4.3 CONSUMER BEHAVIOUR AT THE BOTTOM OF THE PYRAMID
4.3.2 SPENDING AND CONSUMPTION PATTERNS OF BOP CONSUMERS
Hamilton (2003) found that income size and patterns play a crucial role in shaping the buying decisions of BOP consumers since higher salary payments trigger relatively larger ticket purchases. It was found that consumers in emerging markets who have slightly more stable incomes are able to categorize their purchases according to large (weekly or bi- weekly), daily needs and emergency purchases (Figure 4.2) (Hamilton, 2003). It was also found that BOP consumers with highly erratic incomes tend to purchase items more frequently, as much as several times per day, and that the shopping process of overall emerging consumers is largely dominated by the purchase of daily necessities (Hamilton, 2003). BOP consumers with higher salaries tend to purchase larger sizes and promotional items less frequently and even incur expenditure on special items such as Sunday family dinners (Figure 4.2) (Hamilton, 2003). Hamilton (2003) also found that although larger ticket sizes and package sizes were within the household budget, there was still a preference by certain BOP households to make smaller purchases in order to avoid having too much of their income tied up in products that may not be consumed for some time.
69 Figure 4.2
Emerging Consumer Income Patterns and Shopping Occasions
Hamilton, B.A. (2003). Creating Value for Emerging Consumers in Retailing. Online.
Accessed January 20, 2012, from the World Wide Web: https://www.msu.edu/course/aec/84 1/CoCa_Cola_Retailing%20in%20SA_Executive%2520Summary.pdf, p. 9.
Piacentini, Hibbert and Al-Dajani (2001 cited in Variawa, 2010) found that low-income consumers predominantly sought value for money when doing their core shopping and made frequent use of discount and independent stores, thereby displaying their ability to engage in
“smart shopping” when confronting the challenges of providing for themselves and their families.
D’Andrea, Ring, Aleman and Stengel (2006) state that despite being labeled as “poor”, consumers in the emerging markets collectively have a substantial amount of money to spend on consumer products and that these consumers devote a large proportion of their income to household items, basic foodstuff and perishables. Warnholz (2007) cited that rural consumers in India spend approximately 80% (as opposed to 68% by urban consumers) of their income on food, fuel, light, clothing, education and medical expenses.
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In the food category, which accounts for approximately two thirds of their basic needs expenditure, cereals, vegetables and dairy products form part of the bulk purchases, whereas only about 5% of the spending in the food category is devoted to processed foods, beverages and refreshments (Warnholz, 2007).
Banerjee and Duflo (2007) have found that the poor spend approximately 2% of their household income on education but the low level of expenditure on education in BOP markets is not attributed to children not attending schools, but to the fact that children from poor households attend public schools or other schools that do not charge any school fees. It was found that very poor parents in Pakistan, however, are spending more money on sending their children to private schools because public schools are now being perceived as dysfunctional (Banerjee & Duflo, 2007).
It was found that African BOP consumers are similar to Indian BOP consumers (TWORQUE, 2008). Variawa (2010) reflected that BOP households in South Africa spend 35% of their household expenditure on food, 11% on housing, water and electricity, 10%
each on clothing and transport, 9% on furniture, 6% on recreation, entertainment, personal care and culture, 4% on social protection and other services (such as, funeral costs), 3% each on communication, financial services, transfers to others, 2% each on education and health and 1% on alcohol and tobacco. In terms of monthly rand value, BOP consumers spend R132 per person on food (Variawa, 2010).
Banerjee and Duflo (2007) and Subrahmanyan and Gomez-Arias (2008) highlighted that a larger proportion of the incomes of BOP consumers can be spent on vital nutrition and education but is instead being used to purchase tobacco, alcoholic beverages and on forms of entertainment such as festivals and fairs.
A study of consumption patterns in emerging markets of Argentina, Brazil, Chile, Columbia, Costa Rica and Mexico revealed that poor consumers also purchase “luxury” consumer goods (leading brands of cookies, ice cream, ready-to-eat pizza, hamburger patties, detergents, shampoos, body lotion and makeup) and branded consumer goods (Coca Cola and Tang powdered drinks) (Table 4.2) (Hamilton, 2007).
71 Table 4.2
What do Emerging Consumers Buy?
