Overcoming Institutional Voids in Subsistence Marketplaces

Abstract

This case study explores an entrepreneurial venture as it deals with the challenges of operating in Zimbabwe, a country with high levels of poverty, limited institutional frameworks, and no national currency. It investigates how the venture has overcome institutional voids to challenge the existing monopoly, and succeeded in establishing itself, and thrived, in a contracting Sub-Saharan economy. In so doing the case has reshaped the existing marketing system by increasing competition, lowering prices, providing income for more than 2,000 people, and better quality products for the urban subsistence community. Specifically this paper looks at what resources are critical to reshaping subsistence marketing systems, and provides insights into the marketing channels and networks that have led to this change.

Keywords

subsistence markets poverty solutions base of the pyramid entrepreneurship in sub-Saharan Africa

Introduction

Alvarez and Barney (2014) suggest subsistence entrepreneurs (Viswanathan et al. 2014a) focused on self-employment (small retail, textile, artisan, livestock, etc.), have limited capability to alleviate systemic poverty. They propose alternative forms of local entrepreneurship, which target growth through discovering or creating market opportunities which redesign existing marketing systems (see Layton 2015) are essential for bringing communities out of poverty.

Work exploring the intersection of subsistence marketplaces and entrepreneurship contribute to our broader macromarketing understanding of how; through constructive engagement, marketing organizations reshape marketing systems to provide better products, services and wealth distribution (Layton 2015; Shultz 2007). This paper builds on this theme by exploring a subsistence consumer food company which has been able to reshape the local marketing systems in Harare, Zimbabwe. Zimbabwe suffers from a number of institutional voids; defined as “situations where institutional arrangements that support markets are absent, weak, or fail to accomplish the role expected of them” (Mair and Marti 2009, p. 419), such as limited international support, virtually no NGOs, weak financial and legal infrastructure, and no national currency. The paper provides insight into the importance of social networks (Kolk and Lenfant 2015), interpersonal trust (Viswanathan et al. 2009) customer empathy (Venugopal and Viswanathan 2015), and improvisation (Baker and Nelson 2005) in overcoming institutional voids and reshaping marketing systems in subsistence marketplaces.

The article is structured as follows. First, the literature on subsistence entrepreneurs as catalysts for economic development are discussed, followed by an exploration of extant theories on how they overcome institutional voids in developing informal marketing systems. Next the methods of inquiry are explored and the choice of a single case study justified. Following this, critical incidents in the growth of the case study are presented. This is followed by an analysis of the theoretical and practical implications of this case.

Literature Review

Research on subsistence marketplaces has emerged in recent years to explore contexts in which communities struggle to meet basic living requirements; not as a market to exploit, but as a context to better understand, and devise culturally sensitive solutions to systemic poverty (Viswanathan and Sridharan 2009; Viswanathan et al. 2012). Predominantly utilizing bottom-up theory building, subsistence marketplace literatures have used collective insights across subsistence marketplaces to gain insights into macro-level marketing systems, ecosystems, and business models for sustainable development (Viswanathan and Venugopal 2015). This section therefore explores these bottom-up theories relating to the importance of local entrepreneurs in bringing communities out of poverty, the problems institutional voids play in achieving this, and the mechanisms currently suggested in the literature for overcoming them.

Beyond-Subsistence Entrepreneurs

Research is increasingly suggesting that local entrepreneurs are a key (if not main) factor in the alleviation of systemic poverty (Alvarez and Barney 2014; Bruton, Ketchen, and Ireland 2013; Samli 2009). This is not to sideline the importance of Governments, Multilateral institutions, NGOs, and social enterprises, but research suggests projects without a consideration for local entrepreneurship have limited long-term success (Bruton, Ahlstrom, and Si 2015; Godfrey 2014). Alvarez and Barney (2014) and Viswanathan et al. (2014a) go further, suggesting it is specific types of entrepreneurship, such as building new markets and creating mass employment, that are most important in transforming subsistence marketplaces, not survival entrepreneurship of people supporting their families.

