Start-ups must understand emerging market consumption

The emerging countries are becoming key drivers of new online start-ups due to the sheer number of consumers and the growing Internet population. A start-up searching for an exit or financing makes the job of a business transfer agent much easier by having a ready plan to tackle developing markets, which naturally increases its appeal and potential for growth.

While global technological innovation has largely been driven and adopted by the advanced markets, it is the emerging economies that now offer the next stage of growth for the world’s digital majors. However, in developing markets consumers approach and consume digital goods and services in different and often contrasting ways compared to their developed counterparts.

Mobile is everything

The “mobile-first” nature of emerging markets is well publicised, with penetration of mobile telephones far outmatching any other digital device. Yet among low-income homes, this differential becomes even more important due to the wide division in the household possession of fixed digital goods between income classes. For the ownership of broadband enabled PCs the digital divide is huge. Fixed broadband tariffs can be costly while PCs are pricier than mid-level mobile handsets and require greater IT literacy to maintain. PC-based services that are not mobile-optimised therefore have little appeal in countries like China and India, where the low-income groups represent a dominant share of the population.

Another important consideration is mobile as a payment tool, especially in countries with low banked populations such as Nigeria and Egypt. The SIM-enabled wireless device is used by consumers in payments through either existing credit on the phone or as an access hub for mobile wallet applications.

Piracy and cash offer challenges

Although e-commerce has expanded rapidly across the world, emerging market consumers remain hesitant to pay for goods online. Many remain distrustful of online payments while others either do not have access to electronic payment methods or lack the technical knowhow to complete the process. Online retailers must therefore prioritise cash-handling couriers when launching operations.

Low average disposable incomes also mean that consumers prioritise free content and when they do pay for services it tends to be much smaller amounts than in advanced markets. As a result, game developers and music streaming services tend to focus more on serving Western customers due to the much higher per capita revenues. To put this point in perspective, according to trade sources, the average top-up sum for a pre-paid SIM card in India is INR10.0 (around US$0.17), which means online payments for services can become unviable since fixed fees for payment processing are higher than the one-time purchases from users.

An additional challenge for online entertainment businesses, such as on-demand movie platforms, gaming retailers and music streaming services, is the abundancy of online piracy. Frequently, only domestic products are somewhat protected by anti-piracy measures, with international content largely freely pirated in major markets such as Russia, China and Brazil. The attitude towards distributing or consuming pirated content remains largely nonchalant and forgiving.

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