Marketing and selling to the less rich

In developing countries like the Philippines, we have a greater number of people who belong to the lower economic strata than to the upper economic strata. As such, there are greater opportunities for marketing and selling to the less rich.

One might argue that the less rich have no buying power and, therefore, cannot afford to indulge themselves. But consider these facts.

• The less rich pay the highest interest rates in the country. It is not because they do not know how to borrow; rather, it is because they do not have access to lower-cost funds for needed capital nor do they have the requisite collaterals.

• The less rich have the highest repayment rate on their loans. It is not because they go out of their way to pay their loans, it is because the lenders go out of their way to lend and collect.

• The less rich pay higher prices than the rich. It is not because they can afford to do so, it is because of their limited cash resources.

While this sounds like an oxymoron, again, let us consider some more facts.

• The less rich buy cigarettes on a per stock basis, not on a per pack basis. Clearly, when the unit price on a per stick basis is multiplied by 20, it sums up to more than the price of a pack of 20 sticks. The less rich buy on a per stick basis. The rich buy on a per pack basis. The less rich must pay the higher price because if the less rich purchased the "cheaper" pack of 20s, there will be no money left to buy other things needed for the day.

• The less rich buy toothpaste on a per sachet basis, not on a per family-size tube basis. Clearly, when the price of toothpaste in the sachet is compared to its equivalent value when purchased as a family-size tube, it is more expensive to buy on a per sachet basis. The less rich must pay a higher price because if they buy the "cheaper" family-size tube, the less rich will have to use the same product for other essentials of bathing, shampooing, laundry, and dishwashing.

• The less rich are pre-paid subscribers of cellular phone services. The rich are post-paid subscribers. On a per call or text (SMS) message basis, the less rich pay more than the rich. In addition, the less rich pay in advance and the rich pay on credit terms. The less rich pay higher in cash before delivery not because they like it. It is because they are not creditworthy enough to avail of post-paid plans. The less rich actually pay more for the use of the same service that the rich also use.

The less rich can pay the higher prices. They just have a cash flow problem. These are two different issues that present opportunities to market and sell to the less rich. Not only are the less rich many, there are more of them.

This is an opportunity that must be looked into by entrepreneurs. The key is to be able to conform with the cash flow limitations of the segment. The cash flow of the less rich follows the old saying in Filipino of isang kahig, isang tuka, which refers to how a chicken eats. One leg scratches the ground to bare the food below the surface and this is quickly followed by a peck to get it to the beak. Expressed as a literal hand to mouth mode of existence, this means there is little cash that flows with high velocity.

There are two ways to make your product or service conform with the cash flow limitations of the less rich.

The first way is clear from the examples given. Break the product or service to cash flow chewable chunks. In the case of products, this means smaller sizes that may be used on a one-time basis, i.e., buy one today for today’s use and buy one tomorrow for tomorrow’s use. This can be done for products that are consumed daily or used regularly. In the vernacular, we call this tingi or literally a retail small-piece-by-small-piece sales. The sachet packaging has made this convenient. For services, breaking down the service package is an opportunity. For example, instead of having a full body massage, one can break it down into back only, foot only or even head only. Of course, if one is to sum up all the broken down service elements, it would be better to get the whole body massage. But breaking it down will allow those who cannot afford the whole body massage to have a foot massage.

The second method is applicable to products or services which cannot be cut into sachet size. Take, for example, a tire. How can we sell tires to the less rich? Another example is a hair cut. Having half a hair cut because the less rich can only pay for half a haircut does not sound right.

In cases where the product or service is already brought down to the lowest saleable unit but is still not within the reach of the cash flow of the less rich, the solution is financial. The item can be financed with a down payment and a series of installments that fit the cash flow of the less rich. The other is via a lay-away plan that will allow the less rich to save up for the value of the item or service.

This financial solution was how vehicles and housing were made affordable to the less rich. A financing package that fit the cash flow of the less rich was made available. The challenge is the development of a financial package or engineering an instrument and sourcing the funds to support it.

(Alejandrino Ferreria is the dean of the Asian Center for Entrepreneurship of the Asian Institute of Management. For further comments and inquiries, you may contact him at: [email protected]. Published "Entrepreneur’s Helpline" columns can be viewed on the AIM website at http//: www.aim.edu.ph).