India Focuses on Poorer Consumers

Wed, Oct 21, 2009

A quite fascinating article in the Wall Street Journal based on the premise that while much of our history of development and innovation has been to cater to the best off and then let cheaper versions of said innovations cast down to the poorer; the potential exists for the opposite to happen. Especially with some few billion poor on the globe – many in the fastest growing countries on Earth.

Indian companies, long dependent on hand-me-down technology from developed nations, are becoming cutting-edge innovators as they target one of the world’s last untapped markets: the poor. India’s many engineers, whose best-known role is to help Western companies expand or cut costs, are now turning their attention to the purchasing potential of the nation’s own 1.1-billion population.
The trend that surfaced when Tata Motors’ tiny $2,200 car, the Nano, hit Indian roads in July, has resulted in a slew of new products for people with little money who aspire to a taste of a better life.
(this point is the key) Many products aren’t just cheaper versions of well-established models available in the West but have taken design and manufacturing assumptions honed in the developed world and turned them on their heads.
Such inventions represent a fundamental shift in the global order of innovation. Until recently, the West served rich consumers and then let its products and technology filter down to poorer countries.
Now, with the developed world mired in a slump and the developing world still growing quickly, companies are focusing on how to innovate, and profit, by going straight to the bottom rung of the economic ladder. They are taking advantage of cheap research and development and low-cost manufacturing to innovate for a market that’s grown large enough and sophisticated enough to make it worthwhile.
What is happening today is much different than the so-called "sachet revolution" of the 1980s when Unilever and other consumer-goods companies realized they could sell hundreds of millions of dollars more of their shampoo, detergent, toothpaste and snacks just by selling them in tiny packets.
Indian engineers are reinventing products to cut costs and reach the billions of people world-wide who live on less than $2 a day.
Everyone from small local players — looking to go national then global with their low-price inventions — to the country’s biggest conglomerate, the Tata Group, are in the race. They are trying to figure out what the poor want and how much they are willing to pay for it. Then the companies are going back to their research teams and crafting new products and unprecedented price points.
Western companies as well as most large Indian companies have long ignored poor markets because any potential profits seemed too slim. It was too expensive to create a distribution system that could serve the consumer who shops from closet-size kiosks or weekly country markets.
But instead of using traditional supply chains, many companies are distributing through rural self-help groups and microlenders that are already plugged into villages. And while profit margins are slim, companies are counting on volume to compensate. Many hope to sell to other poor and underserved markets in Asia and Africa eventually.
Much of this is possible because engineers are so plentiful and inexpensive in India. It took close to 300 engineers around four years to develop the Tata Nano, which required rethinking everything from the engine to the seats to the supply chain to keep the sticker price at around $2,200.
Unexpectedly strong demand for cheap cellphones in recent years revealed the untapped markets in India’s villages and slums. Thanks to $20 cellphones and two-cent-a-minute call rates, Indian cellphone companies are signing up more than five million new subscribers a month, most of them consumers no one would have considered serving only five years ago.