[Series] A Landscape Study of Bharat Startups – The Price Sensitive Customer

The 25 Bharat startups that we studied cater to a particular target segment - the low and middle-income group. The low and middle-income customer is a distinct segment and servicing these customers comes with challenges. We also have less knowledge about the needs and requirements of individual customers. In the past decade, as India’s rural and urban consumption rose, the market has observed a shift in consumer patterns and behaviour. Thus, there is an opportunity for startups looking to build for a highly price-sensitive customer. The low and middle-income customer is looking for products and services that would complement their lifestyle, choices and needs - most of all that would be value for money.

Building for the price-sensitive customer

The price-sensitive customers are those users who are unwilling to pay for services that are traditionally free. Building for this particular customer comes with a unique set of challenges for startup entrepreneurs. From our interactions with Bharat startups, we distilled a few key points that can help entrepreneurs understand the challenges and also opportunities in building for the bottom of the pyramid.

Revenue is important

Bharat startups that aspire to target price-sensitive customer also need to identify a strong revenue model. In the absence of a robust model, the startup could be limited to operating as a social enterprise with reined-in options. Low dependence on customer revenue could also raise a red flag among potential investors. Adjusting costs, cross-subsidising customers or generating value for a third party are creative/alternate models of generating revenue for a startup that serves the low-income customer. Creating self-sustaining enterprises also ensures that customers keep on receiving value in the long term and builds credibility among stakeholders.

Customers’ perceived value

Assessing customers’ perceived value of a product/service allows entrepreneurs to price it attractively. Customers in the segment are also found to be averse to paying for news or entertainment. Another Bharat startup Lokal - a platform that sources and distributes regional news in vernacular languages have found customers reluctant to pay for additional services. Lokal has recognised this challenge and started generating revenue through advertisements. On the other hand, we have startups such as Blackboard Radio whose customers are more than willing to pay for English speaking classes as they perceive more value from these.

Face assumptions head-on

Entrepreneurs recommend checking one’s primary assumptions about the customer with different stakeholders. Assumptions about the low-income customer is a mental barrier that can be overcome by testing and challenging these assumptions and further finding ways to match product offerings to those of customers’ real needs/expectations. For instance, BulBul and Meesho are e-commerce startups that are leveraging their business on rising demand for lifestyle changes from low-middle income customers.

Finding and segregating a real need

Entrepreneurs need to isolate the real need or pain point of customers. Doing so can help them deliver a unique value proposition that has real consumption value for the customer. Entrepreneurs can use tools such as the Business Model Canvas/Customer Persona Template to know and understand the needs of the customer. Thus, they can assess whether their product offering solves a need.

Find ways to change customer’s behaviours

According to experts in marketing, designing and marketing products is in a way directly or indirectly trying to get customers to change their behaviour. A report by Deloitte (2019) highlights the change in customer behaviours across various parameters over the past decade in the USA. Coupled with similar studies back home, there are considerable opportunities in the area of financial services. The rapid adoption of mobile technology also means pushing customers to change their behaviours around adjusting to the product. For instance, customers who save at home have to be induced to change their behaviour in case a fintech startup is looking to onboard them on a formal savings system. Studying these trends can help entrepreneurs understand low-income customer. They can, thus, cater to the rising needs of the segment and build profitable business solutions.

Innovative customer approach

Bharat startups need to be innovative in solving for low-income customer. This means exploring asset-light models and using technology to save on costs. Rail-Yatri, which started as an app-based train travel guide, is now looking to enter the bus market by creating a multi-modal solution for inter-city travel. They do not invest in assets (buses) but partner with travel companies to save costs and chase revenue.

Successfully building for the low-income customer comes by debunking assumptions/myths about the customers’ choices for a low price, technology-savviness or homogeneity among the target segment. Bharat startups have a huge potential customer base with rising demand for various products and services waiting to be approached. But, will they answer the call?

ABOUT

‘A Landscape Study of Bharat Startups’  includes a series of 5 articles on Bharat attributed to Valerie Mendonca, Sr. Associate – Insights, CIIE.CO; Sanjay Jain, Partner at Bharat Innovation Fund, Chief Innovation Officer, CIIE.CO; and Kush Pandey, Research associate, Bharat Innovation Fund. The titles in the series are:

1. An Introduction to the Bharat Startups

2. The Role of Trust

3. The Importance of Building  in Local Languages

4. The Increasing Use of WhatsApp

5. The Price Sensitive Customer

The insights and the views shared in the article are that of the authors with proper research data and validation.