Around the World with Paco Underhill
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\"RRWhat We Can Learn From Emerging Markets

Merchants have a temptation to move up-market. We suspect this is a reflection of their desire to seek higher margins. While we can applaud the successes of luxury categories at the upper tier of the market, it is at the other end of the spectrum where we find insightful examples of merchant innovation. For many of the world’s consumer product goods companies, future earnings and sales growth are anchored in their ability to not only move up, but also to more effectively cover the down-market. But we may be missing some very special lessons in this traditional marketing strategy. We can learn from what’s hidden in plain sight in emerging economies by recognizing the transformation of our ideas and the ingenuity of adapting our concepts to local solutions. There is also a new wave of clever entrepreneurs who are retooling conventional retail and marketing in novel grassroots ways.

Sumba: Rethinking Trust and the Pragmatics of Third-World Recycling

The Indonesian Island of Sumba has the peculiar distinction of being the world’s southeastern-most home of the horse. Its equine culture is unique to the archipelago, and adventurous tourists invade the island for its horse festivals that involve ritual battles on horseback. Its welcoming villages are dominated by tall prehistoric megaliths, not unlike Easter Island. But in Sumba, these giant icons are made all the more startling by the vibrant human life that continues on the island, in contrast to the abandoned statues of Easter Island. Sumba has a few resorts that tend to be patronized by glitterati looking for places where the tabloids can’t find them. It is, in its way, paradise lost and found.

But what I liked best, as an inveterate retail observer, were the gas stations. Everywhere you went, there were little kiosks by the side of road constructed of bamboo and recycled tin roofing. Each kiosk had a few repurposed Fanta bottles filled with petrol. Customers roll up on their motorbikes, the preferred transportation of Sumba, grab a liter bottle, empty it into the gas tank, shove the asked-for amount of money into an unsupervised little box and drive off. Just like an old-fashioned self-serve farm stand, the concept is based on trust. The idea that you can leave product and cash by the side of the road is impressive; the gas delivery is also recycling at its Third World best.

The Philippines: Repackaging to Meet the Market

Across much of the Third World, people often get paid by the day. They may shop meal-by-meal, need-by-need, and buy their gas liter-by-liter. In the Philippines, the small neighborhood convenience stores package and sell cooking oil by the meal (roughly an ounce) or by the daily need (about three ounces). This approach redefines the concept of single servings, and represents the frontier for growth for many FMCG companies into new markets. For example, think of single-serve gas, cooking oil, shampoo, and toothpaste. This customer-focused packaging also represents how much of emerging market incomes are being earned by women. These female customers are less interested in the global single-serve standard of male products like a bottle of beer or a ten pack of cigarettes. Their focus is purchasing affordable products for both their families and their personal well-being. In first-world parlance, we tend to view single-serve as a waste of packaging materials. In markets across the world, it is the entry point to global brands. And repackaging is happening everywhere. All I’d ask is that Exxon replace the Fanta bottles with their own, and that Wesson/Unilever brand those small plastic bags shown in the photograph.

\"RRIndia: The Power of Mobile Transactions

Most business travelers have a love/hate relationship with India. I have learned to save a visit to India as the last stop on any global tour before returning home to New York. It is a chaotic, crowded place that pushes me to a limit. India manufactures the best steel and the finest plastic, and yet is one of the worst retail marketplaces in the world. Organized retail has been effectively stalled by government regulations that are designed to protect a 19th century network of small merchants and distributors. The mainstay of retail distribution remains the small “kirana” store which serves individual neighborhoods. They can be as compact as 100 square feet, or less. The most visible connection to the 20th, much less the 21st, century is a refrigerator, and often a small gasoline power generator to ensure that even during those periodic power outages, that fridge stays running. The spaces are universally poorly lit, often dirty, and the shelving is, at best, functional.

So what could we possibly learn from this miserable example? Convenience. The answer is to look at the staggering number of transactions that are orchestrated via mobile phone. Each store functions like a small warehouse; mobile calls come in and deliveries are made instantly on foot and motorbike. Or after the order is placed, a small child may be sent from home to pick it up at the kirana. The quantities purchased may be small, but the sales stream is steady. The accounts can be paid with each transaction, weekly or monthly. This may not have the tech sophistication of Amazon Prime delivered by drones, but it is a lot faster.

Mexico: Banking for the Under-Banked

Elektra, the Mexican-based chain has more than 2,500 locations and has intertwined its appliance and home furnishing businesses. It also serves as a bank for the upwardly-mobile lower mass market, making much of its money not by just selling appliances, but by extending credit. This is the renaissance of the classic American retail financing strategy dating back to the first Great Depression.

Here’s how it works. A family walks into an Elektra and if they can prove they have an address and job, they can buy appliances on credit terms, generally over a 20- to 40-week period. They sign the deal and walk out with the appliance. Each following week, someone from the family visits the store, walks to the bunker in the back and makes the cash payment. Cleverly, the walk to and from the bunker is lined with tempting offerings to upsell the next purchase. There are families that have 10+ year relationships with Elektra. They started with the basics—a stove, refrigerator, telephone— and moved to entertainment systems and increasingly sophisticated computer equipment for their children. In emerging economies, 21st century families recognize that cyber literacy is key to economic advancement.

The Elektra credit system works. The delinquency rate is remarkably low because the loans are not made to a person, but to a family. Elektra makes it easy for families; payments are accepted from personal accounts made by wire transfers from across the world, thus serving the millions of Mexican and Central American workers in the United States and Canada who send money home to their families.

\"elektra\"Elektra and its competitor Coppel have both focused on creating banking services, aware that consumers in these emerging market economies are acquisitional and hungry for deals. Customers are savvy, using their smart phones to access information about products, services and purchase solutions. Elektra has made itself essential to its customers by making it easy to trade up and improve the quality of life though a retro layaway program. And it’s back to the future here in the US as well. Walmart has very quietly and successfully addressed the financial needs and banking problems of the underclass. Similar to Elektra, Walmart Financial Centers are in-store cash spigots that funnel money directly into their stores’ cash registers.

The World: Financial Footnote

Never in the history of our planet has there been more cash in circulation. All of the predictions about the triumph of plastic currency are being postponed. The world’s white, grey and black economies are prospering everywhere from Detroit to Bangalore. Our lessons from these seemingly primitive emerging economy retailers are the linkages between technology, personal needs and cash. Entrepreneurial store owners in the Third World are responding to their customers’ needs with novel solutions that turn traditional marketing on its head. Using mobile technology to facilitate orders and payments provides immediate access to goods and services. Understanding the cash economy needs of under-banked countries is customer-centric marketing in spades. We shouldn’t assume that our notion of sophisticated sales and high finance is the only answer. There is a lot of money up for grabs much further down the economic ladder. It has never been a better time to rely on a large piggy bank.

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