Both Sridharan et al. (2014) and Alvarez and Barney (2014) identify types of local entrepreneur who transcend operating for survival. Sridharan et al. (2014, p. 488) define one group as transformative subsistence entrepreneurs; who have “achieved a minimum threshold level of business success, and therefore had financial stability beyond day to day survival”. By providing enhanced livelihoods for themselves, these entrepreneurs move beyond subsistence activities, simultaneously enhancing the “economic capacity of the community” (ibid. p. 490) through better access to goods and / or employment. Alvarez and Barney (2014) however envision a faster growing, mass-employing local entrepreneur as the most transformational in improving the life situation of subsistence consumers. Here the entrepreneur may be “embedded in, and transact within the informal [subsistence] markets” as per the definition of subsistence marketplace entrepreneurs in Viswanathan et al. (2014a, p. 213), but also have access to resources or skills typically not present in survival focused enterprises. These resources allow them to take advantage of new opportunities to reshape marketing systems. However they have to achieve this in environments lacking key marketing systems taken for granted in more-developed economies.

Subsistence Marketing Systems and Institutional Voids

Layton (2015) identifies the role actors’ play in the evolution of both formal and informal marketing systems. Layton’s marketing systems develop over time, providing improved product offerings, increased specialization, more stability and a better quality of life for all participants. However in many subsistence markets the evolution either does not happen, or happens slowly. Formal subsistence marketing systems are often dominated by monopolies, or cartels between oligopolies, in key subsistence product categories (World Bank 2016a). The lack of competition means subsistence consumers pay more and are frequently underserved in areas such as food, water, health services and energy, limiting capacity to move out of subsistence living (Shultz et al. 2005; Viswanathan, Sridharan, and Ritchie 2010). However changing this marketing system through increased competition is hampered by substantial institutional voids affecting the development of alternative providers (Kolk 2014; Mair and Marti 2009; Parmigiani and Rivera-Santos 2015).

Subsistence marketplaces are characterized as having institutional voids in formal marketing systems, with poor capital, labor, health and education markets, as well as corrupt or weak governments, poor infrastructure, property rights, and limited recourse to the law (Kistruck et al. 2013; Viswanathan, Sridharan, and Ritchie 2010). Despite the emphasis early Bottom of the Pyramid (BoP) literature places on MNCs for overcoming these, there is mounting evidence to suggest that smaller, nimbler, local enterprises are better adapted to circumvent institutional voids (see Ireland 2008). This is due to their often informal operations (Roy and Wheeler 2006), their intense social relationships with communities (Venugopal and Visanathan 2015), and interdependence between buyers, sellers, families and community (Viswanathan, Rosa, and Ruth 2010). In particular Viswanathan, Sridharan, and Ritchie (2010), and Ingenbleek (2014) posit that where formal institutions are weak, informal marketing systems based on social networks play a much more important role in transactions than in economically stable environments.

Overcoming Institutional Voids through Social Networks

Although presented as resource-poor in many core business areas (Gau et al. 2014), local entrepreneurs are identified as resource rich in their intense social relationships (Venugopal and Viswanathan 2015), contextual understanding of consumption patterns (Sridharan et al. 2014), and personal standing in the community (Toledo-López et al. 2012). These network resources are discussed in the literature as exploitable in two forms; as a resource for external parties to leverage, or as a resource for developing localized informal marketing systems.

The first of these refers to the importance of local entrepreneurial networks as key collaborative institutions in delivering social innovations (Kolk and Lenfant 2015; Venugopal and Viswanathan 2015). The intensity of relationships and cultural understanding allow local entrepreneurs to provide insight to external bodies on habits and culture, allowing for effective customization of solutions for subsistence consumers (Layton 2009; Viswanathan et al. 2012). Thus making local entrepreneurs a vital link in social intervention.

