Serving the bottom of the pyramid

Over the last few years, Mobile operators in emerging countries have experienced strong growth in revenues and customer acquisition rates.

The situation has recently been changing however as most higher spending segments are now fully penetrated, meaning opportunities for growth are now focused on people in the bottom of the economic pyramid who mostly do not have mobile phones. As an illustration, mobile penetration reached 43% in Nigeria in 2008 while only 16% of the population earns more than $2 per day⁽¹⁾.

As a consequence, the future growth of mobile operators is strongly linked to their ability to address low end segments (the World Bank estimates that half of the world’s population lives on less than $2 per day). The biggest challenge is to address is how to decrease price barriers, especially for handsets and airtime.

Addressing this segment will require operators to understand the specificities of customer needs and to dedicate significant resources to development of new value propositions and adaptation of cost structures to the expected decrease in overall ARPUs (average revenue per user).

The bottom of the economic pyramid consists of two main customer targets, each having specific needs:

• Mobile users earnings less than $2 per day who perceive the mobile as an essential tool to improve their quality of life
   
• Customers without a device who use call boxes, for which very low quantities of minutes can be bought
   

Tailored mobile propositions and approaches are therefore required to fit these market needs and expectations, such as:

• A "cheap but not low quality" positioning
   
• Simple, valuable and affordable offers with vouchers in small denominations and the possibility of transferring airtime
   
• Using communities and social structures for promotion and customer loyalty development
   
• Employing dedicated market managers or business units to serve key segments
   

Finally, optimising the cost structure is a key lever to reaching profitability and securing the MNO’s business model. Greenwich Consulting has led several cost reduction projects in emerging countries and has been able to identify several key levers including:

• Distribution costs optimization through the set up of a 100% indirect network with minimum intermediation, optimised commissioning and use of electronic vouchers
   
• Optimization Network opex and capex through outsourcing and technology innovation on RAN, tower sharing or backhaul optimisation.
   

⁽¹⁾: Greenwich Consulting, UN Human dev index 2008