‘Are there other ways to grow our SMEs catering to low-end market?’

Q: Thank you for addressing our business growing needs. We are not only in the economy market segment but even lower. It’s the market segment that you call “sub-economy.” We now have two food stalls. One is along the LRT and the other is along the MRT. We’ve been around for a little over a year and we’re trying to be as successful as the Chic-Boy food stalls in MRT and LRT.

Your idea of growing our business by striving for the lowest cost in our sourcing of raw materials and supplies is good, but it’s good for those who can do it. We’ve already gone down to as low as we can in food cost. So, please help us and tell us if there’s any other way to grow our small business in this market.

A: There are of course other ways. But what you should keep in mind is that all those other ways are based on a correct reading of the priority needs and product values of the sub-economy market segment or segments that you are after.

So always begin by asking yourself for those taking their ride at LRT and MRT: “What are they looking for when they buy at food stalls there?”

We have some quick research findings. Because they were quick studies, you may doubt the validity of the data. However, because the data were consumer answers repeatedly showing up in several student research studies done in different places, they give strong and fairly valid hints about those LRT and MRT commuter priority food values.

What those studies say of MRT and LRT commuters who buy products from food stalls to eat or to bring home as “pasalubong” is this: “Kasi masarap naman siya at tapos mura pa (because the food is tasty and it’s cheap).”

If this is indeed the sub-economy commuters’ priority food values, then the business growing success of the likes of Chic-Boy comes from their ability to continuously satisfy this priority consumer eating value and need.

Notice then that here, in order to succeed, it’s not necessary to give food at the lowest cost. Just maintain low prices but offer good-tasting food (and not the best-tasting either). This product innovation idea has come to replace the once popular model of Michael Porter, who said that the successful product innovation must either be “the best product” or one with “the lowest cost.”

That you can grow your business by coming into any market, especially the economy and sub-economy market segments, with just a good (not the best) product and priced low (not the lowest) came from Professor Clay Christensen of Harvard Business School.

Christensen was able to show that this was the product innovation that had succeeded in any market segment in all countries in the world. He cites the example of the Korean cars and, before them, the Japanese cars, as cases in point.

In the Philippines, we have many supporting examples such as Unilab’s leading and billionaire pharma brands, Jollibee’s burger and chicken and, more recently, Mang Inasal. All produce and market good products but not the best. In fact, Unilab admits its products are just parity products. But at the same time, all are priced affordably.

As you can see, this business-growing formula works as well with large multinational companies concerned with serving the low-end and very low-end market segments. It was key to the success of India’s Tata Motors in quickly entering and then owning a large proportion of the unserved and underserved market segments of motorcyclists who often take family members (one, two, or even three persons) on motorbike rides.

According to one story, as Tata Motors chairman Ratan Tata looked out his office window and asked himself and then later his engineers: “How can we make a car as cheap as the motorbike that those people are driving on the streets?”

That was the product concept for the Nano car. It targeted people across India who used their motorbikes to bring members of their family to wherever they had to go. This market segment’s unserved or underserved transportation need was for a safer means of transportation, such as a car, but which must be as inexpensive as a motorbike.

We are told that Tata himself presented to his engineers this specific enough definition of the priority unserved need of the car’s low-end target of bikers. For a full year, the engineers worked to translate this product value proposition into technical car specifications but all subject to the pricing constraint of selling the car at the retail price of 100,000 rupees, or about US$2,500.

Here were the specs that led, after a year, to “the World’s Cheapest Car,” the Nano:

Manual steering and no airbag, just like a motorbike.

No air conditioning (on standard model) as with a motorbike.

A 4-wheel car comfortably seating a family of 4 (dad, mom, and 2 kids), unlike a motorbike.

A 623 cc, 2-cylinder engine (like a motorbike) with maximum speed of 70 km/hr.

Bodywork made of sheet metal and plastic, like a motorbike, with plastic and adhesive replacing welding.

Unlike a motorbike, the car has windows that may be lowered down by hand.

So there’s the answer to your question. You can grow your small business in the economy, or even the sub-economy market segment, by innovating a product that appeals to this segment’s product value proposition in favor of just a good product but priced cheap.

Realize and validate that there is a large enough sub-segment here whose priority product values are not for the best-quality product and neither are they for the lowest cost.

Keep your questions coming.  Send them to us at [email protected] or [email protected]. God bless!