Lisa Kienzle is Operations & Strategy Manager, AppLab Money Incubator , at Grameen Foundation Uganda.
Last year we shared the outcomes of a base-of-the-pyramid segmentation in Mexico and its implications for product development. We now turn to Uganda, where Grameen Foundation’s AppLab Money Incubator team has studied and segmented the behaviors of rural low-income consumers to better understand the opportunities for financial services product development.
Often I hear organizations say that they intend to serve the poor. But when 80% of a market is low-income, what exactly do they mean?
Take banking, for example. If I walk into a bank in Kampala, I’ll see a handful of different products, including salary loans, youth savings products, basic bank accounts and premium accounts, that target specific markets: credit-crunched employees, wealthy families’ children, the middle class and the upper class. In a country in which less than 20% of the population uses formal banking services, financial institutions have segmented that group into sub-markets and developed specific products for those needs. But when they turn to the poor, they forget all of that – suddenly 80% of the population is lumped into one massive market.
Not every poor person acts the same way. It’s a flaw in our thinking, and it’s a big flaw.
We need to apply the same approach that we apply to market segmentation for wealthy populations to the poor as well. It’s easy to default into simple approaches to segmenting the population – for example, using demographics, like age, gender, or income. The problem is, demographics aren’t indicative of behavior and decision-making – and behavior is what we need to understand.
Consider a recent research session that we conducted with a group of women of similar ages from the same village – an ideal group to study if we were targeting the female demographic as a segment. We were collecting feedback on a new savings-product concept. The woman in the photo on the left constantly reacted in one way, and the woman on the right in another. At the end of the session, the woman on the right raised her hand and asked, “What about loans? What I really need is to raise capital for my shop – I don’t need savings.”
Though women are an easily identifiable segment, they don’t all make financial decisions in the same way. Good market segmentation uses a customer’s needs or behaviors to identify similar groups of people. Strong segments are large, are internally linked by behaviors or needs, and are externally identifiable so an organization can target them.
Segmenting is part art, part science. At Grameen Foundation’s AppLab Money Incubator, we looked at several different ways of segmenting our customers. We used data from a survey written by our research lead, Ali Ndiwalana, that was administered to more than 2,600 respondents across Uganda. Looking at individuals’ savings and credit behaviors yielded distinct, sizeable, actionable segments that we could target. (For example, the women pictured above fall into two different market segments that we identified – the first, “Careful Investors,” and the second, “Village Entrepreneurs.”) The high-level findings can be found here [link to presentation].
What resulted were six segments defined by behaviors that our team could target with tailored products and marketing messaging. However, not every market segment is going to be a viable opportunity for a commercial organization. We analyzed each segment to find those that were large, accessible, and willing to switch products or services. In this study, four of six segments fit that criteria, but two segments exhibited low or no current interest in financial services and would take too much time, effort and education for a for-profit bank to address sustainably. Though these two segments could be served through subsidized offers, through creative ways of developing “freemium” products, or by nonprofits or NGOs, they aren’t a near-term focus for a bank or telecom.
In many developing markets, the mass market is the poor market. However, the poor have different needs, behaviors, aspirations and dreams that a one-size-fits-all solution cannot address. Thinking otherwise is a disservice to them, and a lost opportunity for us all.
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