A grassroots approach to emerging-market consumers
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A grassroots approach
to emerging-market
consumers
By tapping into local networks, companies can serve low-income markets
profitably, delivering significant value to shareholders while creating the
essential market infrastructure for economic development in the neediest
communities.
Christopher P. Beshouri
When companies figure out how to serve low-income consumers in
developing countries profitably, everyone wins: the disadvantaged gain
access to products and services that the private sector is best positioned to
deliver, while companies tap into vast new markets. On top of that,
when core sectors of the economy—such as banking, electricity, telecom-
munications, and water—thrive, they transform consumers into producers
and promote economic development.
Unfortunately, this happy dynamic is more the exception than the rule. Low-
income consumers just can’t afford many products and services. A shaky
infrastructure raises the costs of distribution. Incomplete information makes
extending credit difficult, and collecting what’s owed poses enormous
challenges. Some low-income consumers feel entitled to connect into water
mains or electricity lines illegally. Low-income environments are also more
susceptible to insurgent activities that raise security and infrastructure costs.
To complicate matters, the resolution of these issues sometimes calls for
untangling a unique principal-agent problem. A company (the principal) is
in a weaker position than the community (the agent) when it comes to
gaining local information, shaping people’s views, and dealing with bad
behavior—by defaulters, for example—that could disrupt service for
customers and company alike.
The McKinsey Quarterly 2006 Number 4
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A few companies are adopting
creative community-based solutions
to overcome many of the diffi-
culties they face serving low-income
consumers:
• In the Philippines, Manila Water
relies on collective billing to
ensure the timely payment of b