Getting to the Bottom... of the Pyramid. Vol.2, Payment Options
This post has since been republished on NextBillion.
In my first installment of Getting to the Bottom… of the Pyramid I debunked the myth that quality doesn’t matter at the base of the pyramid, which is the poorest but largest socio-economic group in the world.
The BOP, like anyone else, are quality-conscious consumers—and in doing business at the BOP here at Colibrí we make sure we give our customers nothing less than quality. Would we use it in our own homes? Does the product have a warranty? Will this product build faith in our brand? Etc. While we may be technology agnostic, we are quality-concerned.
Of course, high quality means more expensive.
Understandably, I’m often faced with questions (which tend to be worded as assumptions) like “Why and how would a poor person buy that?”, “You should consider something cheaper. You’ll take to market faster," or "it still seems expensive when compared to kerosene." Or, simply, “This doesn't sound affordable.”
I would be out of touch to say that a $40 or $120 solar product isn’t a challenge for our average BOP customer. For a household with poor electricity grid service or using candles or flashlights, investing in solar generates financial returns that can save a household up to $900 over the course of the product’s lifetime. It is a smart investment—and that’s obvious to everyone who wants one or buys one—but it is often challenging to make this investment in a single, full payment.
The good news is that we can redefine “affordability” not by a single payment, but by an increasingly common solar-sales strategy called pay as you go. Pay as you go can be defined as paying per use or paying in installments. Customers can make daily, weekly, or monthly payments in varying terms to essentially rent to own a product. It is important and groundbreaking because it breaks down the financial barrier to access high-impact technology. With pay as you go technology, the product deactivates/becomes idle when the scheduled payment has not been completed. It is similar to how cell phones not using a plan must add “credit” to their phones for more airtime and texting. If you’re out of credit, your phone can’t make any calls or send messages.
Pay As You Go eliminates the financial barrier in accessing high-impact technology.
In this industry, the question we must constantly be asking ourselves is “How do you sell something to someone living on $2/day?” Remember, poor people are people too. They are consumers. The easiest starting point in figuring out how to sell something to someone living on $2/day is to look at what they’re already buying.
Go anywhere in low-income pockets of a developing country and you could name at least 10 major household brands available at any pulpería or mom & pop shop: Maggi, Nestle, Coca-cola, Tip Top, Claro, Movistar, Pantene, Colgate, Eskimo, MinuteMaid, Yummies. They deal in beverages, chips, shampoo, toothpaste, chicken stock, and cell phone credit, to name a few. These are fast moving consumer goods, and there is a reason they do so well at the BOP.
Fast moving consumer goods (FMCGs)—beverages, personal hygiene products, candles, etc.—are successful at the base of the pyramid (BOP) because they present no large upfront cost and come as “single-serving”: shampoo packets, Coke bottles, a single kerosene lamp, pay-as-you-go cell phone credit, etc.
More people lack electric light today than did before Edison invented the light bulb. The two biggest challenges in bridging this gap are distribution and financing. No, a $40 solar lamp or a $120 solar home system is not a 10 cent candle or a $4 flashlight (because it's far superior and, on pay-as-you-go, can be acquired at a comparable cost!). The competition is tough; however, using those locations as points of sale are strategic and effective. Make sure solar is available and affordable at the same location where a customer is used to buying kerosene or battery replacements. But for solar to successfully take its place in the BOP market, it must allow flexible payment options.
There is huge demand for solar technology, but the average consumer has irregular income flow, limited disposable income and, for example, prefers to wait until the harvest season to purchase a product. Poverty cannot be simplified to “no money”; poverty also means scarcity of time and ability to make investments. Thus, pay as you go—small payments—is an effective way to past the financial challenges of selling non-FMCGS at the BOP.
If Colibrí fails, it is not due to lack of demand or lack of potential of solar in this market. This market is complicated—informality of transactions and consignments, intricate distribution methods, irregular income flow. However, these challenges aren’t synonymous for “impossible” or “not worth it,” as many people and firms have characterized business at the BOP. A true tell of success is how an enterprise can understand them and use them to their model’s advantage. If Colibrí fails, it would only be a fault of our own in failing to play to the realities—or strengths and opportunities, as I see them—of the market, one of the primary ones being providing customers with accessible financing options.
/Morgan Babbs, Founder & CEO