Understanding the economy for the poor


Life is full of paradoxes. On the one hand we have the filthy rich. We also have the poor and the very poor. While the latter have everything in the world to keep them smiling in terms of material goods, the latter have only limited resources. Yet there is a huge market and economy for the poor. This article attempts to discuss some dimensions of this phenomenon.

Introduction

The poor people have an economy that is managed by the poor, and is of the poor and for the poor. They have self-supporting mechanisms that are not based on pure money. These markets are based on empathy and sharing of wider practical contexts. They also thrive on mutual respect and trust. Contrary to public perception, this economy also draws its sustenance from the lower middle and even middle middle classes. More specifically the economy of the poor is built on a) accurate understanding of volume games b)unique pricing/small unit margins c) we-are-in-it-together feeling d)self-supporting in nature and e)long term markets that sustain. These dimensions are sought to be explained in some detail, in this article.

Accurate understanding of volume games

Those who run these small businesses are not highly educated. They do not know what is called Net banking or Paytm. For them every dealing is only in cash. Yet they understand the pulse of the target population - the poor and the very poor. The very poor, in economic terms, are those who still earn just about Rs.5000 per month or less, in rural and semi-urban India. In urban and metro India, that figure would be around Rs.6000/-, amounts enough to just keep their body and soul alive. You can often see them in 230 square foot thatched houses called "store houses" in most of South India. These are the equivalent of the small tenements in most of Mumbai or other metros. In effect, they are very small for a living. Just near their houses, some one will be selling iddlis for Re 2 a piece even today and a dosa for around Rs.8/-. In most of South India, one can still find these small shops in every single big village. In Kerala, they live on what is called the "pazha bajji", a snack item made of banana. In Mumbai the cheap vada pav still goes on for the poor. There are variants of the same kind of food in other metros and big cities. But life goes on.

It is nothing but a volume game. The entrepreneur would make around Rs.250 per day and he would normally reside in the same locality. Outside the big shops in the metros and in the small towns, one can find thousands of shop keepers who sell cheap textile goods. Every single buyer knows that these goods will last only one year. In the superb Saravana Stores at Renganathan Street in Chennai one can find slightly more costly textiles but also serving the lower middle class and double income poor families. For example shops here give you two shirts for just around Rs.600/-. Since this price is very reasonable there are huge takers. Second hand shirts and pants are sold for Rs.80 to Rs.100 apiece in many cities.

Even in Ranchi, Indore or Ahmedabad one can find such shops on the pavements. The clothes are not new. The buyers are aware of this.The buyers still go after them, for the simple reason that these goods are very cheap. They help the poor keep themselves alive in the Roti, Kapda and Makkan game of life. In every small town in Tamil Nadu, the medium sized textile shops have a huge market for Surat saris. The designs are predominantly rural and lack sophistication. Yet the shop keepers happily sell them for they know that the market is huge. The rural buyers never cheat on installments. Every buyer has a reference. This serves as a check. The huge volume game is a superb observation in Marketing Management.

The volume game is there for every single service too. Electricians and plumbers charge the poor customers a fraction of what they charge the rich. Even this amount is amount is collected in installments. From as far as one hundred and twenty kilometers away, hundreds of construction workers board the express trains and come all the way to Chennai for work. They do so in Mumbai as well. They would carry home cooked food in huge containers. The caring and sharing with fellow workers has to be seen to be believed in every construction site. Near the place of work, they supplement their lunch with cheap food sold in make shift shops or the mobile eateries.

Unique pricing/small unit margins

The per unit profit margin is very less, as the pricing is very limited in terms of per unit cost for the buyer. For instance, even today, a masal vada costs just rupees five. Even palm oil is costly and the "masters" who make the food items demand Rs.300 every evening for a work of just four hours. Yet, the larger purpose of serving a huge target customer population is never lost on the entrepreneur. He or she has a huge amount of empathy for the poor and their purchasing power. The huge cost plus pricing of the multinational or branded companies and the big hotels, for example, is never applicable to these small shops or the "mobile shops". This is true of every single item sold for the poor. For example, old color TV sets are sold for Rs.2000/-. The poor want them anyway. They do the repair if need be, to keep the TV in good condition. Even this amount is at times given in installments.

We-are-in-it-together feeling

When anyone accesses this market, he or she is bound to see the "we-are-in-it-together" feeling dominate every single commercial transaction. This becomes very important as the buyers have limited income and also know most of the sellers. In fact, the sellers are supported only buy the references the buyers make. This can even be seen in the weekly "sandhais" or village markets. In these markets, one can buy a whole lot of groceries, fish, all vegetables and even some fruits for cheap prices. Since the marketing cost is near zero, the sellers are able to sell the goods at very reasonable prices. Most customers are regular. One has to listen to the conversations to get a feel of what is going on. The relationships are never purely seller-buyer relationships. They are made out of empathy of clear understanding of purchasing power and have a huge amount of emotions and feelings associated with it.

Self-sustaining in nature

The markets are self-supporting in nature. The sellers stock so many goods from unorganized markets. The suppliers of such goods are also not rich at all. They supply directly to the retail shops and since the relationships are always based on trust, any deviation in the flow of money is tolerated, without any fine. For example unsold goods are taken back. The eatables, if unsold, are at times, distributed free, before the shelf life is lost. The markets are simply superb for a very accurate understanding of the unorganized markets. Often these goods are not found in the cities. For example in every single town in Tamil Nadu, one can find what is called the "goli-soda". This soda is manufactured locally and sold directly to the retail shops. The margins to manufacturer and the retailer, is reportedly, just Rs.1/- per bottle. This goli is nothing but a stopper that one has to push down in the bottle, to access the soda in the lower portion of the bottle. This has to be seen to be believed. It retains at Rs.6 or Rs.7/-. In the summer months, each retail shop would sell at least one hundred bottles. The volume game is complete. The marketing cost is zero since the by-cycles are used for transportation to shops within a three kilometer radius.

It is no doubt that these shops will still be around even after forty years from now. May be, some of these shop owners will have their sons as even doctors or engineers. Yet, they will continue to own and operate such shops. This will go on for ever.

The economy for the poor is huge. Hundreds of thousands of crores change hands everyday. All in cash. Nothing can ever stop these self-sustaining shops. Never ever.

Unlike the branded shops where there is high decibel advertising, the small shops survive mostly on word of mouth. Their unique features make them the favorite shopping destination of the poor. There is absolutely no doubt that the poor will continue to live. The social movements are strong and fighting for their rights has just begun. The minimum wages may rise to over Rs.400 in two years time. But prices will increase too, in all middle class markets, that form a huge chunk of the overall market.

Just below these middle class markets, these markets for the poor, will also continue to thrive. They will always work on huge volumes. These markets go far beyond commercial relationships. These markets will interest any serious sociologist to do research to understand the no caste, no religion, peaceful nature of these markets. It is perhaps God who has taught them the survival skills.

Conclusion

The economy of the poor by the poor and for the poor is so good and kicking. Let us salute it for whatever it is in terms of the larger social purpose.


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