EMB
THE FORD MODEL T
AMERICA WAS ONCE AN EMERGING MARKET
How to spot non-consumption
Visionary entrepreneurs like Henry Ford are hailed as having a
sixth sense for their ability to predict what people need before
people can conceive of it. However, through the course of
our research at the Forum for Growth and Innovation at the
Harvard Business School, we have developed five tips that can
help identify non-consumption opportunities in the market.
Tip 1 – Recognize over-engineered products.
Over-engineered products are typically too expensive or
complicated for most people to afford as they are usually made
for the most demanding or the wealthiest consumers. Companies
that make these products align their resources, processes, and
priorities with those of the rich and skilled and not necessarily
with the majority of people in society or the non-consumers.
Consider South Korea in the 1960s. Its GDP per capita was barely
$1,500 but Kia Motors recognized the vast non-consumption in
mobility and designed the K360, a three-wheeled utility vehicle.
As the productivity and incomes of citizens increased, Kia Motors
began developing automobiles that f it the changing needs of
consumers. If Kia had over-engineered the automobile in the
1960s, the company may not have been as successful because
most people would not have been able to afford their products.
Tip 2 – Key into people’s emotions.
Observing people’s emotions like anger, frustration, and anxiety
as they go about their lives is one of the most effective ways
to spot non-consumption or under-consumption. Emotions ex‑
pose innovators and entrepreneurs to dissatisfaction with exist‑
ing products or circumstances. The managers at Kenyan com‑
munications company, Safaricom, were experts at this when
they developed the mobile payment product, MPESA. Before
MPESA, Kenyan citizens had to use cash for most transactions
and sending money to family members was a major hassle.
Safaricom’s ability to key into the anxieties and frustrations of
citizens allowed them create a solution that enabled a more ef‑
ficient way of paying for goods and services in Kenya.
The United States in the 1900s resembled some emerging
markets today. For example, annual per capita income in the US
at that time was about $6,000 in 2009, while per capita income in
Botswana today is around $6,000. In the first few decades of the
twentieth century, the United States did not have a good road
network and electrification did not take off until the 1930s. Life
expectancy was also approximately 47 years, about the same as
that of many African countries now.
Before Henry Ford built the Model T—a car regarded as the
first affordable automotive—car ownership in the United
States, as it is in most emerging markets today, was limited to
only the rich. But it was in these circumstances that Henry Ford
decided to build a car that the average American could aspire to
buying. Many of his investors at the time were skeptical about
his idea with some even selling their shares in his company.
Henry Ford had to convince the ones that stayed that there was
a market for automobiles in America.
After he got the necessary financing, Ford designed a business
model that targeted non-consumption of cars in America. The
conventional business model for automobile manufacturers
was to custom-make cars for wealthy individuals, requiring the
use of highly skilled craftsmen. In order to drastically reduce
cost, Ford developed the assembly line for his cars. Similarly,
while most vehicles at the time required their owners to have
special driving skills, Henry Ford built the Model T so that it
could be easily driven by anyone.
Ford’s innovation was widely successful. Till today, the Model
T still ranks as one of the top ten best selling cars of all time,
selling more than 16 million units. Its success is even more
impressive considering that car sales during that time were in
the tens of thousands per year. He created a market, not just a
business, out of non-consumption.
The Model T also impacted investment in American
infrastructure and provided a tax base to support construction
of roads. Before Ford democratized cars for the average Ameri‑
can, the United States government had tried to develop the road
network but lack of funding slowed the development. After the
Ford Model T, the government was able to generate enough
revenue from gasoline taxes to enable the sustainable development of roads in the United States.
Tip 3 – Watch what they do, not what they say.
People’s actions and reactions to products and circumstances
provide another window to help spot non-consumption.
Actions like waiting, repeating certain activities, and creating
workarounds in order to get a job done are important clues for
spotting opportunities. The Indian conglomerate, Godrej, figured
this out when it decided to design a portable refrigerator that
did not require constant electricity for the migratory citizens
in India. Indians who live in rural areas typically go wherever
they find jobs and it can be difficult carrying large refrigerators.
Additionally, many people in rural India do not have access to
electricity and cannot afford conventional refrigerators.
Another marker for spotting non-consumption is the
availability of abundant or idle resources. These resources
can be used to more effectively create solutions that will
address non-consumption. An example of this is how mobile
telecommunications operators in Africa leveraged the
abundance of informal retail networks to sell their respective
recharge cards. This decision significantly reduced the cost of
having to build a network of retailers.
After careful study of people’s behavior, those insights, and
several others, gave Godrej engineers the idea to develop
chotuKool, the world’s lowest cost refrigerator. chotuKool uses
a fundamentally different technology and has a rechargeable
battery that can keep products cool for up to eight hours. Godrej
is targeting the vast non-consumption in India, considering
that about 80% of Indians do not have access to refrigeration.
Another interesting example can be drawn from the 1930s
during the emergence of electrification and refrigeration in
the United States. At that time, electric utility companies sold
refrigerators at cost, and in some cases below it. They were
producing an abundance of electricity that they needed to sell,
and what better way to sell electricity than through a product
that always stays on?
Tip 4 – Look for abundant or idle resources.
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