Market size estimation in uncharted rural economies

Agriculture is the main driver of the rural economy in developing countries. Realizing product and service innovations targeted at these agriculture-based markets holds tremendous potential for creating new growth engines for business, as well as achieving social and economic development.

While this is a market with huge opportunity, it is also very difficult to navigate. Much of the rules and patterns of behavior are based on informal solutions to irregular and low incomes, semi-literacy, and social and environmental uncertainty.

Estimating your market in such an economy is not a likely task. Insights are yet to emerge on the radars of formal market intelligence approaches, like the chamber of commerce, or Google analytics, etc. And, if there’s little else to target specific customers by, than referring to them as a number of 2 billion or so people who grow crops on small pieces of land and rear animals, your business is likely to fail.

Needless to say, emerging rural economies require different market estimation approaches. We need to be more creative and develop proxies, which are more sensitive to picking up signals of upward market dynamics.

The water tank indicator
I recently had an idea for such a signal, based on some photo’s I took of water tanks during fieldwork. I still need to validate this thought, but I’ll write it out here, for sake of argument (I’m open to your comments!).

A water tank located near your home provides a lot of convenience. You can collect rainwater in substantial volumes that can be accessed from your own premises. Also it could help you eek out your water supply during the dry season.

The very common alternative to the water tank, is to walk to the water pump or the lake with a jerry can, for which you often need to cover substantial distances. Water tanks thus create a considerable saving on time and effort dedicated to fetch water. Time that can be freed up for other activities on your farm or on someone else’s farm.

Water tank in North Buganda Region, Uganda
Water tank in North Buganda Region, Uganda

Occasionally you will find a household that has invested in a tank, and my experience is that these are relatively well-off people, because water tanks are a big investment (or an NGO has dropped by with a program…). Could water tanks be a soft signal for upward mobility?

Now correlate this line of thought with a photo I made in Kagio in Kenya below. What would such an inventory of water tanks signal about the overall wealth dynamics of the area around this town? 

Water tank inventory in Kagio, Kenya
Water tank inventory in Kagio, Kenya

What we could do with such insights
I don’t know whether the water tank story will hold up if I try to validate it. But if it does prove to be relevant, it could be a very interesting indicator. It could help determine great locations for piloting or launching a new product or service for an emerging market segment with purchasing power. I think you could also use remote sensing data to locate such water tank inventory points, as they’re pretty conspicuous. This market sizing indicator might even be brought to scale!

The big question is whether it would be worthwhile to invest in digging up more of these insights. If we can create a validated set of such context-rich indicators that can be brought to scale, then we can inform the emergence of new growth pockets in a very resource extensive way. I think it might be worth a shot! Do you?

Take-aways:

  • It’s hard to estimate the size of your market in an economy that is yet to emerge
  • If you want to take a new group of 2 billion non-customers online, then you need to become smart about your targeting methods.
  • It might be easier to infer purchasing potential from a water tank, than through formal survey methods that filter out the demographic that has that extra dollar per day to spend.

The uncertainty depositaries

Most people would consider uncertainty a bad thing. You don’t know what will happen, you can’t control for the outcomes you would prefer. I’m not talking risk here, which can technically be insured against. I’m talking uncertainty, where there is no objective way to determine what the future state of things will be; no means to end framework by which to go.

However, not all people experience uncertainty in the same way. There is a great theory developed by the economist Frank H. Knight about uncertainty and entrepreneurship. Knight claims entrepreneurs have lower thresholds to apply their subjective decision making under highly uncertain circumstances. Whether positive outcomes are ascribable to competent judgment or sheer luck, is not really discernable, but at least it’s important to know that there are people who aren’t afraid to apply their own judgment to make decisions under deeply uncertain circumstances (with all the consequences of being wrong, and pretty much alone in your beliefs at many points).

Now consider two practical examples of this. First one is about someone whom we all know, Steve Jobs. Now at the time of developing the first iMac and the iPod, Jobs made a judgment call on the future state of the internet, where he envisioned that the ordinary consumer would have wide spread access, and could ship and receive much larger bundles of data. This was in a time that competitors will still banking on diskette drives… Job’s judgment resulted in the built-in modem and LAN port on the iMac, as well as the online distribution model for the  iTunes store that fed your iPod. The difference it made for Apple is nicely explained in this quote from this Forbes article:

The iPod took off after earlier MP3 players hadn’t not only because of its simplicity and ease of use but also because Jobs waited until broadband technologies were ready to support the music data transfers it would rely on.  

Another such example of uncertainty can be found in the informal economy, which is by definition a very uncertain operating environment. This one was discovered by Niti Bhan during field work in Kenya. She found somebody that had wired their house completely, without having access, nor guarantee of access to the grid: “it would come” was the home owner’s prediction.

Wired house before the grid came

Wired house before the grid was even available in the area (Photo credit: Niti Bhan)

This very much triggers my thoughts. Both examples are from widely different environments, but show the same type of judgment call about a very uncertain outcome. Could we be looking at the same thing here? Would that mean that we could thus better understand entrepreneurship and people who live in the operating environment of the informal economy, by relating the effect of uncertainty to decision making?

The only article which comes remotely close to this question, is a psychology experiment set up by Chip Heath, and Amos Tversky. A gem of an article, but very little used since publication, so I’ve learned by Chip himself. The article indicates that competence and aspiration seem to lower people’s thresholds to actively engage and invest, under conditions of uncertainty.

Would it be worthwhile to define personas on such basis? To inform accelerator programs on the people they’re funding? To engage with specific farmers in development programs in the informal economies in developing countries? To find the early adopters of the internet in emerging markets? I’d love to hear your thoughts!