Don’t underestimate the sophistication and aspirations of low-income populations in emerging markets

Square is out; circular is in.

This is what I heard on a recent visit to Kenya from last mile distributorLiving Goods when I asked about their bed net sales. Apparently, in the market for bed nets, which keep malaria-carrying mosquitos away from children in developing countries, fashion is now just as important as functionality.

We live in a world of globalized aspirations. The opportunity has always been great for entrepreneurs to address societal issues through for-profit solutions. But so too is the challenge of understanding the rapidly evolving desires of customers in emerging markets. In the past few months, I have heard over and over again how easy it is to underestimate the sophistication of low-income populations. I share some below.

The first story I heard was shared at the launch of Shell Foundation’s new framework for inclusive markets and was about low-income customers forgoing what would be considered basic needs for other priorities. Vineet Rai of Aavishkaar, an Indian investment fund, was recounting his visit to the poorest regions of India to research the market for household toilets. He traveled with a friend to a remote village to speak with families there. When he arrived, he found that only one family out of a hundred had ever purchased a toilet. None of the others even expressed any interest. The villagers were far more interested in spending money first on irrigation, agricultural inputs, and education for their children. Despite clear benefits from toilets — sanitation, convenience, and dignity — these consumers had chosen other necessities to spend their limited budgets on.

The second story was shared to me by Microsoft 4Afrika and conveyed the unexpected sophistication of rural internet users. Microsoft funded an extraordinary project called Mawingu that is bringing high-speed internet to rural Kenya. As part of this experiment, the initiative created a containerized internet cafe in a rural part of central Kenya. Outside commercial use, they were surprised by how certain individuals were using their newfound access to high-speed internet. One person would come to write entries for his blog. Another would record and upload videos of himself performing original songs to Youtube. Contrary to the assumption that one would see only basic internet usage from rural populations, these people were using the internet in very similar ways as one might find in the Western world.

The final story was one I heard during Village Capital’s Hardware Africa 2015 program, about how the poor want the same high quality of life as that found in rich countries. One of the program’s startups, PayGo Energy, provides modern stovetops and pay-as-you-go gas to poor urban families in Africa. Gas is used in many Western homes for cooking and is not typically considered a viable option for poor households in developing markets. Instead, low-income households are often offered cookstoves that burn solid fuel. PayGo tested their gas stove with solid fuel users in urban Kenya to better understand their market. They found that many households did not want to give back the unit after the completion of the test period because they liked it so much. One particular user, after using the gas stove instead of a traditional cookstove, was quoted as saying “I feel like a modern woman.” One might expect that people who have used solid fuel all their lives would be content to use cookstoves. On the contrary, PayGo found that many low-income populations aspire to the same convenience, cleanliness, and efficiency of gas cooking as anyone in the US or Europe.

I continue to encounter stories of how the purchasing priorities of consumers in emerging markets are unexpectedly similar to everyone else’s. I read in FSD Kenya’s Financial Diaries how some extremely sophisticated low-income families are managing their finances through products that would be considered cutting-edge even in the West like M-Shwari, which allows mobile money to earn interest. Through all of these stories runs the common thread of low-income individuals who have the same aspirations as anyone else — a good education, a fashionable and modern lifestyle, and maybe a chance at Youtube fame.

Daniel Hsu leads partnership development around the world for Village Capital, connecting diverse actors to support inclusive entrepreneurship.