Quantifying the telecommunication opportunity at the base of the pyramid in South Africa : a retail perspective
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This study focuses on the telecommunication industry, specifically the mobile phone market at the base of the pyramid (BOP). A supply vs. demand stance is taken whereby demographic data offer insight into the demand while the location of telecommunication retail stores constitutes supply. The study furthermore makes extensive use of a GIS (geographical information system) which offers deeper insight into data and different applications thereof. Given the extensive nature of the data used in assessing the national market, a dashboard was developed as part of this research to ease data interpretation. The online map (GIS) and dashboard form an integral part of this report. Literature supports the targeting of the BOP as a viable market given the high volume of people in this market segment. Unconventional methods are, however, required to sustainably cater to this market. The development of multiple channels to target potential consumers has resulted in a dilution of the market in the retail environment. The retail channel however remains important in any company’s strategy to target the BOP. Telecommunication companies can not only benefit from the BOP but also offer benefits to the BOP. The World Bank has reported figures that show a 0.8% increase in GDP for every 10% increase in mobile penetration. Different sources identify the BOP by different income ranges. It became evident, however, that internationally the average applied to identify the BOP is households earning less than USD 3,000 (ZAR 31,440 at an exchange rate of R10.48 / USD) per annum. Although somewhat higher than the international average, the available data dictated that South Africa’s BOP be identified as households earning less than R38,200 per annum for the purposes of this research. Data indicate that 89% of households in South Africa have a mobile phone. By comparing the ownership of existing household goods this research found that of the 11% of households not owning a mobile phone, 6% would be willing to adopt a mobile phone. A tiered approach is followed in assessing the telecommunication opportunity for mobile phones in the BOP. The first tier assesses the entire market (all households in South Africa) at a municipal level. By including the total market, the opportunity in the BOP is put into perspective. The result was that the total BOP market offers a potential market of R563 million per month through 13.7 simcards. At the other end of the economic pyramid, the ROP offers a market of R2416 million per month through 14.6 million simcards. Thus, even though the BOP offers 48% of the total volume in the market, the value is only 19% of the total market. From a coverage perspective, 42% of BOP households are not covered by a telecom retailer whilst only 27% of the ROP households are not covered. A market of R247 million (through 5.8 million simcards) has been estimated in the BOP opposed to a R379 million market (through 5.8 million simcards) in the ROP. The second tier makes use of a case study to determine the viability of targeting the BOP. Moruleng Mall’s catchment area was analysed within the Moses Kotane municipality that offered a high opportunity as determined in the first tier of analysis. This case study made use of gravity modelling and found that Rustenburg’s retail offering would have limited influence and as such telecom retailers would have to revisit their strategy for the area. A number of shopping centre developments in rural areas were highlighted. Effectively while these developments are taking retail closer to the BOP or rual population, the market is diluted. From a retailer perspective, this makes it difficult to target an entire area through presence in one specific retail node or town. The ultimate finding of this this research suggests that it is in fact possible to target the BOP – however, that it is the ROP located between the BOP households that makes this a viable market. This suggests that it is rather not a question of the viability in targeting the BOP specifically but targeting the more dense rural areas that offer opportunity.