Diana Jue-Rajasingh

What Keeps the Poor from Adopting New Technology? A Response.

Posted in Essmart by Diana on May 26, 2016

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Actually, I really don’t like the use of the term “the poor,” since it’s quite demeaning. But that’s the title of the article that I’m responding to today — an article published on Yale School of Management’s Insights in March this year.

By discussing with three different practitioners, Professor Mushfiq Mobarak came up with three different obstacles that prevent low-income customers from adopting (or, really, purchasing) new technologies. These are information failure, cost, and risk aversion.

Of course, these are true, but I find the categorization to be a bit, well, heavy-handed.

Information-failure is definitely an obstacle; customers don’t know about offerings because they’re all innovative and new to their geographies, and sellers don’t know what customers need. That bi-directional flow is required to figure out what products people demand and at what cost.

Cost is a loaded term, and I think that, more than the cost of the product being the obstacle, it’s more about both affordability. Financing is mostly required for most durable purchases, which are investments. C.K. Prahalad noted that products like shampoo can be put into small packets and sold on the cheap to customers whose cash flows are limited. However, this process doesn’t work for a solar lantern, since no one wants to buy a piece of a solar lantern. Financing or purchasing on credit in some markets is difficult to manage, with the lack of cashless payments in rural areas.

Then, there’s the notion of value. Through my experiences with Essmart, I’ve found that customers who purchase Essmart’s offerings don’t just value the product but also the after-sales service that Essmart provides, the reputation of Essmart and the company that makes the product, and the societal signals that the product give off after its purchase. Customers in low-income markets are of course not homogenous; some will self-identify as willing to pay more for products of higher quality and a seller they can trust. Honestly, sometimes I wonder if we’re catering to a niche market of emerging market customers who value these ideas.

Finally, there’s risk-aversion. From my experiences, I wouldn’t call low-income customers “risk-averse.” They’re just being rational, especially when the offering is new to them and they have to choose where to invest their limited incomes. Additionally, you have to keep the customer’s past experiences in mind — there are many fly-by-night sellers who take advantage of low-income customers, dumping cheap, low-quality products into an area and leaving within a month, before those products break and cause customer complaints. There’s no customer protection in rural areas, and the mentality is more “buyer-beware”. No one looks out for the little man, and a seller’s foreignness can be more of a turn-off than an appeal.

I sometimes think about the market for solar lanterns like the market for “lemons” — you know, the used care market. There are good solar lanterns and there are bad solar lanterns. Customers can’t tell which one is which just by looking at the product, and sellers are all going to say that the lanterns are good. Customers won’t risk paying more for a “peach” solar lantern if he thinks there’s a possibility of it being a lemon solar lantern, and sellers won’t go down on price for peach solar lanterns, so the market for peach solar lanterns is actually really small. (At least, this is how I explain Essmart’s bad months.)

Getting a customer to believe that you have a peach solar lantern involves what I wrote about earlier: signaling to customers that, beyond the product itself, you as a seller are trustworthy and reliable. You’re a used car salesperson who has repeat customers because they didn’t get screwed over on their first purchase. You’re here for the long-run! You have a local presence, you won’t run when angry customers run after you, and you’re kind of guaranteeing your sale with your reputation. You’re increasing the value of your offering so that customers can make that rational decision to buy the product (and your promise to them).

So, information-failure is a real obstacle, but practitioners need to consider affordability and value over cost. Cheaper/lower-cost obviously isn’t always better. Also, customers aren’t risk-averse as much as they’re being smart, so sellers need to demonstrate that they understand customers’ needs and provide that guarantee.

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