However it is the second form of network resource we explore in this paper: networks as a resource for entrepreneurs to overcome institutional voids and reshape marketing systems. This second usage of social networks is typified in Chikweche and Fletcher’s (2012) investigation of Zimbabwean “home boy” networks, or Viswanathan, Rosa, and Ruth (2010) Subsistence Consumer-Merchants in Chennai. In these cases friends, families, buyers, sellers and the community in general, create norms of operation which provide access to needed resources, or act as buffers against institutional voids. This form of network capital is commonly referred to as social capital; which relates to the resources created by, and available through, interpersonal relationships between individuals, communities, and organizations (Adler and Kwon 2002; Inkpen and Tsang 2005). In developed economies social networks have been found to provide the needed resources for growth within the formal marketing systems (Gedajlovic et al. 2013). However in subsistence marketplaces, social networks have been suggested to form the foundation for informal marketing systems required for survival (Rivera-Santos, Rufín, and Kolk 2012; Viswanathan et al. 2014a). In its simplest form entrepreneurs develop semi-formal groups to protect, or gain, scarce resources through collective bargaining (Kambewa, Ingenbleek, and van Tilburg 2008; Viswanathan, Sridharan, and Ritchie 2010). In a more nuanced approach Viswanathan et al. (2014a) explore how intellectual capital and shared identity are developed through trusting, interdependent relationships between buyers and sellers, affording the entrepreneur unique insight, and an ability to create unique value for subsistence customers.

Despite the proliferation of contributions highlighting the importance of social networks in subsistence marketplaces, there has been little structured attempt to explore the means by which entrepreneurs in subsistence marketplaces leverage their resources for growth (vs. survival) (Sridharan et al. 2014). Three classic theories on how network ties are converted into competitive advantage in developed economies exist: weak-ties theory, structural holes theory and social resource theory.

Weak ties theory (Granovetter 1973) suggests weak network ties into a broad spectrum of highly diverse network partners provides the greatest level of intellectual capital, and therefore the greatest competitive advantage in developed markets. In subsistence marketplaces however it is strong ties into close proximity, and fairly homogeneous networks that are commonly presented as the core asset local entrepreneurs have (Ingenbleek 2014; Viswanathan, Rosa, and Ruth 2010), suggesting a divergence from the classical perspective.

Structural holes theory (Burt 1992), postulates it is by bridging holes in knowledge that the greatest benefits can accrue. When we look at networks with external parties (MNCs, NGOs, etc.) in subsistence marketplace, such as Kolk and Lefant’s (2015) social innovations, or Venugopal, Viswanathan, and Jung’s (2015) educational interventions, this theory may be true. But for subsistence embedded entrepreneurs, access to these different partners may be limited, with only intense relationships with community insiders available.

Social resource theory (Lin, Ensel, and Vaughn 1981), suggests it is not the strength or diversity of partners which is important, but the ability to extract resources when needed. This has commonality of Lévi-Strauss (1967, p. 17) concept of bricolage; the process of “making do with what is at hand”. Both concepts are characterized as improvising with what resources are available at the time. This approach has been identified in success stories in other resource-poor environments (Baker and Nelson 2005; Garud and Karnoe 2003), and appears to be the dominate basis for network related assets in subsistence marketplaces (Gau et al. 2014).

Underpinning all of these theories however is the development of trust in social networks (Coleman 1990; Inkpen and Tsang 2005). In subsistence marketplaces with limited recourse to the law for contact fulfillment and resource protection, building trusting networks becomes foundational in developing effective informal marketing systems (Elaydi and McLaughlin 2012; Viswanathan et al. 2009). Coleman (1990) defines trust in social networks as the implicit guarantee that obligations will be repaid. This defines a cognitive view of trust based on the expectation that a party can be relied upon based on an assessment of their competence, integrity and goodwill (Dowell, Morrison, and Heffernan 2015). This perspective of trust is reflected in Elliot, Cherian, and Elaydi’s (2014) exploration of trust between customers and microcredit lenders, and Viswanathan et al.’s (2009) exploration of trust in buyer-seller interactions, amongst others. However Mayer, Davies, and Schoorman (1995, p. 712) suggest trust is “the willingness of a party to be vulnerable to the actions of another party”. This includes an affective perspective of trust, which relates to feelings and emotions of strength and security with another party (Johnson and Grayson 2005; McAllister 1995). Affective trust has two aspects: relational trust based on feelings of comfort related to past interactions; and intuitive trust, the emotional belief in the other party’s just intentions (Dowell, Morrison, and Heffernan 2015). This affective trust is less explicit in existing studies in subsistence marketplace research, but implicitly forms an important component in the development of informal marketing systems.

