Hi everyone, it seems many (mostly growth-stage startups) are preparing for the potential winter. However, when you are in a tier-2 city and observe a significant traffic surge post-Diwali, you understand Bharat is looking to have fun with the actual winter (weather). You go and ask them hey Fed has increased the interest rate by 50 basis points, are you scared? The usual answer that you might receive would be, what are you talking about? It is not because they don't understand (that is also the case ;)) but mostly because a significant percentage of Bharat is sitting on a saving of ~$25K in terms of Purchasing Power - the money generated by actual economic activities.
We uncovered this insight when we were building a potential pricing model for our work. I think this essay might be helpful for many folks in the ecosystem. Let’s get started!
I visited my village for Bihar’s Maha festival Chhath, and I wanted to use this opportunity to gather as many insights as I could from potential users/customers. If you don’t know about Chhath, I would suggest you Google it.
I roomed around my village to compare temporary and permanent changes - the progress - in terms of physical infrastructure, human communication, purchasing power, general behaviours etc. And what I can tell you – it’s not the same village that I left a decade back.
During my conversations with the local CSC (Common Service Centers) owner Sunil, and other villagers, I was not only surprised but also shocked by the fact that – their approach towards permanent and temporary changes is V.10.
In one of my conversations, Sunil talked about how he has life insurance - sudden death (Road accident) or Natural Death of INR 4 lakhs at a premium of just INR 125. He enthusiastically told me the premium, INR 125/month, is automatically getting deducted from his bank. I was surprised and shocked both at the same time. Surprise because he has life insurance, shocked because he was happy that the premium is getting deducted from his bank account directly. And at that point in time, my mind exploded with questions:
How did he get to know about something being considered complicated as Life Insurance - frankly, I don’t have, do you?
What was the source of the trust that was making him comfortable for the auto-debit of the premium directly from his bank account - even my dad doesn’t trust me when it comes to his bank account, I am being 200% honest!
What was the motivation behind taking this decision to have life insurance?
Is he alone, or there are many like him etc?
He answered a few, but I was intrigued to understand this motivation from behaviour, economics, progress, value, loss, gain etc POV. And hence this essay. Apart from answering the above questions, this essay shall also burst myths about Bharat. And at this point, I can confidently spell - We all have wrong mental models of Bharat!
I think we have tons of misconceptions about Bharat – YOU have not ME (LOL). The first part of this essay is about the average Bharat, who has sufficient Purchasing Power even though WE think them, Bhukha Nanga – again You, not ME (Sorry, I promise, I am not going to use this again in my essay). Let me give you a sneak peek. What percentage of folks living in metro cities could have a saving of INR 6 Lakh+ - the money that has nothing to do with their monthly expenses? What percentage of the population can spend INR 15 to 20 Lakh in a year for one specific work, NOT EMI - RAW 15 to 20 lakh? You can conduct pools, and talk to your colleague - you will get the idea. And when I will tell you what percentage of the population of Bharat has above two - you will be shocked!
We shall get all the answers one by one in the 2nd half of the essay. Firstly let's understand Bharat!
The LP's bullishness on India is not a flook – this high-functioning tribe does understand the coming prosperity. Even though the signals of coming prosperity might not be visible to us. However, as we move up the ladder of the economic cycle, we can have a clear understanding of the coming prosperity. The good news is that India is one of the ascending countries, and knowing the bigger picture builds strong convictions in putting dollars into the work.
Here is a table that might be helpful for everyone.
We have 5000 years of recorded history and 500 years of Credit, Debt, and Money cycle history. If we flip pages of 500 years of Credit, Debt, and Money cycle. There are patterns and signals that can be used to get some sense of the Future. The Great nation cycle is a multi-generational cycle, and therefore we usually struggle to pick signals and patterns of the future. The past 500 years of history are a testament to the ascending and descending nature of nations which goes through multiple stages.
Let me quickly summarise Great Nation’s cycle for your benefit.
The rise of a nation is not however fall of a nation is inevitable. The rise of a nation can be planned by sound economic policies, hungry and aspiring young workforces, effective leaders on the top, and a deep aspiration to generate and create wealth inclusion. The fall of a nation can only be pushed for a while, but it is almost certain. From the recorded 500 years of the Debt, Credit, and Money cycle, the world's first economic superpower was Dutch (today’s name Nederland), then Britain, then the US and Chain, and India could be the next. Meanwhile, After Dutch, Germany has a real chance to become the world economic power, but Britain’s aspiration to generate and create wealth inclusion suppress Germany. In the below table, I have drawn the cycle of a nation.
It is a 2*2 Matrix, plotting “Think” on the X-axis and “Actual” on the Y-axis. On each side of the axis (+ve and -ve), I have marked Rich and Poor. I have avoided the word “wealth” to keep it simple. The cycle of a nation starts with stage 1 where their thought and actuality both match each other. But when the same nation reaches stage 2 they think of themselves as poor but, in reality, they are rich. This is due to fundamental human nature, since you have struggled to have sufficient food on the plate, you developed a nature of saving to avoid being in the same situation at any cost. And therefore, even with a yearly earning of INR 2.5 Lakhs - most Bharat has a saving of INR 6 lakh+. This is $25K in purchasing power. (WoW). I used WOW because if you look at the Debt by GDP per capita ratio of all developed nations it is 100%+. And from that context, having a saving of $25K in purchasing power terms is amazing!
India is in stage 2 if you don’t believe me - find some time and visit Bharat. You will get the sense. I have been on the ground for the past 10 months.
The complete cycle of Nations
India is in a stage where 60 to 70% of the population has an average saving of 5 to 6 Lakhs. But most of them keep these savings for emergencies, only. They even don’t consider these as an expense stream. This should not function as a surprise because it is fundamental to human nature.
