Targeting nonconsumption: The most viable path to growth

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Oct 8, 2019

In the early 1980s, AT&T decided to pull out of the mobile phone development business. The decision came after McKinsey & Co. estimated that by the year 2000 the global market for mobile phones would comprise of merely 900,000 subscribers. Yet by 2001, there were roughly one billion mobile phone connections globally, a far cry from what McKinsey predicted. And today, by some estimates, there are close to nine billion mobile phone connections in the world. How could McKinsey—the world’s preeminent management consulting firm—miss the mark so badly? 

The answer? Nonconsumption.

Nonconsumption is the phenomenon where would-be consumers, who would otherwise benefit from purchasing particular products or services, go without because none on the market are affordable, simple, or convenient. In the early 1980s, mobile phones were big, bulky, and expensive. As such, only wealthy people, or those in the consumption economy, could afford them. The idea that these luxury devices would become as ubiquitous as they are today just didn’t seem possible.

Nonconsumption is often invisible to market research studies, which tend to focus on those already consuming. But it need not be. Entrepreneurs can spot nonconsumption wherever people don’t have a simple and convenient solution to a problem. And because nonconsumption is a function of the number of people struggling, no region in the world is more ripe for targeting nonconsumption opportunities than Asia.

Asia—the nonconsumption capital of the world

There are more than seven billion people in the world, and roughly 60%—4.46 billion—are Asian. Though many Asian countries are rapidly developing, the GDP per capita of East Asia & Pacific and South Asia are just 18% and 3% of the United States’. Instead of being a flag of caution, this should be a loud signal to entrepreneurs that billions of nonconsumers in Asia are eager for products and services to solve their problems. 

So, how can entrepreneurs go after this vast nonconsumption opportunity? By investing in market-creating innovations.

Market-creating innovations target nonconsumption by transforming complicated and expensive products into products that are simple and affordable so many more people in society can access them. Consider how one Indian entrepreneur is solving an important problem in the country by serving nonconsumers.

In 2016, 62% of women in the country lack access to affordable menstrual hygiene. That represents more than 350 million nonconsumers of affordable sanitary pads. While industry leaders in India such as Cotex and Vella might not find the average nonconsumer in this industry attractive, Arunachalam Muruganantham decided to do something about this issue. His innovation, which can manufacture a sanitary pad for less than a third of the cost of existing pads, is bringing in an entirely new set of consumers into this market. Over time, much like mobile phones, it’s easy to see how much economic opportunity this innovation will create 350 million Indian women gain access to this product.

Another interesting firm targeting nonconsumption is DrinkWell. Even something as seemingly basic as safe drinking water is still unaffordable to hundreds of millions of people in Asia. In Bangladesh alone, up to 45 million people are at risk of cancer for drinking water contaminated with arsenic. DrinkWell, which counts the TPG Rise Fund as one of its investors, has developed a solution that makes water safe and affordable to a whole new population of people. The company’s “Water ATMs” leverage mechanical, digital, and cloud-based automation to simplify complex water management systems. To date, more than 200,000 people now use DrinkWell’s solutions in India, Bangladesh, Laos, and Cambodia. The company has aggressive expansion plans over the next few years.

Market-creating innovations are typically overlooked by incumbent companies focused on the consumption economy: not only are the customers already willing to pay, but there are also usually fewer unknowns in serving this market. But companies that invest in making products and services affordable to nonconsumers stand to receive significant economic benefits. As market creators, these companies have the potential to dominate the markets they create and build significant brand loyalty with the nonconsumers they serve. Consider how some of Japan’s innovation powerhouses got their start.

In 1950, Japan’s per capita income was just 20% of the United States’ and was less than Mexico’s and Colombia’s. But rather than see poverty as an obstacle, Sony and others identified nonconsumption as an opportunity. For instance, between 1950 and 1982, Sony developed twelve different market-creating innovations, including the first battery-powered transistor radio, video-cassette players, the Walkman, and several others. Other companies such as Toyota, Honda, Cannon, and many others did too. Their innovations improved over time and have caused these companies to become household names all over the world. In the process, they also transformed the Japanese economy into one of the richest in the world today.

In the early 1980s, McKinsey missed the boat on the nonconsumption of mobile phones. What other nonconsumption opportunities are we missing?

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.