BDS market development guide.pdf - PACA

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KEY CHARACTERISTICS OF EFFECTIVE DEMAND
Effective demand, as defined in this paper, is when recognition of the need to solve a
problem intersects with willingness to pay for a solution to the problem. We choose
“recognition of the need to solve a problem” to indicate the consumer’s readiness to act on a
problem: the consumer may not know the best solution to his or her business or market
problem, for example, but she or he knows there is a problem that needs to be solved by
outside sources. 13 We are looking to determine if customers have no knowledge of their
problem (lost), whether there is knowledge of a problem but not sure which one (searching),
or whether they know their specific problem and want to solve it (found). This is not static;
this can be influenced by both internal and external factors including education, experience,
actions of peers, and supplier promotion. We choose “willingness to pay” as the second key
characteristic of demand. Willingness to pay is indicative of the buyers’ motivation to seek
outside assistance to effect a change. Willingness to pay ranges from no willingness, some
willingness (skeptical), to high willingness (has the money and is ready to put it on the
table). 14 Again external factors can be highly influential, particularly in terms of consumers’
attitude to valuation and price (Figure 6).
When SMEs exhibit a high level of recognition of need to solve a problem and a high
willingness to pay for a solution, demand is effective—they are ready to purchase something.
This presents a strong market opportunity for the BDS supplier. Conversely, if both
recognition of a need to solve a problem and willingness to pay are very low or absent,
demand is non-existent and market opportunities are negligible. A weak-demand situation
might be when recognition of a need to solve a problem is well established, but willingness
to pay is low or conversely when there is willingness to pay but little or no recognition of a
problem, or a combination of both. The market opportunity in a weak-demand situation is
limited, unless the service provider can overcome the willingness to pay problem or assist
consumers to increase awareness of business problems and the availability (and value) of
relevant solutions.
13 Modern marketing teaches us that the purchase decision goes through different stages, starting with need
recognition, the search for information on options, and the weighing of alternatives. In many developingcountry
markets, consumers have a difficult time assessing options because of the information-poor
environments in which they operate.
14 Capacity to pay is not tracked separately. Willingness is a better proxy for motivation than capacity.
Willingness is a precondition for a successful market transaction. Low capacity to pay is something that can
be fixed—for example, through credit or different payment terms.
Chapter Two—Where We Are Now—A Framework for
Market Assessment and Intervention Choice