An explicit exploration of the means by which local entrepreneurs utilize their trusted networks for transformative growth is lacking in the literature (Sridharan et al. 2014). This paper therefore contributes to the literature on subsistence marketplaces by exploring a fast-growing, mass-employing, Zimbabwean entrepreneur. We explore what resources, relationships, and marketing approaches are used during critical incidents in the enterprises growth, allowing it to reshape a marketing system dominated by a monopoly in a major food sector. We particularly explore the question of what networks, capabilities and resources form the basis for creating informal marketing systems to help overcome institutional voids, and drive growth.

Methodology

This section outlines the choice of context and case-study methodology utilized in this paper, and the data collection and analysis methods employed.

Context of Study

Zimbabwe provides a good context for studying subsistence marketing systems because it has a large subsistence customer base, and is notably for a number institutional voids such as a lack of foreign investment, currency, finance and legal protection. Sub-Saharan Africa is where the most extreme and hard to address poverty appears to exist, with 27 of the 30 lowest GDP per capita countries being in this region. Zimbabwe is one of these with 72.3% of Zimbabweans surviving on less than $2 per day (World Bank 2016b) and average household income shrinking to only $62 per month in 2016, 50% lower than in 2014, and equivalent to 1950’s income levels (ZIMVAC 2016).

Zimbabwe is particularly remembered for the violent farm invasions from 2000-2013, which destroyed the country’s main economic sector: agriculture. This was driven by the government’s indigenization and empowerment regulations requiring all firms to offer 51% of its shares to indigenous Zimbabweans. This caused anxiety in business communities and has driven off foreign firms, direct investment, local investors, and led to the exclusion of NGOs. In its aftermath, monthly inflation reach 79bn%. Businesses that were still trading did their business by mid-morning, then spent the rest of the day trying to buy anything that was marginally valuable, before their money became useless by the evening. The vast majority of businesses simply failed (Chikweche 2015).

Many previously non-subsistence consumers found themselves unable to meet basic survival needs, thus becoming one of the four types of subsistence consumer discussed in Chikweche, Stanton, and Fletcher (2012): 1) Rural Based subsistence farmers, plantation workers and miners, 2) Rural Urban migrants fleeing to the city to escape rural poverty, 3) Urban Based informal workers and subsistence consumer-merchants, and 4) Diluted Urban; who were professionals (nurses, service sector workers, middle management, entrepreneurs, and trades people) before the devastation of the economy pushed them into subsistence living due to a lack of employment opportunities. What makes this final group interesting is they have little to no income, but may have tangible assets, valuable skills, education and social networks that can be leveraged for entrepreneurship, as per Alvarez and Barney’s (2014) suggested beyond-subsistence entrepreneur.

The economic situation was unsustainable and in 2009 the Zimbabwe dollar was abandoned in favor of a multi-currency regime. The Euro, Botswana Pula, South African Rand, UK Pound, and US Dollar were all introduced as legal tender. Although this introduced price stability, there is an absence of coinage, because coins are too expensive to ship. This has an inflationary effect on prices as goods are usually priced in dollar increments. It also provides an opportunity for larger corporation who had ridden the economic collapse to cement monopolistic positions and increase profits, due to a lack of competition.

Credit also became a problem. The World Economic Forum’s competitive index, gives Zimbabwe a credit rating of 5.3 out of 100, ranking it 142nd out of the 144 countries listed (World Economic Forum 2013). These macro-issues are felt keenly by entrepreneurs where securing credit is a major barrier, with only 14% of businesses served by the banking sector (FinMark Trust 2012).

Case Selection

Due to the political and social instabilities in the region all efforts have been made to protect the individuals involved in this study. As such the case is referred to as Pies & Pastry, and all names have been disguised. The company also requested minimal usage of financial data, as this is an informal business operating in a high risk environment.

