Bangladesh's Grameen Phone uses innovative prepaid technology to tap into the allegedly 'unprofitable' rural segment and boost its customer acquisition numbers 55%
Here is a chicken and egg question for emerging markets - what comes first: economic growth or a sound telecom infrastructure‾ Though infrastructures of many kinds are required to boost a country's economic growth, telecom does play a huge role in nurturing that growth. In a world where social conscience is so frequently talked about, how can technology fuel the overall growth of an economy, and correspondingly impact the lives and livelihoods of the poorest members of society? Facilitating channels of communication is a major enabler in bringing together technological and economic growth.
Since the launch of cellular services in India in 1995, for example, the subscriber base has grown phenomenally. Over 100 million mobile subscribers, and an ever-evolving array of services have redefined communications for many Indians. But that huge subscriber base represents fewer than 10% of the population. What of the other 90% of the Indian market, or indeed the billions of rural villagers not yet served by mobile?
The solution is not simple. Poor income levels, limited purchasing power, and inadequate telecom infrastructure are key bottlenecks. As a result, cellular services for this segment are perceived to be expensive - and consequently unprofitable. With operators frequently focused on raising ARPU, many assume that only with government intervention will operators serve such rural markets. But does this necessarily need to be the case‾
There are examples we can take from the developing world where mobile service providers have seen the opportunity afforded by serving the many, rather than the few. One such example is Bangladeshi operator Grameen Phone, whose experience provides insight into how to improve market penetration by profitably targeting the untapped low-income market segments.
When dealing with rural areas, affordability is the single biggest barrier to mobile communications usage. Developing affordable product lines is the key to reducing cash barriers to entry and expanding the mobile market. This is simply not a matter of shaving 10% off prices. Improvements in price-performance ratio need to be tailored to the distinct consumption profile of people at the bottom of the pyramid (BOP). A large BOP segment of rural markets comprises daily wage earners, who spend what they earn on a day to day basis. With a meager average disposable income, this segment cannot afford large-ticket items, such as a mobile phone, or large denomination prepaid top-up vouchers.
Grameen Phone showed that the ability to address consumer demand for affordable mobile tariff plans is closely linked to an operator's cost per transaction. A high per unit cost of refill weakens the flexibility to offer a wide range of denominations at compelling price points that will successfully attract the BOP segment. Conventional retailing models that rely on the supply of physical vouchers have high inbuilt costs, including printing, transport, insurance, and inventory.
These retailing models do not support tariff structures that lower the entry threshold. In most rural economies, the cost per transaction is further inflated by a lack of adequate physical infrastructure in many regions, such as roads, transport modes, storage facilities, and an established retail ecosystem. This accentuates the need for a completely new business model to profitability extend services to the under penetrated segment of the market.