic nature of the industry - products can change significantly in the weeks or months micro-payments are being made toward a purchase. To address this problem, retail outlets could create a layaway plan to enables consumers to save toward a specific product and if a newer, similarly priced version comes out in the interim, the funds could be transferred toward payment for the newer product.

Layaway plans were the backbone of the retail industry in the US after the Depression and can be a global strategy for firms dealing with increasingly tight credit markets and budgets.

Monday, November 24, 2008

Wanted: A Mosquito-repellant Netbook

Canonical, the company behind the popular Linux-based Ubuntu operating system, and ARM, makers of 80% of the world’s mobile phone chips, announced this week they are working together on a version of Ubuntu that will run on ARM-powered netbooks. The big selling point: the OS will sip power so sparingly that users will be able to run them as long, and recharge as seldom, as their mobile phone.

This would be good news indeed for the millions (or billions?) of emerging-market computer users who do not have access to a constant, reliable power supply. Having recently established a Caribbean field office in the Dominican Republic, Vital Wave Consulting can appreciate the need for a long battery life, not to mention a first-rate wireless antenna, heat and humidity resistance, and a tolerance for extreme power fluctuations. (Our Caribbean field officer would instantly snap up a computer that also repels mosquitoes.) For technology companies based in mature markets, or even developed enclaves of emerging markets, it is easy to lose sight of the challenges of being productive in an environment where hardware, Internet connectivity and electrical power is expensive, unreliable and difficult to acquire. To establish an Internet connection in a rural town in the Dominican Republic, for example, required 6 weeks, two costly trips to a neighboring city, and $40 per month for a weak DSL connection. The router had to be delivered to a neighboring school because there are no street addresses to locate the house, and frequent, long blackouts have rendered the service unusable for days at a time. Hundreds of millions of potential computer users in emerging markets face similar challenges every day.

Computer companies have done an impressive job of reducing prices for hardware and software (though in many developing countries, tariffs, regulatory rules and tight supply make computers and connectivity more expensive than in developed countries). There is still an enormous market opportunity, however, for technology companies that design for unsteady and unreliable power supplies, low Internet speeds, and environmental hazards like heat, humidity and dust. Technology companies can also gain a competitive advantage by providing maintenance, support and guarantees. Though these services may increase prices and create personnel or supply chain challenges, they are a significant differentiator in markets where people are already paying dearly for “low-cost” devices.

Also in the news:

  • MTN aims to offer $10 mobiles and $40 smartphones
  • Telecoms activity in China and India despite economic gloom
  • SlingBox a good fit with emerging markets

Wednesday, November 19, 2008

In a Recession, Will Mature-Market Consumers Follow Emerging-Market Behavior?

Virgin Mobile appears to be faring well in spite of the recent economic downturn, beating analyst expectations and gaining subscribers. The results of a commissioned survey on spending priorities have Virgin Mobile USA executives cautiously optimistic. The survey found that, when budgets get tight, consumers say they will trim other expenses before cutting back on cell phone usage. Many are likely to dine out less and defer big ticket purchases, and a surprising 41% said they would buy fewer groceries, compared to only 32% who said they would reduce cell phone spending. Some respondents pointed out they would send more text messages in lieu of making voice calls, and two-thirds said they would consider watching advertisements in exchange for free airtime. Price-sensitive consumers also cite the benefits of alternative payment terms such as prepaid service.

Virgin Mobile's research is timely and provides valuable insights that are contrary to conventional wisdom. Few expect that consumers would cut food expenses before cell phone spending. Yet a study sponsored by IDRC in rural Uganda suggests that women on very low incomes are willing to sacrifice both food and travel in order to purchase mobile air time, such is the premium that is placed on mobile phones. Virgin Mobile’s survey responses suggest that, as mature-market consumers become more price-sensitive due to the economic downturn, they are beginning to behave more like emerging-market mobile phone users. An affinity for pre-paid services, the perception of mobile phones as a necessity, increasing use of text messaging, and even choosing mobile phone service over groceries are all characteristics of the customer base in emerging markets.

Companies that have conducted research and gathered data on consumer spending in emerging markets may be positioned to use that knowledge and expertise in developing strategies for weathering the current economic downturn. By understanding the spending habits, prioritization, trade-off decisions, and plan preferences of emerging-market consumers, companies will be better prepared to address the needs of more cost-conscious consumers in mature markets. If mature-market consumers are truly adopting the preferences and perceptions of emerging-market consumers, this is probably good news for the telecommunications industry. With cell phone connectivity increasingly perceived by consumers worldwide as a basic necessity, the mobile industry may not be as vulnerable as others during an economic downturn. Nevertheless, pre-paid services and other programs for price-sensitive consumers will be an advantage in a tough economic environment.

Also in the news:
  • Vodafone chooses ZTE for 35% of its handsets
  • Low-cost laptops hurt Microsoft sales
  • Asus focuses on innovation and leadership

Thursday, November 6, 2008

The Devil is in the Data

If you aren’t living in a developing country, you may have missed the release of an interesting study by MasterCard Worldwide ranking the top 65 emerging-market cities that drive economic growth. The study received considerable attention in developing countries, particularly in China and India, which had the highest number of cities on the list. MasterCard’s commendable “Emerging Markets Index” was compiled by nine independent experts on economics, urban development and social-sciences. Cities were rated by eight key dimensions (economic and commercial environment; economic growth and development; business environment; financial services environment; commercial connectivity; education and IT connectivity; quality of urban life; and risk and security). Some key results: China has 15 of the top 30 cities, Budapest ranks very highly (3rd overall), and South Africa has more cities in the Index than any country outside of Brazil, Russia, India and China.

Vital Wave Consulting agrees that understanding emerging-market cities is critical. Though cities are typically much more developed than rural areas in terms of infrastructure, income and available services, they often foretell countrywide development, and many cities are significant markets in their own right. However, business managers in the IT and telecommunications industries should understand that the choice and weighting of technology-oriented variables is crucial to pinpointing viable markets, and reliable city-level data are particularly difficult to find. To create the Emerging Markets Index, MasterCard had to draw heavily on country-level data (often the only data available), though it can impact city-level analyses. For example, national data can cause same-country cities to appear more homogenous than they really are and group together in a segmentation analysis. It may also account for the cluster of Chinese cities in the top half of the Emerging Markets Index. The Index is a definite step in the right direction; however, the results underscore the difficulty of conducting city-level research and the potential pitfall of using country-level data to evaluate city performance.

As multinational corporations dedicate more resources to selling products and services into emerging markets, reliable data and accurate assumptions on sub-national markets will be essential to developing comprehensive and effective go-to-market strategies, Companies that develop or acquire specialized, appropriate data, research and analysis will gain a more nuanced way of segmenting, sizing and selling to local markets in developing counties.

Also in the news:

  • Visa and Citi expand mBanking reach
  • A trimmer Nokia re-focuses on emerging markets
  • Service plans to reduce netbook prices to $100 (or free)