The choice of a single-case study is justified on the grounds of the uniqueness of the study. Yin (2003, p. 43) states some single case studies are “worth conducting because the descriptive information alone will be revelatory”. Pies & Pastry is a revelatory case because it is what Shultz et al. (2005) refers to as a Phoenix Entrepreneur – it arose from the total economic collapse of 2008-2012. Pies & Pastry has grown from 2 to 80 direct employees, and from selling 35,000 to over 900,000 pies per month in three years (see monthly production levels on Figure 1), supporting over 2,000 subsistence retailers. The authors were given unrestricted access to the case study’s operations over a two-year period, during which a reflexive research diary was kept to record observations of critical incidents in the growth of the enterprise. By a critical incident we refer to decision-making incidents which “occur in a situation where the purpose or intent of the act seems fairly clear to the observer and where its consequences are sufficiently definite to leave little doubt concerning its effects” (Flanagan 1954, p. 327). The authors spent an estimated 200 hours with Pies & Pastry management.

Figure 1.

Pie production levels* and critical incidents. *Numbers are based on a report conducted by the authors on production levels between start-up and August 2014, numbers after this date are based on interview responses.

Data Collection

Primary data were gathered through a mix of 14 formal, semi-structured, and more than 20 unstructured, informal interviews, plus observations and attendance at management meetings. The critical incident technique was utilized, in which events that are interpreted as significant by the observer or respondent in the growth of the venture, are investigated through interviews to understand the way they were interpreted, managed, and what the outcomes of this management process were (Chell 1998; Gremler 2004). Respondents were encouraged to tell stories about critical incidents to gain rich contextualized data. Secondary data to support respondents’ assertions were gathered via consumer surveys, the company’s databases, files and minutes, as well as a wide range of newspapers (Yin 2003). Formal interviews were conducted with seven Pies & Pastry organizational members and seven external network members. A list of the main interviewees is shown in table 1. Formal interviews lasted between one and four hours. Short follow-up interviews were also conducted where information needed to be clarified. All these interviews were recorded and transcribed immediately.

Table 1.

Semi-structured Interviews with Pies & Pastry Representatives.

Interviewee	Position	Remarks
Pie & Pastry Employees
Mr. A	CFO	Joined 6 months after start up.
Mrs. B	Receptionist	Sales role
Mr. C	Accountant
Mr. D	Distribution Manager
Mr. E	Franchise owner	Former Food Corp. retail manager
Mr. F	MD	Founding Member.
Mr. G	Sales agent
Non-Pie & Pastry Employees
Mr. M	MD Food Corp.
Mr. N	Senior economist
Hon. O	Government official	Former Senior Minister
Ms. P	Ambassador
Prof. Q	Professor	University of Zimbabwe
Prof. R	Professor	University of Zimbabwe
Mr. S	Head of Marketing at Food Corp.

Data Analysis

Analysis was undertaken through an inductive, interpretive process of analyzing the critical incident stories, to categorize both the most salient incidents, and interpret the key resources utilized in responding to these incidents (Leitch 2015). To ensure internal validity and reliability, a constant comparative method was borrowed from grounded theory (Barnes 1996). Multiple responses from people within Pies & Pastry were triangulated against each other, external interviews, field notes and secondary sources (Yin 2003). We subsequently interpreted the most critical incidents in the enterprise’s growth, and explored the decisions-processes and resources utilization in facilitating this growth (Eisenhardt 1989). External validity and reliability was increased through triangulation with both secondary sources, and informal interviews with appropriate third parties (Arksey and Knight 1999).

Findings

This section presents the findings on the resources Pies & Pastry have utilized at critical incidents in their development. Figure 1 highlights their rapid growth, and the incidents explored in this study. A brief introduction to the firm is presented, followed by an exploration of the management of critical incidents, focusing particularly on: having adaptable plans, the importance of customer intimacy, access to knowledge networks, and building supply chain and marketing networks completes this section of the paper.

