In the HBR article "Strategies that fit emerging markets," the authors detail a number of factors that differentiate the business environment in developed and developing countries. While their analysis is tailored to multinational corporations, their concept of institutional voids applies to any size business seeking to locate in neighborhoods and communities that lack the infrastructure and institutional grease that lubricates the gears of conventional business.
Our urban farming venture is partly centered around the social mission of increasing access to fresh healthy produce in neighborhoods that lack it. Two weeks ago, I mentioned the tension between our social mission of maintaining a product that is both accessible and affordable to our low-income neighbors and our economic sustainability, requires some measure of optimization focusing on the top and bottom lines . To test our assumption that this tension exists, we need to question our premise that low-income people aren't willing or able to purchase high-quality fresh food at market price.
One theory holds that poor people don't value healthy eating. Another says that they can't afford it. A third argues that the food distribution systems in this country add significant costs to grocery shopping for consumers who don't live near grocery stores and don't own a car. Understood through the lens of the HBR article's authors, this argument posits that the "problem" isn't the consumer, it's the institutional framework that mediates the customer's access to and relationship with fresh food.
In Pittsburgh, it is difficult and extremely time-consuming to take public transit from a low-income food desert to a grocery store. Whenever I go to the Giant Eagle on the south side, a group of jitneys are lined to transport Hill District residents the 2 or 3 road miles back to their home at a cost of 5-10 bucks. Given the high transportation costs, car-less shoppers reduce the number of trips to the store per time period. Most fresh produce will only last a fraction of the time interval between shopping trips.
The HBR authors advise business to identify the institutional voids and adapt their strategies around them. For an urban farm that wants to both maximize revenue and achieve a social mission of increasing food access to low-income residents, we must think through how to optimize our distribution channels to decrease the total cost (transportation, opportunity cost of time,etc) of grocery shopping.
I'd like to hope that simply marketing our produce at our location would attract customers. However, if they still have to pay the cost of a grocery trip for all of their other groceries, simply selling some lettuce within the neighborhood won't free up the transportation costs for buying lettuce. We would have to be able to fully compete with the south side Giant Eagle. Furthermore, we would have to overcome our customers shopping habits. By creating an comprehensive and un-exportable ecosystem around iTunes, etc., (as well developing strong customer identification with (slash willful slavery to) their brand, Apple increases the cost of switching from its phones to Android devices. In this regard, Giant Eagle and jitneys can be compared to Apple. There are costs to learning a new grocery store, a new habit. Jitneys are cultural institutions in Pittsburgh. Heck, my Dad hasn't stopped shopping at the abysmal south side Giant Eagle despite a Market District, Whole Foods, Aldi's and Trader Joe's now being available fairly close to him.
While a solution remains elusive and its value remains unknown, I hope I've provided a bit of insight into how an institutional void affects the way we think through our customer segmentation, marketing and pricing strategy. If the "transportation cost of grocery shopping" theory is correct and low-income consumers would buy fresh produce if it was available without having to catch a bus or pay a jitney, the institutional void represents a massive opportunity for us to achieve success in our social mission and profitability. If a more comprehensive retail food outlet is necessary to overcome the cost of switching, the opportunity is more distant and more difficult to achieve.
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