“Staples” “Secondary” “Luxuries”
PACKAGED FOODS
Rice, beans, dry pasta, oil, salt, sugar, tomato sauce, cookies and snacks for kids (value brands) Br: flours (wheat, manioc, corn), canned fish (Class C)
Col: lentils
Sweet and salty snacks, some canned food Mex: cereal, snacks Arg: Salty snacks, sweets, candy
Ch: dressings, mayonnaise
Canned foods, chocolate candy, cookies (leading brands), cereal
Arg: tuna, olives,
“alfajores”
Br: condensed milk, cake mix
Ch: heat of palm
Col: Salty snacks (adults)
PERISHABLE FOODS
Fruits and vegetables, eggs, bread,
margarine/butter Arg: jelly, cold cuts Mex/Br: Class C: yogurt
Cold cuts, meats Arg:/Ch: Sausages
Br: yogurt, cheese, chicken Mex: ground hamburger meat
Ch/Col: margarine, chicken
Frozen foods, ice cream Br: frozen lasagna, fried potatoes, hamburger patties
Br/Mex: ready-to-eat pizza
Mex/Col: seafood
BEVERAGES
Coffee, Juice concentrate Col: chocolate bars Br: value brand sodas Mex: powdered drink mix Arg/Ch: tea
Value brand soda (Arg, Col),
Br: powdered drink mix Arg/Br: beer
Coca-Cola Arg/Col: Wine Mex: tequila, rum CR: Gatorade sports drinks
Arg/CR: Tang powdered drink
CLEANING PRODUCTS
Powdered laundry detergent, bleach, disinfectant
Br:/Col: bar laundry soap Mex: softener, steelwool Arg: floor cleaner
Softener
Arg: multipurpose cleaners, air freshener Col: liquid dish detergent
Leading brands in detergent and softener Br: furniture polish
PERSONAL CARE
Toilet paper, soap, toothpaste, sanitary napkins, deodorant, family shampoo, sanitary napkins Mex: diapers
Arg/CR: conditioner, cotton
Leading brand shampoo (Arg, Br), conditioners
Leading brands, perfume Br: personal shampoo, facial lotion
Ch: makeup Mex: body lotion
Key:
Arg: Argentina Col: Colombia
Br: Brazil Mex: Mexico
Ch: Chile CR: Costa Rica
IBOPE Solution, BAH analysis. In B.A. Hamilton, (2003). Creating Value for Emerging Consumers in Retailing. Online. Accessed January 20, 2012, from the World Wide Web:
https://www.msu.edu/course/aec/841/CoCa_Cola_Retailing%20in%20SA_Executive%2520 Summary.pdf, p. 7.
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The BOP market can be further divided into 3 income segments (Figure 4.3) namely, lowest (approximately 1 billion people who live on less than $1 per day), middle (nearly 1.6 billion people who survive on less than $1-$2 per day) and top (about 1.1 billion people who survive on less than $2-$8 per day) (World Economic Forum, 2009b).
Figure 4.3
Rising Incomes lead to increased expenditure on non-food items
The Boston Consulting Group and the World Economic Forum analysis based on information from the World Resources Institute, The Economist Intelligence Unit Population Statistics Database and the IBRD. In World Economic Forum. (2009b). The Next Billions: Unleashing Business Potential in Untapped Markets. Online. Accessed February 27, 2012, from the World Wide Web: https://members.weforum.org/pdf/BSSFP/
ExecutiveSummaryUnleashingBusinessPotential.pdf, p. 10.
The lowest level, which comprises individuals who live below the $1 poverty line, struggle to meet basic needs whilst the middle segment, which constitutes the largest group, is able to support their basic needs but has very little discretionary spending power (World Economic Forum, 2009b). The top segment, which has sufficient disposable income to purchase non- essential items, receives little attention from businesses because their income is still deemed
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to be relatively low and variable (World Economic Forum, 2009b). As the income of BOP consumers increase there is a smaller percentage of the total household expenditure that is apportioned to food items (Figure 4.2) (World Economic Forum, 2009b). As evident from Figure 4.2, the lowest income segment spends approximately 73% on food items, including alcohol, and the middle and top segments spend 59% and 41% respectively. However, as income increases, the middle and top segments apportion 16% and 32% respectively, of expenditure to discretionary purchases, communication and entertainment. The percentage spending on other essential items such as fuel, housing, education and medicines is relatively proportionate across the lowest (27%), middle (25%) and top (28%) segments (World Economic Forum, 2009b).
4.3.3 THE EVALUATIVE CRITERIA USED BY BOP CONSUMERS IN THEIR