Several months ago on this blog, I announced the new GAIN Business Model Research (BMR) Project. Part of a larger programme supported by the Netherlands Ministry of Foreign Affairs, this project seeks to identify promising features of business models that help reach consumers on lower incomes with nutritious foods - that is, approaches that can enable a company to profitably capture value while still providing affordable food that meets customers’ needs. Such approaches could potentially help to make diets healthier - as at present, they are often lacking in sufficient food diversity and quality.
The second blog in the series explored what people on low incomes look for in food products - highlighting that food choices are driven by not only affordable prices but also risk aversion, income variability, value perceptions, convenience, and aspirational consumption. Given these complex motivations, as well as the other constraints that consumers on lower incomes often face, what can firms do to meet them? The BMR project undertook a systematic review of existing research and evidence to find out. It revealed a few core areas for focus: product, marketing, and distribution.
Getting the product right: acceptable and affordable
A desired product, of course, is an essential aspect of any food company. Companies entering the lower-income consumer market can adapt existing products to meet lower-income consumers’ needs, use similar products but sold in new ways, or create new products altogether. In doing this, they need to ensure acceptability - i.e., alignment of the product with consumer needs and preferences. For example, one Nigerian entrepreneur hoped to make jam using local wasted fruit, with a high fruit content, but soon realised that the local lower-income market rarely used jam, and when they did, didn’t care if it was made with real fruit; she thus had to radically change the approach.
It is also essential for product design to contribute to affordability - through reducing cost (monetary as well as time and effort), increasing value, or matching lower-income customers’ variable cash flows. To reduce costs, companies can use cheaper ingredients that still perform adequately and eliminate nonessential product aspects. (Of course, ensuring the product remains nutritious despite these changes is key!) To increase value for money, companies can include value-adding features (such as convenient preparation) and offer high quality to lower perceived risk. To match customers’ variable cash flows, firms can offer products in affordable sizes or on subscription or facilitate access to credit.
Branding and marketing it: appealing, aspirational, and often
Branding is often essential to ensure awareness and increase perceived value. Alluring packaging and branding appeal to lower-income consumers just as they do to high-income consumers, and, given aspirational consumption, selling products as ‘cheap’ or ‘good value’ may not be the best way to motivate lower-income consumers. Instead, marketing focused on quality or alignment with social aspirations may be more successful.
Lower-income consumer markets are often 'high touch' – i.e., they take time to reach and convince and need to be engaged through active marketing. This can be particularly challenging as such consumers may not be easily reached through conventional channels like television and may instead require approaches like door-to-door sales. It can also require time and patience – to build sustainable sales, introduce products, follow up to ensure repeat purchases, and support word-of-mouth to bring in additional customers.
Getting it out there through adequate distribution and retail
Accessibility depends on distribution to areas where low-income consumers live, including crowded urban neighbourhoods as well as remote rural areas. Distribution costs in these areas are often very high; for example, a study of seven fortified complementary foods targeted to lower-income consumers found that distribution and marketing costs accounted for 50-70% of the product price. This is exacerbated for perishable products requiring refrigeration or careful handling. High costs are driven by poor quality of roads and other infrastructure; crime in certain urban areas; and, in rural areas, by remoteness and low density. As lower-income consumers often buy small volumes, distributing to where they live may not be attractive for distributors.
These challenges make it essential to develop strong distribution strategies: indeed, distribution weaknesses are among the main reasons why businesses aiming to serve lower-income consumers fail.
...While overcoming some nutrition-specific challenges along the way
The above points could apply to any type of product, but marketing nutritious foods, specifically, poses added challenges. Lower-income consumer demand for nutrient-dense foods is often seen as low, and investing in awareness-raising about nutritious foods or trying to shift social norms to favour healthy eating are rarely profitable activities for any individual company (as the benefits would accrue to not only them but also any rivals producing nutritious foods). In addition, the nutritional value of foods and the impact of consuming them are largely invisible, making it difficult to capture value and running the risk of false labelling and marketing. This is exacerbated by contexts with limited capacity for enforcement of truth in labelling/advertising laws. Due to low demand and invisible benefits, many low-income consumers are unwilling to pay more for nutritious foods, whereas many companies feel nutritional quality comes at an added cost. This can leave companies with limited room to provide a nutritious product at a price consumers are willing to pay - and that is also profitable.
On the supply side, the agri-food sector in general is challenged by thin profit margins, seasonality and interrupted supply, higher-than-average risk, and ease of copying products. Perishable products must additionally contend with poor infrastructure (e.g., irregular electricity, damaged roads) that can increase rates of loss and spoilage. As nutritious foods need to be consumed regularly to obtain a significant benefit, both supply and demand challenges need to be addressed in a continuous manner.
Reaching lower-income consumers with nutritious foods is thus not easy, but the BMR project’s systematic review uncovered over a dozen specific approaches companies have used to try to overcome these challenges. The next blog in this series will begin to explore what those are.