Pies & Pastry History

Pies & Pastry was founded in February 2012. A local entrepreneur, Mr. F and a business partner, had been looking for opportunities in the food sector following the cessation of previous ventures during the economic collapse. However, unlike Viswanathan et al.’s (2014a) subsistence entrepreneurs, they had both maintained a modest level of assets to invest in the business, but needed a source of continued income. An opportunity emerged when a family-run supermarket in Harare’s informal trading district (“The Supermarket”) was needing new capital following a turbulent period for independent traders (see Chikweche 2015). Mr. F proposed turning the supermarket into a food court, constituting a mini-market, a butcher and a fast food counter. This involved Mr. F, and partner, raising initial investment capital of a few thousand US Dollars for a partial ownership in the building, money for shop-fitting, and an ongoing profit sharing arrangements with The Supermarket’s owner. What followed were a series of critical incidents (see figure 1) in the survival and growth of the enterprise to challenge the effective monopoly and reshape the marketing system in one food sector. In the following sections the management approaches and resources used to manage these critical incidents are explored.

Adaptable Business Plans

In the first few months what worked and what did not became apparent. The butchery and the mini-market were a failure and liquidated. There was however a strong demand for hot meat pies, potentially driven by ongoing fuel shortages in Zimbabwe affecting home cooking. However, the pies sold were of mediocre quality and imported in from South Africa through a local agent, who had been trying to challenge the existing monopoly (and his former employer) through importing pies. Mr. F and his partner decided to switch the business into manufacturing better quality pies, with the idea of selling them through their own retail outlets and franchises.

The decision was taken to challenge the dominant monopolist in the sector: Food Corp.

“[Food Corp.] had enjoyed a nice monopoly for the last 35 years…like so many other monopolists they were comfortable and not used to the pressure that comes from having a competitor, so there was definitely a gap in the market, and that made it very easy to come out with a good quality pie that was well-received by the customer.” (Mr. A)

In May 2012 the founders accumulated their remaining assets, and to overcome the shortage of formally available credit, approached friends and family to raise additional capital, including engaging Mr. A as a new capital partner and CFO. Pie-making equipment (convection oven, manual pastry sheeting machine, steel tables and pie warmers) were sourced, and a handmade manufacturing plant established on The Supermarket’s premises producing $1 pies (half the price of Food Corp.’s $2 pie), an image of which can be seen in Figure 2. They also approached their pie importing agent, who was an ex-Food Corp. employee with 15 years’ experience as a baker. They knew his business was failing due to the economy, and took the opportunity to invite him in as a director and operations manager. Thus gaining access to a lifetime of skills and experience.

Figure 2.

Pie making by hand in the original factory.

Pie sales grew rapidly from approximately 35,000 per month in February 2012, to 88,000 per month by June 2012. By December 2013 monthly sales had reached 610,000 per month. The directors only took minimal drawings from the business over this time, and had a healthy cash balance by late 2013, which was reinvested into the business with more pie making equipment and pie warmers imported from Australia. They also took the decision to invest some retained profit out of Zimbabwe, by partnering with a previous business associate in the more stable market of Nairobi, Kenya, producing 1,000 pies per month. In March 2014, with production at The Supermarket site at maximum capacity, they rented new premises for the manufacturing operation aimed at producing 900,000 pies per month, funded from retained profit, and a business loan acquired via their Kenyan operations.

Pies & Pastry has however been aware that their entry into the market would eventually provoke a reaction. Food Corp. told Pies & Pastry explicitly that it would not cede market share without a very tough fight (confidential interview with a Food Corp. manager in June 2014). Mr. A describes his interpretation of Food Corp.’s awakening to the presence of these new competitors:

“They woke up overnight, you know 20 months for a company like [Food Corp.] is overnight, 20 months, they have lost 40% of their market share in pies [in Harare].” (Mr. A.)

The reaction came in 2013 when Food Corp. introduced a 50cent pork based pie, and announced plans to open a new $4 million pie making facility in Harare. The explicit intention was to price Pies & Pastry out of the market and regain their monopolistic position (confidential interview with a Food Corp. Manager June 2014). Up until this point Food Corp. had been complacent about their market position, focusing on profit not customer value, as a former Food Corp. retail manager noted:

“When we wanted to increase prices we never consulted the market, we would just sit in the boardroom and say ok, we need 60% gross profit, what do we have to do [to achieve this]. Sales would go down for 2 to 3 days, but then they would still come…we were the only [suppliers].” (Mr. E)

