Nonconsumption: the fiercest competitor you didn’t know you had

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Aug 27, 2019

The way we typically define competition, and the method employed by companies to assess the competitive landscape, leaves out the most significant competitor of all: nonconsumption. And nowhere is this feisty competitor more prominent than in emerging and frontier markets. 

Nonconsumption occurs when someone is unable to purchase and use a product or service that could address an important need due to factors like cost, inconvenience, and complexity. For instance, if someone is sick but lives too far from the nearest health clinic to receive aid, then that person is a nonconsumer of basic health services.

Healthcare, of course, is just one in a long line of sectors and industries plagued by nonconsumption. Globally, 1.2 billion people have little or no access to electricity, while 2.3 million people lack access to basic sanitation services. If nonconsumption were a company in many of the emerging and frontier markets where it’s most prevalent, it would have a monopoly in most industries. The table below shows just how widespread it is in the air conditioning, refrigeration, and automobile markets. For savvy entrepreneurs, these untapped markets spell immense opportunity.

Yet understandably, many entrepreneurs and investors feel enormous trepidation targeting economies where poverty is rampant and there’s little to no data about market size and customers’ willingness to pay. While innovating in low- and middle-income countries undoubtedly comes with a unique set of challenges, entrepreneurs who take the plunge stand to create new-growth engines and reap major benefits. Consider the meteoric rise of low-speed electric vehicles (LSEVs) in China, which are slowly reducing nonconsumption of convenient and affordable mobility.

As my colleague Chandrasekar Iyer explains in Driving Disruption: Catching the Next Wave of Growth in Electric Vehicles, LSEVs are gaining popularity in regions around the world where people cannot afford traditional passenger vehicles. These vehicles typically offer limited top speed and have a limited driving range. Yet, what might appear to be deficiencies are actually trademarks of innovations targeted at nonconsumption: in place of speed and range, they offer simplicity, convenience, and an affordable sticker price. “With the cheapest models available for as little as $2,000 USD, LSEVs are certainly more affordable than traditional passenger vehicles. Furthermore, LSEVs are conformable to the way rural consumers live their lives: LSEVs can be easily driven on small roads, parked in small spaces, and usually charged using household power outlets,” Chandrasekar explains.

For the customers of LSEVs these tradeoffs are more than ok—after all, LSEVs are infinitely better than nothing and are more convenient than alternatives like bikes, motorcycles, and even three-wheel farm vehicles. That’s meant that LSEV manufacturers have simply had to focus on making their cars better than these other mobility options. Further, by targeting nonconsumers, LSEV manufactures have avoided going head-to-head with leading automakers who are still focused on traditional consumers.

Now here’s what’s impressive, though not at all surprising: during the decade that LSEVs have been available in China, sales have soared. More than 1.7 million units were sold in China in 2017—more than three times the amount of battery and plug-in hybrid electric car sales in the same year. 

As more nonconsumers of existing cars gravitate toward LSEVs, new manufacturers of LSEVs will not only trigger an economic boom for themselves, but also trigger an economic boom for the country. Nonconsumption may be fierce, but it’s not insurmountable.

Efosa Ojomo is a senior research fellow at the Christensen Institute, and co-author of The Prosperity Paradox: How Innovation Can Lift Nations Out of Poverty. Efosa’s work focuses on using Disruptive Innovation theory to fundamentally change the discourse in the global development community, thus enabling nations to engender their own path to long-term growth and prosperity.