“It is very difficult to make a lot of money by selling goods or services to poor people in a way that has meaningful, positive impact on their lives, particularly with ICT,” quoth the Jester in a previous post. In this post, the Jester explains why.
(The Jester imagines a day when millions of college students will learn to quote the Jester when they take the mandatory course, “Technology and Society: How to Avoid the Mistakes of Your Technologist Parents, Grandparents, and Great-Grandparents,” but for now, he will have to be satisfied with quoting himself.)
The Jester suspects there is another Top Ten List in here somewhere, but for now, his meager brain can think of only six reasons why it is so difficult to make a lot of money and serve the poor by selling them stuff. And, here they are…
- The “Two Birds” Problem: In general, it is much more difficult to simultaneously meet two goals, rather than just one, especially when there is a tension between the two goals. It is hard enough making a healthy profit by itself (ask any Silicon Valley venture capitalist). And, it’s perhaps even harder to have meaningful impact in development. So, setting the goal of both making a killing and having positive impact makes things much harder than either goal by itself.
- The Ethics Problem: Selling to poor customers raises the question of what to charge them. In making this decision, one can lose money, break even, or make money. Obviously, the first two options do not make anyone a lot of money. If, on the other hand, one makes money, then it leads to the same question faced by Compartamos Bank and SKS Microfinance: Are they laying the conditions for commercial investment, or profiting off the backs of the poor? Muhammad Yunus says of them, “I never imagined that one day microcredit would give rise to its own breed of loan sharks.”
- The Cost-of-Business Problem: Prahalad pooh-poohed the “poverty premium” – the higher prices that poor communities often pay in comparison to rich ones. Clean drinking water is widely considered “free” in the United States, but anyone living in Kibera will tell you it costs money and/or effort. But, he was wrong to think it represented a major money-making opportunity. The poverty premium exists exactly because poor communities are harder to serve (e.g., bumpy roads to rural villages), riskier (e.g., no credit history), and more likely to buy in small quantities (e.g., sachets). All of these factors contribute to a higher cost of doing business, and while there might be value in trying to shave off every shilling in the cost of a product, shaving is exactly what it will be.
- The Competitive Pressure Problem: Given the above, any social entrepreneur will be at a disadvantage in the market against not-so-social entrepreneurs. Who will win the fight in the long run? The social entrepreneur tying one hand behind their back so that they can have a positive impact on their poor customers, or the pure entrepreneur ruthlessly chasing higher margins and greater share? The Jester cannot think of a single category of product in which the industry-leader is a social enterprise. (Readers are encouraged to submit exceptions that prove the rule.) Then, guess what industry leaders do to their slower counterparts?
- The Branding Problem: In the Akshaya telecenters mentioned earlier, the entrepreneurs often faced a branding dilemma: Do they swim upstream and market to wealthier clients who are seeking a higher-class product? Or, do they target their advertising to the very poor as a social service? The dilemma is that it is difficult to both convincingly at the same time. Poorer customers are often scared off by glitzy things that seem out of their reach, anyway. Meanwhile, the last thing that the rich customers want is a product associated with poor people. Don’t believe it? Continuing the unfortunate stream of references to Snooki, the Jester happened upon a news article, which claims that luxury brands send Snooki competitors’ products as a way to lower their appeal. (The Jester refuses to divulge how he came upon this article, for fear or incriminating himself.) The lesson? It’s not easy to market the same product the same way to rich and poor.
- The “It’s Good for You” Problem: Finally, the Jester arrives at his favorite claim: Given the choice (and there’s always a choice), most people – rich or poor – tend not to purchase things that are “good for them.” How many needs assessments in international development come back with healthcare, education, and skills training as desperate needs of poor people? Almost all of them. And, how many poor people actually pay beyond what they’re already paying for better versions of these goods? Almost none of them. And, this point is doubly true for information, that stuff that is channeled through ICTs. Normally, human beings are precariously perched between self-improvement and sloth. Then, when you have to pay for it, sloth looks pretty good.
This last point touches on the harebrained idea that poverty is something that is alleviated through consumption. Of course, consumed goods can add convenience, pleasure, and some other good things to life. And, sometimes, there are products or services that help a person earn more. But, consumption is the result of having the ability to consume, not the primary cause of that capacity. What matters in development is increasing that capacity, not selling people stuff. In short, you can’t consume your way out of poverty. (Incidentally, this is a major error in standard economic thinking, which routinely conflates the metric – amount consumed – with its underlying cause, which is income and, further, the means to earn income. Consumption correlates with income, but they are not the same!)
In the next post, the Jester outlines his simple-as-possible-but-no-simpler view of development as a way to explain that selling people things and doing development are two very distinct, even opposing, activities.
The ICT4D Jester 