All articles

The White Space for Brands Serving Low Income Segments

The roads of India in the 1980s were a far cry from the scenes witnessed today. They were dominated by two-wheelers, goods carriers and the odd bus run by the government. The metropolises boasted taxis, but apart from these, the only cars on the roads belonged to the well-heeled or were government owned – the ultimate badge of privilege. One car manufacturer pulled back the curtain and saw the reality for what it was. Where were the middle class families on these roads? The only ones visible were commuting in crowded public transport or having to make do with the limited seating capacity of two wheelers.

Maruti Limited, as Maruti Suzuki was known as back then, had discovered a white space – the need for a vehicle that allowed safe, comfortable travel for a middle class family. The technical proposition existed as did the demand and purchasing power, but there was no offering at a price point that could be afforded by the masses. Maruti 800 was launched to fill this space, and Indian roads have never been the same since.

The charm of a ‘first brand’ is unique. In emerging markets, millions of customers represent a latent demand for affordable products and services, substantiated with willingness and purchasing power. In the absence of offerings at their price point, customers resort to managing with solutions that are far from efficient. A significant portion of the customer’s wallet is already allocated for such services, but they get poor value in return. Also, the trust deficit is significant and even a fair proposition focused on or tailored for the customer’s needs often faces skepticism. A brand that addresses these concerns stands to earn customer stickiness by establishing and nurturing an early connection. Continuing to get this right is rewarded with mass loyalty, especially when competition is usually several years away, given the emergent nature of the market.

Shubham Housing filled one such white space when they started providing home loans to people with informal incomes. Such customers, even though creditworthy, had traditionally been ignored by banks and other financial institutions, even for secured home loans. Shubham earned sticky mass loyalty when they demonstrated that they had invested time and effort in understanding the customers’ needs and their creditworthiness. 

Field visits help us cut through words and statistics and help get a glimpse of the customer’s reaction and emotions. In one such field visit, we realized that the sanction letter issued by Shubham was an important moment of truth for the customers, when they felt that finally there was a brand which acknowledged their ‘existence’ as potential borrowers and was willing to trust them. The sanction letter often helped them gain credibility as a legitimate buyer with prospective property sellers – and customers were happy to pay a fee for this value upfront.

Instances like these abound in our portfolio companies. Affordable school owners reveled in the respect with which they were treated by Varthana who not just understood their financial needs, but respected their time and effort in building the school. Rural, non-banked customers felt empowered when Bike Bazaar allowed them to take two wheeler financing with the facility to pay in cash. Through InCred’s student finance, capital was made accessible to students who did not have the benefit of their parents’ property and networth to support borrowing but were deserving in terms of career prospects and ambition. In Kamatan, small-holder farmers finally discovered someone who was willing to speak for them in a fairly tough trading environment that, by nature, favours large players. To give readers an idea of the opportunity – Kamatan supports 50,000 farmers today and is barely scratching the surface, in a country with 120 million smallholder farmers*. 

These instances have common threads that run among them. The most significant is that these brands customize the distribution and proposition to solve for the segment. The thoughtfulness in designing the delivery and ensuring that it meets the purchasing power of the segment is the genesis of the moment of truth for the customer. These offerings often serve communities in an economy where the state is neither in a position to nor has historically been able to address basic needs of the lower income segments. Another commonality is that these products and services are frequently a simple proposition that is most likely taken for granted by a customer who has better access to resources.

Enterprises serving these white spaces may well have a much simpler task at hand in terms of brand building – generating mass loyalty in these segments is not about increasing mindspace, visibility or relative positioning with respect to competition. It is just about ensuring that the ‘wow’ factor generated by the core product is captured and established and the connection is maintained. What’s more, given the millions of customers in this segment, competition is welcome and is usually still several years away before it starts eating into market share. There is no doubt that there is a massive white space for the establishment of ‘first brands’ that establish trust and build an emotional connect with customers who have experienced several years – sometimes generations – of need, poor experience and pain.

The most important element is to not underestimate the power of a ‘first brand’.  With scale, if these organizations can indeed continue to keep pace and evolve with the dynamics of the customer’s environment, they stand to be rewarded with long term relevance and brand loyalty that extends beyond the current generation.

*Impact of COVID-19 on smallholder farmers – insights from India