ServiceFriday: Services is an Effective Model for Bringing Products to Lowest Income Populations
Billions of people, primarily in rural areas of emerging economies, comprise what’s called the Base of the Pyramid, those who eke out a living at the lowest income level. The challenges of living on so little leads to non-consumption, where people cannot buy products that would improve their livelihood. Scholars have suggested that service businesses that provide goods on a shared basis might address the non-consumption problem and improve lives. A study recently published in the Journal of Services Research provides the first empirical support for this concept.
Chronic financial deficiencies prevent people at the Base of the Pyramid from consuming goods that would improve their lives, including things that are essential to survival. Some research has suggested selling this population stripped-down products at a price point that they might be able to afford. But ownership presents risk and involves burdens such as maintenance, making it unattractive to people who have no resources to expend when things don’t work.
But what if they could essentially rent the needed product? Access-based services can be offered at a lower cost and the burden of ownership rests with the provider, making it a feasible solution to a Base of the Pyramid customer. The researchers explored this in two experimental studies conducted in rural India. Survey respondents were asked to consider using a solar-powered air cooler if it was available on an access basis. Then they are asked if the term of the service commitment would affect their decision. The results indicated than when offered a choice between access and ownership, these consumers would choose access; if offered ownership alone they would choose to go without.
In a second study, researchers explored whether these same consumers preferred a long- or short-term arrangement. The results showed that the respondents would choose nothing if the offering was only long term.
Managerial implications
For firms trying to tap into the Base of the Pyramid market, this study suggests offering products as an accessed-based service is the successful strategy for this group, rather than trying to sell to them.
The findings are also relevant to service companies and policy makers interested in the possible connection between access-based services and improvements in livelihood. “Access-based services may reduce budget constraints, thereby making monetary resources available for expenses that add to better living conditions, such as education or medical care,” researchers reported.
Since long-term access would not be successful in this market, the researchers recommend that providers consider the impact short-term access would have on their business model. “The decision to offer shorter minimum rental periods reduces the predictability of asset usage and thus needs to be made in conjunction with cost considerations in order to create a sustainable business model,” researchers wrote.
To read the full article, go to the Journal of Services Marketing. (A fee may apply.)