Pies & Pastry had limited room for maneuver with the pricing of their $1 pies due to operating costs and the countries lack of coinage. They therefore decided to create a new, smaller beef product; but with the same quality and meat content, which would also retail at 50cents. Although priced at a convenient sub-division of a dollar, it went against the founders’ ideology of not using the lack of coinage as an excuse for opportunistic behavior. Whereas Food Corp.’s price effectively required customers to buy 2 pies, whether they wanted 2 or not. Pies & Pastry looked for a pricing strategy that would be of more benefit to the customer. By negotiating with a local drinks distributor they came up with the dollar meal, which gave customers a beef pie and drink for $1. Very quickly the 50cent pie rose to account for 70% of total sales, although at the expense of the more profitable $1 pie. So although sales growth has continued after this time, profitability remains flat. However Pies & Pastry’s quick adaptability and continued focus on quality and customer value, allowed Pies & Pastry to counter Food Corp.

Customer Value

The founders of Pies & Pastry have always been clear that they could exploit Food Corp.’s size and complacency by focusing on quality and respect for their customers.

“The only thing that has worked to our advantage was that [Food Corp.] was a fat, ugly giant sitting on a monopoly, and they were doing the products badly, and they were ripping off their customers and not offering value for money.” (Mr. A)

This view of Food Corp. extends beyond Pies and Patry, with a great deal of media attention and external interviewees making similar points. The philosophy of quality is therefore central to Pies & Pastry’s value proposition, and dominates the majority of work-related conversations we observed over the years of study. Although the room for maneuver in increasing quality in high volume, low price fast food is limited, the directors constantly look at new combination of ingredients, cuts, and products to do so. In one example, they originally used two different meat suppliers. One supplier provided diced meat, the other did not. As a result Pies & Pastry diced some of the meat itself, resulting in two distinct textures. Customers raised this as an issue in satisfaction surveys conducted by Pie & Pastry, and the company was quick to respond by moving all meat supply to one, consistent producer (although at a higher cost).

Similar stories exist in relation to vegetable cuts, gravy consistency and mixtures of flavor. This focus to produce a superior product, and willingness to listen to its customers, has allowed Pies & Pastry to build a consistent customer base. This is evidenced by customer surveys carried out in 2012 and 2014, which found customers typically frequent Pies & Pastry outlets 3 times a week.

However, loyalty in Zimbabwe is dynamic. Chikweche and Fletcher (2011) highlight that food purchases in Zimbabwe are major family decisions; far from habitual, routine activities as in the West. In late 2012 they cut meat content by ∼6% to reduce costs following a spike in meat prices making the product barely profitable. There was an immediate negative response, and they quickly reverted back to 60 g of meat. More recently in 2014 quality dipped as Pies & Pastry changed its manufacturing process to make the 50c pie profitable.

“In the last 2 weeks we’ve been transitioning to this automation and our quality has slipped…we jumped the gun and I think we’ve lost market share…our vendor partner has dropped the exclusivity, and he started putting [Food Corp.] pies alongside ours, and our volumes dropped by about 40% [in that vendor].” (Mr. F)

Both of these examples demonstrate how discerning subsistence customers can actually be. The rapidity with which they punish small reductions in product quality is evident in this case. Pies & Pastry has therefore instituted a process of formal customer feedback; which is not common practice in Zimbabwe. Not only does it do customer surveys but it has a printed ‘hotline’ number on its packaging that customers can ring if they are not satisfied. The network of 2,000 micro-retailers (see the sales and marketing networks section below) are similarly afforded time every day to feedback to the company. This feedback is acted upon, with the MDs handling any complaints themselves:

“I will personally go out and visit [the complainant] and give him/her a box of pies or make a cash offer to appease him/her, just because we don’t want to lose a customer.” (Mr. F)

Building these close feedback loops is a core capability of the business. This is viewed as key to staying ahead of the market in a country with little formal ability to purchase market data, and is something Food Corp. has shown little willingness to undertake.

