NON-CONSUMPTION IS YOUR FIERCEST COMPETITION—AND IT IS WINNING
Tip 5 – Watch out for law-breakers.
When citizens are willing to break seemingly innocuous laws
because the benefits far surmount the punishment, or when
the possibility of getting caught is miniscule, these situations
point to non-consumption opportunities. Before the advent of
iTunes, people were willing to download music illegally. While
they risked getting caught and sent to prison, they understood
the chance of that happening was low. The risk was worth it.
The engineers at Apple caught on to this behavior and designed
iTunes to take advantage of this opportunity.
While these tips do not constitute an exhaustive list, they
can provide managers with tools to spot the vast nonconsumption that exists in the emerging markets where they
conduct business.
What this means for investors
and managers in emerging markets
Building a business that targets non-consumption is hard
and requires perseverance. For instance, it took Tolaram
18 years to gross $100 million in Nigeria. But since 2006,
the company has grown at a compound annual growth rate
of 28%. If managers and investors in emerging markets are
experiencing tepid growth, they should juxtapose the eight
attributes of market-creating innovations with the attributes
of their businesses and make the following adjustments:
FIRST, reframe the competitive landscape. Managers
and investors should consider non-consumption in their
competitive matrices and analyses. Doing so allows them to
focus on the reasons why non-consumers are not purchasing.
While this approach might require a new product or business
model, it gives a true picture of the competitive landscape and
the magnitude of the opportunity.
SECOND, assess the organization’s capabilities. An
organization’s capabilities are made up of its resources,
processes, and priorities (RPPs). Resources are usually
the most tangible of the three and include assets such as
employees, cash, buildings and equipment. Processes are
the ways in which resources get used. Some processes are
codified, like how an organization does annual budgeting or
hiring, while others are simply “how we do things around
here.” An organization’s priorities, meanwhile, are restraints
on how the organization can use its resources. These priorities
are typically affected by the size of an opportunity and the
margins the company needs in order to stay profitable.
An organization’s capabilities are usually aligned with a
certain customer segment. Assessing its RPPs allows the
organization to predict how it would perform if it went after nonconsumers. For example, if a company’s priorities constrain it
to going after business with a 40% margin, it is important that
executives understand how that will affect the company if it
decides to go after non-consumption opportunities that offer
only 10% margins.
THIRD, create a separate business unit that goes after
market-creating innovations. The priorities of a business
targeting non-consumption are vastly different from those of
a business that targets sustaining or efficiency innovations.
As such, executives need to create a new business unit that is
designed to meet their specific needs.
Consider the evolution in the computing industry; mainframe
computers sold for roughly US$ 2 million while personal
computers, a market-creating innovation, sold for US$ 2,000.
A CEO working for a mainframe computer supplier would
find it very difficult to prioritize the allocation of resources to
go after personal computer sales, and rightly so. But if the
CEO created a new business unit with priorities aligned with
customers of personal computers, the company would be
better able to tackle the new market.
This, in many ways, is what happened with IBM in the 1980s.
The company created a new business unit in Florida focused
on the development of the personal computer, allowing it
to remain competitive when other makers of mainframe
computers went out of business.
The lesson here is that while targeting non-consumption is
difficult, it has the potential to breathe new life into companies,
industries, and countries. Companies like Kia and Hyundai in
South Korea and Sony, Toyota, and Honda in post-war Japan
targeted non-consumption in the 1960s and effectively helped
develop their national economies. Investors, managers and
entrepreneurs in emerging markets today have the same
opportunity to significantly impact the lives of hundreds of
millions of people with market-creating innovations. Taking
advantage of this opportunity makes great business sense.
Efosa Ojomo. Senior research fellow at the Forum for Growth and Innovation, a research institute
at the Harvard Business School, led by Clayton Christensen, the Kim B. Clark Professor of Business
Administration at Harvard Business School. He can be reached at [email protected]. Follow him on
Medium at @EfosaOjomo and on Twitter at @EfosaOjomo
42 Emerging Markets Business Summer 2016 • Issue No. 1