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Targeting nonconsumption: the path to profitability and prosperity

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Aug 31, 2016

In an earlier blog, I defined the term nonconsumption and wrote about the significant potential for companies that develop a business model targeted at that segment of a population. Nonconsumption, the inability for a person or company to purchase a product (or service) due to the product’s cost or expertise needed to operate it, is rampant in many poor countries.

Consider the following: in Rwanda more than 80 percent of the population live in homes with a dirt floor; in Ghana, approximately 64 percent of the population is engaged in agriculture with little to no access to markets; in India, between 20 and 25 percent of the populace is able to afford and use a refrigerator; in Kenya, less than a quarter of the population has access to electricity; and finally in Nigeria, of the two million students who sit for JAMB, the university entrance exam, less than 25 percent receive admission. Like I said, nonconsumption is rampant in poor countries.

But nonconsumption also presents significant business and developmental opportunity. For example, the development story of many rich countries today is only possible because entrepreneurs and investors built enterprises that focused on addressing the mass nonconsumption that existed at the time. Think of Frederic Tudor, who built a billion dollar ice-trade industry in 19th century America, or Henry Ford, who changed the landscape of the U.S in the early 20th century by developing the Ford Model T. These entrepreneurs tapped into the vast nonconsumption of “cooling” and “mobility” at a time when only the rich in society were consuming those services. Tudor died as one of the richest men in the world while the Ford Motor Company has grown to become one of the most successful auto companies today.

A firm’s ability to develop a business model that targets nonconsumption positions it squarely for success. In my research, I have had the opportunity to meet many entrepreneurs that are building such businesses. Here are five tackling nonconsumption in the aforementioned industries:

  1. Earth Enable: In Rwanda where the GDP per capita is approximately $740 (~$1500 GDP per capita PPP), cement floors are out of reach for the average family. For as little as $4 per square meter and with the average home roughly 20 square meters, Earth Enable allows a family to floor their home with a proprietary solution which comprises of clay, sand, fiber, and plant oils for $80. This represents more than a 70 percent reduction in cost compared to a cement solution. In addition to the benefit of having earthen floors, childhood asthma, diarrhea, malnutrition, and parasitic infestations are just a few of the illnesses that Earth Enable’s affordable earthen floors are alleviating.
  1. MoringaConnect: Of the 26 million people that live in Ghana, approximately 17 million are engaged in farming, many of whom are disconnected from markets. Ghana also has more than six million people living in extreme poverty, most of whom cannot afford a nutritious meal. MoringaConnect saw a great business opportunity to target nonconsumption of nutritious meals and more efficient agriculture and is now working with more than 2,000 Ghanaian farmers to help them process their moringa harvest. The firm has been able to raise farmer incomes by up to 10x and now counts Birchbox and Estee Lauder as clients. With the added income and increased harvest, small farmers are then able to enjoy the food from the nutritious trees. Listen to this Harvard Business School MoringaConnect podcast for more information.
  1. chotuKool: In India, a country with a population of more than 1.25 billion people, only 25 percent of households have access to refrigeration. This means that a majority of people have to travel to the market, shop, and cook daily. This vast nonconsumption of food preservation is very expensive for the average Indian who is unable to purchase a conventional refrigerator. However, Godrej & Boyce, an Indian manufacturing company, noticed this opportunity and developed a low-cost refrigerator that houses a rechargeable battery and does not depend on constant electricity. Since inception, the company has sold thousands of chotuKools.
  1. M-KOPA: When the sun goes down in Kenya, approximately 34 million people either shut down their lives— that is, they close their businesses, stop studying, or simply stay home.  Those who don’t purchase expensive, toxic, and dangerous kerosene to create fire that serves as light for the household or shop. Kerosene lamps are responsible for between 6,000 and 12,000 deaths a year in Kenya. M-KOPA Solar decided to provide a safer alternative and address the nonconsumption of electricity by developing a “pay as you go” solar solution where consumers pay less than 50 cents per day for electricity. Since inception, the company has sold more than 375,000 solar solutions to nonconsumers and is now selling at a rate of 550 units per month.
  1. Beni-American University (BAU): While Nigeria’s university admissions rate is depressingly low, what’s even more astonishing is the country’s job placement after graduation. By some estimates, more than 60 percent of graduates are either unemployed or underemployed. By leveraging technology, BAU is working to fix both the access and quality problem plaguing the many youth in the country today. BAU’s business model targets the more than one million people who cannot access higher education due to the availability of spaces in public universities and those who do but are exposed to substandard teaching.

From studying these enterprises, one thing is clear: each of them has built a business model that  targets nonconsumption of a particular product or service in the country. As a result, they need not worry about the market size or whether or not people would purchase their product. Because nonconsumption is characterized by struggle, they are guaranteed customers if they are able to help their nonconsumers make progress.

An unintended consequence of building a business that targets nonconsumption is the business’ inadvertent engagement in regional and, sometimes even, national development. Henry Ford’s quote about the development of transportation infrastructure in the United States sums it up: “The Model T car was a pioneer. There was no conscious public need of motor cars when we first made it. There were few good roads. This car blazed the way for the motor industry and started the movement for good roads everywhere.”

Efosa Ojomo

Efosa Ojomo is a research fellow at the Clayton Christensen Institute for Disruptive Innovation. Efosa’s work focuses on using disruptive innovation theory to fundamentally change the discourse in the global development community, thus enabling nations to engender their own path to long-term growth and prosperity.