The foundation for this course lies with unique synergies between pioneering research, teaching, and social initiatives through the Subsistence Marketplaces Initiative. Unique to this approach is a bottom-up understanding of the intersection of poverty and the marketplace. The goals of this course are to help you develop an understanding of marketplace activity in the radically different context of subsistence where much of humanity resides and survives, and for you to design solutions that can be implemented by individuals, businesses, and social enterprises through economically, ecologically, and socially sustainable products for subsistence marketplaces.
Lesson 2-2.1 Subsistence Consumers and Entrepreneurs
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From the course by University of Illinois at Urbana-Champaign
Subsistence Marketplaces
20 ratings
University of Illinois at Urbana-Champaign
Subsistence Marketplaces
20 ratings
From the lesson
Consumers and Entrepreneurs in Subsistence Marketplaces
In this module you will learn about emotions and coping behaviors in subsistence marketplaces. The module will also expose you to the life circumstances of consumers and entrepreneurs in subsistence marketplaces.
Meet the Instructors
Madhu ViswanathanDiane and Steven N. Miller Professor in Business
Department of Business Administration
[music] In this lesson we're gonna look at how subsistence consumers and entrepreneurs engage in the marketplace. Uh, we're gonna look at transactions, we're gonna look at the relational environment in terms of people relating to others, we're gonna look at the larger context, and we're gonna look at what kinds of skills people possess in these marketplaces. Now here is a picture of a neighborhood retail store and a large reseller. So if I live in a poor community in an urban area, I have the choice of either buying from the neighborhood retailer or the large reseller. The large reseller has lower prices, but typically will not give me credit, and is about 2 or 3 miles away. The neighborhood retailer is much closer, has higher prices, but will also give me credit and charge a little bit more for offering credit. The neighborhood retailer will also offer some services. One of those services is to secure money and charge a small fee for doing so. Now, this may seem strange, but if I'm a poor woman and I live in this neighborhood, I may need to secure the money from an alcoholic husband or from a-a thief, because I live in a hut. Now, my choice as a person in this particular setting is to buy either form the neighborhood retailer or the large reseller, and I'm going to give you an extreme example, just to illustrate a point. Here's this woman who buys from the neighborhood retailer on credit. Now, as a result of that, he keeps record, in this particular case, and he marks a price on certain products, particularly generic products like eggs and so on, because he knows that he's giving her, uh, credit as well. Now, I ask this woman if she checks prices at the neighborhood retail store, and she gave me a very surprising answer. She said "No, imagine how the store owner would feel if I checked prices." Now why is that? Well, if I am from the outside and I'm looking in, I'm going to say "Wait a minute, you shouldn't' be buying there. "That's not rational. "You should save up at the beginning of the month and "you should stock up on items by going to the large reseller. "That's the rational thing to do." Well here's the problem. The problem is I may be an expert on a number of things, but I'm not an expert on how to live in subsistence context. She, the person I'm talking about, is an expert on survival, and so when I go into this setting, one of the first things to do is to put aside what I think is rational, what I think is right, or how I should behave based on what I'm used to. I have to be willing to have a mutual learning mindset and to acknowledge that the people living there are experts. So let's go back to what I said. I said it's rational to go to the large reseller at the beginning of the month and buy all that you want and stock up, but actually that's not the rational thing to do. Why? Well, beginning of the month, I assume that I get regular income at the beginning of the month, and that may not be the case. Stocking up-that may be the last thing that a poor person in this neighborhood wants to do. Why? Because if I stock up and I have a much bigger need, maybe it's an health emergency, maybe I have to pay my child's school fees, I am willing to starve, but I have to pay my child's school fees, and so stocking up is not the answer as well. It's not the rational thing to do for somebody who's surviving. And finally, if I have to buy at the large reseller, what do I do? Well I walk across the neighborhood retailer, go to the large reseller, buy the things I need and come back. Now the neighborhood retailer is going to call me and say "Well, repay my loan, don't come back for credit, and you can buy wherever you want." Now, what happens when I have my next crisis? I'm not going to get credit form the large reseller. So even though I'm poor and low-literate, and even though I engage in concrete thinking and pictographic thinking and so on, I have to think about relationships in the medium term. I have to think about the next crisis, and I have to live my life planning from one crisis to the next. That's why the woman feels that the relationship with the neighborhood retailer is more important than checking prices. Again, this is a very different way of thinking, and this is why it's very important to have a mutual learning mindset. It's very important to assume we don't know, and go in and try to understand the context for what it is, and once we do that, we can always try to figure out what's new and what's not. I'm not trying to say that everything you learn there will be new, but I am saying when you go in and try to understand, try to keep an open mind and don't assume you know what's right. Now, in this context, buyers and sellers are two sides of the same coin, so a-a-a small buyer learns about being a small seller when he or she goes shopping. Sometimes, for the buyer, a way out is to be a seller, uh, themselves, and so they learn, they share adversity, and buying and selling, buyers and sellers, they are two sides of the same coin. This is not a relationship where people are, uh, buying from a large company. They are buying from others who are similar to them, so things like trust become extremely important. The-these are a lot of one-to-one interactions that are happening here. In this context, what does a subsistence entrepreneur do? A subsistence entrepreneur- and I use the word "subsistence entrepreneur" very deliberately- these are people with very little resources that are able to do amazing things. Now, they may not produce a new product that-that's innovative for the entire world, but they are amazing in the way they use resources. They are very entrepreneurial, they are very resourceful. Now, how does a subsistence entrepreneur go about negotiating the environment? Now, the-on this image, you see a woman who makes pickle, and that actually is her entire house. It's a-it's one room, and then there is a small kitchen on the other side, and what she does is she makes pickle and she packs it and she sells it in the neighborhood, as well as to stores and so on. In doing so, she has to manage a number of different domains or entities. She has to manage her customers, and some of them may want, uh, to buy on credit, and some of her customers are stores, so she has to manage that. She has to manage her suppliers and make sure she gets lemon and other ingredients to make the pickle, and she has to manage her family as well. The way she typically does it is by having the family as the cushion. In other words, I'm going to make sure and pay the supplier and get my supplies. If the customer wants credit, the customer gets credit and the family suffers. That's why I'm in business, in order to survive, and so the family has to suffer. But along comes an emergency where, basically, it may be a child's school fees or it may be hospital fees and so on, and at that point the entrepreneur goes to the supplier or goes to the customer and says "I cannot give you credit anymore. "You really need to pay up because I have an emergency." So this is what the entrepreneur does; she moves resources between these three different domains of family and suppliers and customers all the time. Now, the reason I went into this in detail is how important it is to have bottom-up understanding. It is so important to go beneath terms like social capital and so on and understand what is going on. Just to give you an example, uh, microfinancing institutions often talk about the need to make sure that the money they lend to entrepreneurs is used properly, so it's used for the business. That's a very good point, and I certainly understand where they are coming from. But money doesn't stay in separate compartments; resources move between these different domains, family and supplier and customer. Uh, resources are fungible, and they are moved around these different domains, and it's very important to understand that when designing solutions. One-size-fits-all is not going to fit this entrepreneur. This entrepreneur needs flexibility, and very often the community lenders are able to give her that flexibility. They know her life circumstances, they-they are not going to take one set of rules and say "You have to follow it." They are going to bend and make sure that their lending works for her. So this is something to keep in mind as well.
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