Untapped: Creating value in underserved markets

LAS VEGAS (6/6/07)--Don't dismiss low-income markets as commercial wastelands. Investing in and partnering with underserved communities can yield rich rewards for both lenders and the people they serve.

So said John Weiser, founding partner of Brody Weiser Burns, Branford, Conn., and co-author of "Untapped: Creating Value in Underserved Markets" with Michele Kahane, Steve Rochlin, and Jessica Landis. He made the comments Tuesday at the America's Credit Union Conference & Expo in Las Vegas.

Weiser bases this premise on rigorous research and 50 case studies, which revealed that as of 2005, the 100 fastest-growing companies located in inner-city underserved markets had an average five-year growth rate of 716%.

Plus, retail spending in America's inner cities totaled $85 billion--7% of all U.S. retail spending, and more than Mexico's formal retail market. By 2009, the purchasing power of ethnic minorities in the U.S. will exceed $1.5 trillion.

"Serving underserved consumers and suppliers can be the key to addressing corporations' pressing needs: increased sales, a qualified work force, marketable innovations, reduced costs, and increased quality," Weiser said. "But as corporations benefit, so do communities, through better products, prices, and services; more meaningful job opportunities; and an increased market for their own goods and services."

Still, credit unions must know how underserved markets differ from traditional markets, Weiser said. They must keep in mind:

  • Low-income consumer behavior often can't be predicted using models for middle-income consumers. Studies show, for example, that consumers in underserved areas often spend 30% more than their earned income, he noted.

  • One reason is the cash-based, "informal economy" in which many low-income people participate, Weiser explained. Aside from cash payments from employers, undocumented income may include gifts, transfer payments and remittances. Much of this money isn't, and doesn't need to be, reported on income taxes.

Weiser advised credit unions to go beyond standard data sources for information about underserved communities.

He said better measures for determining market size, buying power, market stability and growth potential in underserved areas include bill payment data, auto registrations, tax assessments, school enrollment, reported crimes, property sales, housing values, housing tenure (owner vs. renter-occupied), residential building permits, and new construction.

The underserved work force has different needs than the middle-class work force, including child care, transportation and flexible schedules, Weiser said.

"When credit unions keep these ideas in mind," he added, "they take the first step toward tapping an extraordinary market."

Weiser also detailed a five-point management framework for reaching underserved communities, drawn from businesses that have done so successfully:

    1. Mine local market information;

    2. Try a new business model when realities don't fit your model;

    3. Prepare to cope with cultural challenges;

    4. Match with partners who can help you; and

    5. Improve the environment for doing business.

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