I am writing this confidently because I have talked to folks on the ground. And I have always found myself pinching in disbelief because it was not the same decade back.
Also, India being in stage 2 of the nation cycle is good for the equilibrium of the world. India with probably the world's largest country with human capital and a relatively younger population though we do have a birth rate of below 2.1 - the problem of ageing populations is visible.
The real question that you all will have is, hey if Indians are, actually, rich why are we not seeing expenditures/expenses outside tier-1 cities? If you can recall, in my last essay, I shared some ground insights. Today, let me go deep and explain this in terms of Behavioural Economics. The startup ecosystem struggling to make money from Bharat not because Bharat lacks the amount of money (Of course in relative form, they do) it struggles because of the lack of the right pricing models for the progress - temporary and permanent changes. In this essay, I have proposed a potential Bharat pricing framework based on my first 15 years and last 10 months of on-ground experience.
This framework is based on the famous theory called “The Value function” and “Diminishing Marginal Utility of Wealth” - you can find this in the amazing book “Misbehaving by Nobel prize winner Richard H. Thaler. Here the sweet spot might vary for startups. However, I have picked a number based on my intuitions and on-ground discussion.
A few days back, one of our angel investors shared an amazing framework that could sum up the monetization of India’s mature internet users and Bharat. He told me, Suman: Mature internet users pay for convenience, and Bharat pays for Hope – Dream11, Astrology, Card games, Naukri prep, jobs site etc.
This framework does hold its ground but certainly lacks depth. The meaning of hope might be different for Bharat. Let’s hear me out people, and then you can decide whether this makes sense or not.
Motivation drives human decisions, and Changes are the way Humans experience life. Now, these changes can be temporary or permanent. I know what are you thinking: Bharat spends money on temporary changes no - these folks spend money on permanent changes because permanent changes create massive hope, life-changing. You are thinking of temporary changes because that is visible to you, you see how knowing the activities behind the curtain helps! :)
Before I answer the above questions from my discussion with Sunil’s regarding his life insurance. Let’s understand the Value Function of Bharat. As most of the progress is a by-product of the utilities that an individual can afford. And utilities can only be achieved through available disposable/non-disposable money. This means the motivation to make any type of progress depends on the gains and losses. And I think this graph captures the nuances beautifully.
The Value Function in INR
I think INR 10,000 is a sweet exchange value, you can play with your number.
The difference between losing INR 250 and INR 500 feels more than the difference between losing INR 5250 and INR 5500 - however, the loss is the same in both.
Irrespective of having purchasing power, the Bharat consumers feel more in losing between INR 250 and INR 500
Here also, we must understand, they only prefer to spend money when they, actually, feel – they can make progress or experience some utilities (Short term changes)
Also, this makes the entire Bharat interesting and gives a new meaning to the term Growth and Monetization.
And believe me, spotting the sweet spots for each Sub-Target Group is a massive amount of work – probably two 6-months.
Now, let’s also understand the meaning of permanent changes in terms of value. On one hand, the value of permanent changes for folks like you might be in Crore. There is a massive value gap for Bharat.
Real conversation with potential user/customer:
When you come back to your village after a long time, you are supposed to meet your neighbours. And during one such conversation, one of them mentioned that she is saving INR 7 Lakhs, so she could do her daughter’s marriage (Yes, the expenses of the marriage – dowry, Barat, show off etc. – is a bigger problem than all diseases combined in India, except air-pollution.). So, let’s keep INR 5 Lakhs as a threshold. For you, INR 5 Lakhs might bring a few temporary changes but for Bharat, the INR 5 Lakh is a permanent change.
We can plot this behaviour through “Diminishing Marginal Utility of Wealth”
Not many of us understand this basic motivation. The bottom line is all these are separate works that need deliberate resource and time allocations.
Before we wrap this essay, two examples:
If you are a CRED user, you must have observed the notifications’ reward value - it is almost always INR 100,000 from reputed brands. Yes, because the team understands motivation. CRED users would probably ignore the notification’s reward value of INR 1000.
The Physics Wala (PW)’s the pricing structure. INR 8000 for the complete 11th and 12th online classes. A 12th student living in my apartment choose PW over other services only because of prices. He agreed the available solutions are feature rich. He is super happy: And told me he is being taught by Kota’s top teachers. Here let me remind you education is a permanent change, but the price of previously available quality education was not optimized for Bharat.
At this point, I am sure you might have some sense of the answers that exploded in my mind after my talk with Sunil. But let me write it anyway.
The source of Trust was the Government. It is a government life insurance policy, the people of Bharat trust the Government irrationally! There is a trust deficit for a reason - it is subconsciously ingrained in their neurons ( I shall write about this some other day).
Health and life are permanent changes, and the final amount, INR 4 Lakh, could potentially bring a permanent change at a premium amount that loss would feel nothing to Sunil.
For you and me, the motivation to have life insurance might be securing our family members for him it was the amount of INR 4 Lakh, no middle person, and a sweet premium.
There are hundreds like Sunil in my village, only.
Till the time, we are not allocating resources to understand the motivations and the changes Bharat wants – there will be scepticism all around the potential of Bharat.
The bottom line is Bharat is dying to have better products and services that can make progress. And it is about building tools that can bring temporary and permanent changes. The progress caused by the tools should be visible and must create a trust surplus at customized price points - Bharat is potentially an unending gold mine!
I have a few readers from outside India as well, and if you are reading this, to understand the context, you can multiply these INR by 3 times and convert this into USD. :)
Edit: It seems the angel investor also learnt from Kuna Shah of CRED
Published on 06-11-2022 at 16:30 PM