Christensen Institute identifies how to create new consumer markets
The co-authors advocate for market-creating innovation, a type of innovation that transforms complicated and expensive products into products that are simple and affordable, making them accessible to a new segment of people – known as nonconsumer
Researchers at the Clayton Christensen Institute, a nonprofit and nonpartisan think tank based in Boston and Silicon Valley in the United States, published today a research paper that outlines how innovators can help emerging economies create a sustainable path for recovering from the COVID-19 pandemic and build resilient economies in the process.
The research paper, titled “Avoiding the Prosperity Paradox: How to Build Economic Resilience in a Post-COVID World,” is co-authored by Efosa Ojomo, a senior research fellow at the Christensen Institute, and co-author of The Prosperity Paradox: How Innovation Can Lift Nations Out of Poverty; and Rich Alton, the director of emerging research at the Institute. The study was sent to Financial Nigeria, which has an editorial partnership with the renowned Institute to promote market innovation.
The COVID-19 pandemic has continued to wreak havoc on the health of millions of people around the world. It has also unleashed a devastating economic impact. The International Monetary Fund (IMF) has called it "a crisis like no other," while describing the recovery path as "uneven and uncertain."
In their paper, Ojomo and Alton say the pandemic has had disproportionate economic impact on emerging economies, compared to the developed nations, which are more resilient to the crisis because of their economic prosperity. For instance, the fiscal responses to the crisis by the developed and developing countries are not at the same level. The co-authors argue that the average sizes of the stimulus programmes enacted by wealthy governments are roughly between 5-20 per cent of their GDP. However, emerging economies are averaging 0.8 per cent of their much smaller GDP.
Also, the paper says the pandemic has put at risk decades of progress in poverty reduction in emerging economies. As many as half a billion people are estimated to slip into extreme poverty globally as a fallout of the coronavirus disease. According to World Bank estimates, the number of poor people in Nigeria, which has been described as the poverty capital of the world, is projected to rise by seven million largely due to the pandemic and population growth.
While highlighting the need to address the health toll of the disease, the paper states it is equally important to help emerging economies build a strong economic foundation for the good and bad times. And the way to achieve the much-needed economic resilience is not through conventional development strategies, which have failed as evidenced by their decades-long poor performance. According to the paper, those strategies have fostered a "prosperity paradox" whereby efforts aimed at lifting people out of poverty do not achieve lasting prosperity.
The co-authors, therefore, advocate for market-creating innovation, a type of innovation that transforms complicated and expensive products into products that are simple and affordable, making them accessible to a new segment of people – known as nonconsumers. According to the researchers, investing in market-creating innovations is the critical missing piece in the prosperity puzzle.
"By fostering a culture of market-creating innovations, organizations contribute to sustainable economic development that has the potential to not only lift millions out of poverty, but also to create prosperity," Ojomo and Alton wrote in their report.
They provide the example of Japan, where according to them, local innovators such as Canon, Panasonic, Sony, and Toyota developed simple and affordable products and services targeting nonconsumers, thereby helping the country escape poverty and the post-World War 2 economic ravages.
Central to the thesis of the paper is a framework for developing innovations focused on the nonconsumers. The three-step framework entails discovering market-creating opportunities, estimating the market for nonconsumption, and developing a new value network. An essential principle to grasp in this framework is that there are "oceans of demand" that can be unlocked among nonconsumers.
According to the researchers, it is incumbent upon entrepreneurs and investors to discover those market-creating opportunities. The paper lays out some techniques that innovators can use to unlock latent demand and create new markets. One is by identifying barriers to consumption for existing products and services. The most common barriers to consumption, according to the paper, are money, access, time, and skill. It becomes the responsibility of innovators to find ways to reduce these barriers for nonconsumers.
Describing M-Pesa as a market-creating innovation, the study says the Kenyan mobile money transfer service used mobile technology to make financial services available, cheaper, faster and easy to use by those who previously lacked access. Another example of a market-creating innovation in Africa cited by the study is Celtel, founded in 1998 by Sudanese-born British billionaire, Mo Ibrahim. The company, which catalyzed the boom in the African telecoms industry, was later acquired by Zain and subsequently by Bharti Airtel.
The study states that innovators can also identify opportunities for nonconsumption by examining their lives and experiences and noting the products and services that may not be accessible to them or others, in order to design alternatives for widespread consumption.
The paper includes a detailed process of estimating the nonconsumption market for mobile telecommunications in emerging markets. The study recommends a value network that enables firms to provide a product or service at a price, together with the experiences, that will convert nonconsumers into consumers. “Instead of waiting for nonconsumers to become wealthy enough to afford existing products and services, market-creating innovators develop value networks with nonconsumers in mind," the authors wrote.
The study also said successful market-creating innovations have three distinct outcomes. First, they have a huge impact on job creation; second, they generate taxable revenue to help fund public services such as education, infrastructure, and healthcare; and third, the new markets trigger an entrepreneurial culture that leads to more innovations. Ultimately, the prosperity generated by more market-creating innovations can enable countries to respond more strongly during economic crises.
"For transformative development to happen, innovators must first imagine a different world, one that is filled with possibilities that many others can’t begin to imagine, and then work to build that world," the authors wrote in conclusion.
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