Making the Good Life Cheaper for the Global Middle Class

Last month, the McKinsey Global Institute published a remarkably upbeat assessment of the future prospects of Africa called "Lions on the Move," which predicted the rise of an urban African middle class with spending power comparable to some of today's more successful emerging economies.

That's a great story if it comes to pass, but it's important to understand that "middle class" in places like Africa and South Asia means a strata somewhere between the elite super-rich and the unimaginably poor: workers in professional or blue-collar jobs making steady pay, able to afford life's necessities, some modest luxuries, and perhaps a bit of savings. We are talking about people making $20-50 per day--not much by industrial-world standards, but a fine living in countries with per-capita annual GDPs of $750-1200.

McKinsey and others watching this space recognize the opportunity this segment offers to a world desperate for new sources of consumer spending. A person who used to make $2 per day and now makes $20 feels rich, even if their pay is less than 20% of a minimum-wage worker in the U.S. And they want to be treated with the attention due an affluent consumer. They want branded products rather than generics. They expect more choices, higher levels of quality, and better service. The shift in mindset from subsistence to middle class offers, as McKinsey notes, an opportunity to "create markets, establish brands, shape industry structure, influence customer preferences and establish long-term relationships."

To get it right, however, big First World brands need to scale their business models and profit expectations to fit the realities of these new emerging consumer markets. Sometimes that means adjusting the packaging to fit the budget and lifestyles of customers who can't afford to buy and store a month's worth of laundry soap, but will purchase a single-serving "sachet" at a comparable unit cost when they need it.

This is a much more promising strategy than attempting to compromise product quality or unload "scaled-down" versions of branded offerings, which will only result in long-term damage to the brand. Japanese electronics firms attempted this strategy in India during the 1990s, and consequently, Korean brands like Samsung were able to capture consumer mindshare.

One very cool initiative is the Open Source House, an international design competition to provide better, more sustainable housing in low-income countries. The project itself is a volunteer, non-profit venture based primarily on the Web, but it has resulted in some very concrete results. "Emerging Ghana," an OS-House winning entry designed by Lisbon-based Blaanc in collaboration with Architect João Caeiro, is a single-family abode created specifically for the Ghanaian middle class, and priced at about U.S. $12,500. That's still a high figure in a country with an estimated per-capita GDP of $1500 (2009), but the quality and comfort afforded by the house far exceeds its cost. In effect, the rising buying power of the emerging middle class is being amplified by increases in the value occurring as a result of innovation. This is only one example of a trend that's taking place across a vast spectrum of goods and services, comprising everything from transportation to medical procedures.

This strategy is great for parts of the world that have long struggled with poverty and miserable conditions, but it also begs a provocative question for the rest of us. If people in Ghana can get a decent house for $12,500, how long before those kinds of innovations reach consumers in more affluent countries?