Finding the right Market Segment

To spread a particular social innovation to new markets, entrepreneurs may feel an urge to reduce the cost of the innovation by as much as possible.  There are huge markets in developing countries like India and elsewhere, but as these countries develop further, they become richer.  Product segmentation along markets would be best conceptualized as a spectrum, and not between the dipoles of “developed” vs “undeveloped” markets.  There are billions of people that have a global middle income, and their needs for products and services would not be met by high-end expensive products, but may also not be meant by products that cut costs to the bare minimum.

Joel Segrè in his blog post for PATH argues that targeting those people who have higher income than the poorest may often be the most cost effective strategy.  Urban populations continue to rise, and a smaller proportion of the poor now live in rural areas.  Concentrating services and distributional networks in cities would be cheaper and more effective than doing the same over a wider geographical area that includes the rural poor. 

He also argues that targeting the most cost effective markets would allow innovations to gain a toehold, which would then allow them to grow and gain in economies of scale.  As the venture becomes more effective, it would gain the financial and logistical ability to reach the hardest market to operate in, the poorest of the poor.  Rather than focusing on just the poorest, ventures should look to succeed in a market where they are capable of flourishing, and then look to expand their reach to those most in need when they are capable of doing so.

This blog post naturally poses some tensions that are implicit in the field of social entrepreneurship.  The poorest people in the world would benefit most from an innovation or product, so ignoring them as a venture develops would carry significant sacrifices.  However, social ventures need to be sustainable, and slashing costs (and revenues) to their minimum would challenge any start-up looking to achieve solvency and effectiveness.  I believe that Mr. Segrè’s model would work well for innovations that already require some basic infrastructure, such as mobile phones (which require electricity and a telecommunications network).  However, very basic needs like clean water should be focused on the poorest because of the urgency of the problem.