Learn From Amazon: How to Tap Into Underserved Markets

Retail stores are closing in large numbers. Despite the fact that, according to at least one study Gen Z shows a preference for shopping in stores some of the time, at least 22 brands are closing locations in 2017. At the same time though, dollar stores are on the rise. What does this tell you?

For starters, it confirms that the way consumers shop has fundamentally changed. They have grown more discerning and have more choice. High end consumers are willing to pay a premium for luxury products and services, as we've seen with everything from Tesla to Peloton and Whole Foods. Mainstream consumers expect selection, convenience, and competitive pricing, and have all kinds of new options.

But there's still room for innovation among at least one segment—organizations targeting lower income consumers may be a bright star in an increasingly dismal picture.

Certainly, large companies have gotten the message. Amazon, for example, may be more well known for its one-click convenience and popularity among millennials. But they've recently begun offering a $5.99/month subscription to Amazon Prime for people with EBT Cards. In contrast to their standard pricing of $100/year or $10.99/month, this is a real discount, and the two day delivery means fewer expenditures on gas or long trips on the bus.

Financial services new entrant LendUp recently raised $200M to support their work making loans to underbanked consumers. They position their offer in contrast to payday loans, which have been an ugly necessity for many underbanked families, despite the exorbitant fees.

How can small business owners reach underserved markets?

Opportunities exist for small business owners as well. Entrepreneurs who can reach this unique and underserved group have an opportunity to win a loyal and potentially profitable segment of the population.

Let's consider the facts: About 15 percent of U.S. consumers live below the poverty line. As of the latest data released on July 7, 2017 by the United States Department of Agriculture, the total is 41.6 million people on food stamps. Yet, this group has historically been ignored by companies.

Stores are often far away from lower income neighborhoods, requiring expensive gas, or worse—lugging stuff home on public transit. Many businesses don't accept Electronic Benefit Transfer (EBT) cards, making it hard for people on public assistance to access goods and services. Plus, many of the best deals require major purchases in large quantities—think Costco-sized ketchup jugs or 20-pack rolls of toilet paper. Families living paycheck to paycheck can't afford to pantry load.

Some companies are focusing on understanding the needs of these communities. Dollar stores, with their smaller footprints, commitment to carrying products with low price per item (not just bulk discounts) and their many locations in low income neighborhoods have been thriving and expanding.

If you're a small business wanting to serve lower income consumers, you need to join the membership economy, in which organizations put building a long-term relationship with their customers at the forefront.

Here are the steps to building a forever transaction, in which your customers become members and  demonstrate long-term loyalty, in exchange for your long-term focus on their well-being.

1. Start by understanding which needs aren't well met in your target segment

Start small and specific—instead of "low income consumers," how about "low income parents of toddlers living in urban centers."  If you can delight a few hundred people, or even a few dozen, by providing them with something they've longed for, you are well on your way to a successful new business. From there, you can extend your offering as you saturate each market.

There are many industries in which low income consumers are underserved today, most of which are due to lack of access to transportation and to financial services, such as credit cards, bank accounts, and loans. Amazon Prime's $5.99/month offering for EBT cardholders overcame both of these limitations. Uber and other ride sharing services provide affordable transportation to people who may not be able to afford their own car. There is plenty of room in various industries, such as in grocery delivery, health care, and after-school programming for kids, just to name a few.

2. Determine how you can solve the problem

From here, brainstorm ways to serve them—and focus on everything you could do to solve the problem entirely and forever for the customer. The key is to think outside the proverbial box about what it is customers really want and need in their lives, rather than looking for short-term solutions through the lens of what you currently sell.

For example, if you own a dry cleaner, think beyond "a better cleaning process" to "having clean clothes in my closet" which is a bigger, longer term goal. While some people want to own a car, most people just want reliable, convenient transportation whenever they need it, preferably without the hassles of maintenance and financing.

What is the big goal of your business? What kind of "forever promise" can you make to the people you serve?

• Keeping people healthy (doctor, clinic, gym)?
• Ensuring that they’re up-to-date about local events (newspaper)?
• Spirituality and community (church, temple, mosque)?

When you take a step back and think about how your services and products fit into your customer's lives, you'll identify new combinations of services that can be uniquely packaged.

Consider some of the emerging technologies that might allow you to deliver in a differently. For example, can you create a regular delivery or service schedule and give your members the ability to adjust their routines? Or you could provide online support in addition to telephone, or mobile access for on the go.

You can always scale your offering back from this ideal vision, but it's helpful to think big.

Brian Chesky, the founder of AirBnb, talks about providing an "11 star" experience—meaning, way more than a 5-star experience.

For example, he says:

"I’d get off the plane and there’d be 5,000 high school kids cheering my name with cars welcoming me to the country. I’d get to the front yard of your house and there’d be a press conference for me, and it would be just a mindf**k experience."

3. Scale back to your minimum viable product (MVP)

What can you do today that would delight the people you want to serve? Maybe you can't provide your customers with a cheering mob, but you can think of something pretty special and different.

For example, if your 11-star experience is providing home delivery of organic food at a low price to everyone, maybe you start with home delivery of a weekly meal each Tuesday to a single community. Once you have a small sign of success, you can expand—maybe to more markets, or by offering more services, or by lowering the pricing. You've got to start somewhere, right?

As you try new approaches, before you invest in systematizing and scaling the processes of each idea, test them in a less efficient way. For example, before you hire a team of delivery drivers, maybe the project team can do  deliveries, until the model is proven and refined.

Determine what you can provide your target group that gets as close to an 11-star experience as possible. Test it with a small group. Solicit feedback from the group and iterate. When you're small, you can be nimble and adjust services, packaging and pricing as you go. If you’d like to learn how to do this, Bplans’ article on testing demand validation is a good next step.

4. Continue refining your offering

Keep tinkering with your offering and your target buyer until you have a perfect match, what is known as "product-market fit."  Only after you know your customers love it and have gone from being consumers evaluating other options, to "members" who are totally committed to you, do you start investing in building awareness about your offering.

This process is true, by the way, of any underserved segment, not just low-income consumers. Small businesses have an advantage in that you probably actually know your best customers already, so you have unique access to their needs and challenges. You can do this process without fancy databases and technology because you truly understand your market, and also because you don't need to scale to serve millions in order to have a successful business.

So start by thinking really small and really focused. Help a small group with a deep problem—especially one that has been ignored. Focus on making the problem go away and don't limit yourself to "how it's always been done."  If you look to markets that are too small or too challenging for large companies to really focus on, you might find build the kind of loyalty that lasts forever.