Why did I choose a picture of shoes?
If you're shopping in an Indian metro, a pair of shoes will cost you ~INR 2000. If you buy your shoes on the street-side stall they'll cost your ~INR 200. Given how ubiquitous these stalls are, you'll find access to a massive selection at almost any market, and you'll never find it hard to get personal service. In fact, if you happen to look like a tourist, you'll likely be mobbed by stall owners selling their wares, with deep discounts on offer if you know how to bargain. If you're 1 of India's poor billion, you likely shop here.
Inversely, if you walk into the middle-class malls in Indian's growing urban centers, you'll pay a fixed price and choose from a limited inventory. You might find 2-3 sales people, who depending on their salary structure may have little incentive to lavish service on you. If you're looking to distinguish yourself as the middle class, then you might shop at such a store.
What's the dichotomy here?
If I'm interpreting this correctly, the street side stalls offer more convenient service at a faction of the price of the name brands. The material might not be as soft, and perhaps the fit not as snug, but if you (like any poor person) are price sensitive, then who cares? The mall has nothing to offer you. There is no clear motive to move upmarket. So why do so many development-focused firms pretend that there is?
What does this mean for Walmart?
Walmart might the latest foreign investor to try its luck in making money at the bottom of the pyramid. Since C.K. Prahalad published his ground-breaking article in 2004, hundreds of companies have taken the bait. There have been some inspiring success stories; most notably the telecom revolution led by Reliance in India and others elsewhere.
But the critical reason that Reliance succeeded where others failed might be due to an absence of alternatives. Cellphones never competed with land-lines for the poor. Cellphones never competed with a postal system or telegraph geared to serve the poor. Cellphones were a disruptive marketing-making technology that changed lives.
This is not the Walmart story. Walmart will be competing with every local food and grain vendor in India for market share. If Walmart plans to make its fortune selling to India's huddled masses, then it must do so by undercutting the local street stall. Inflation and rising food prices might help Walmart out, but only so far. Eventually, Walmart must sell food that meets a certain standard and pay its employers a certain wage. It must pay accountants and HR and marketing and any number of overhead expenses. The street side competition faces no such constraints.
If the battle is for price, then Walmart's outlook might be grim.
What does this mean for the Poor?
The fundamental flaw is that we make products for the poor but forget to actually market to them. We forget that, just like us, they have a slew of options they are choosing from and preferences that shape their decisions. The challenge is that their decision set might be a far cry from ours. You can create sanitation systems for the poor that eliminate disease and increase life expectancy. But as long as the systems costs more than taking a shit on the road-side, what incentive do they have to change?
Our problem might be than in our rush to help the poor, we treat them at "the poor". They are not "the poor". They are humans who happen to be poor. Yet they are capable of the same complexity of decision making and choice as the rest of us. The goal is NOT to make a "Fortune at the Bottom of the Pyramid". The goal is to make a Market.
Figure out their wants and needs, their set of alternatives and preferences, and then you might stand a chance of making a sale.
For more on this topic read: The Problem with the Poverty Premium
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