Local Knowledge Networks

Linked to customer value is the importance of local knowledge networks. During the 2008 financial crisis local meat production all but ceased, leading to a sharp increase in imported Halal meat from Zambia. Zambian meat was seen as better quality than the variable Zimbabwean meat, and Halal became synonymous with quality. Although none of the directors are Muslim, their close relationships with subsistence consumers, and the majority of employees being subsistence consumers, allowed them to understand Halal meat would increase product differentiation. For a deeply Christian society (only 1% Muslim), Halal is not seen as a religious act, but a mark of Zambian quality. So in 2013 Pies & Pastry became the only provider of Halal meat pies in Zimbabwe, and customer feedback states this remains one of their biggest competitive advantages.

Similarly, local knowledge in the employee base of Pie & Pastry of the shopping habits of Harare’s subsistence consumers, and in identifying trustworthy independent retailers, has been vital to growing distribution. Conversely, a lack of a trusted source of local knowledge emerges as Pies & Pastry try to expand the business beyond Harare. The satellite town of Chitungwiza, only 30 km from Harare, has a large population of employed, but near-subsistence consumers. However, attempts to enter that market have failed due to having no business connections to this town, and no knowledge of trusted vendor partners to work with. Similarly Bulawayo, the second city in Zimbabwe, and the Lowveldt, the major center for sugar production, have also proved challenging. Complicated by their distance (approximately 400 km from Harare), delivery of fresh pies is impossible due to underdeveloped infrastructure and lack of refrigeration. However, opportunities to manufacture here are hampered by a lack of people they trust to run a new manufacturing facility.

Having a trusted network partner to operate facilities or local knowledge of trustworthy retailers are essential to subsistence operations. City-to-city can show differentiation in needs, and our entrepreneurs have limited network partners with the local knowledge in these regions. Harare therefore makes up 90+% of all Pies & Pastry Zimbabwean sales. Ironically the more distant Kenyan business is doing well, and a new production facility has recently opened in Zambia, partnering with their meat producer. Since the factory in Harare has reach manufacturing capacity, and the entrepreneurs have limited networks in the other regions of the country, they find it easier (and commercially safer) to expand into other countries where they have strong-tie network partners, than continue growth in Zimbabwe.

Supply Chain Networks

Meat is obviously one of the critical ingredients in the pie making process. In Zimbabwe, there is an annual spike in beef prices that occurs over the rainy season (November–March), which caught Pies & Pastry’s by surprise.

“In December 2012 the price went as high as $8 a kilo from its average of about $5 a kilo which was a death sentence for us, because as we hit the busiest months of the year for pie sales, all our advantage was stolen from us by a shocking increase in the price our most expensive input.” (Mr. C)

If this cost could be passed on to the customer with a temporary increase in the retail price this would not be much of an issue. Unfortunately the lack of liquidity means this cannot happen. Reducing meat content failed as an option as well. Luckily two of the partners had worked with the Zambian meat producer, mentioned above, during the 2008-2012 economic collapse. At that trying time (vast inflation and devalued currency), with the legal and regulatory processes impotent to enforce business norms, very tight business networks were established.

“That kind of trust built up over years is indestructible. So it made sense to me that the bulk of purchases should be with someone who we have this intimate relationship and whom we trust so much and wouldn’t let us down.” (Mr. A)

This business network, established and tested during a period of extreme economic and financial turbulence, gave Pies & Pastry the confidence to negotiate a deal. This meant they pay an above average price for their meat year-round, avoiding the potentially ruinous spike in the rainy season.

“I don’t think we could have pulled off a stunt like that with any others supplier for reasons to do with relationships, this required a special relationship to achieve.” (Mr. A)

In addition to ironing out the spike in prices, it meant that meat was supplied to one uniform standard; which continued to address the customers’ consistency concerns above. A benefit to the supplier was Pie & Pastry’s willingness to conduct business as if they operated in a less risky environment: paying upfront, on time, and in full. This is a major difference to other Zimbabwean businesses, where the lack of liquidity has led to questionable business practices:

“Liquidity is tight and it seems to be that this is a justifiable excuse not to pay your suppliers and it becomes a knock-on effect and as a consequence no one in this country pays on time for anything.” (Mr. A)

Pies & Pastry’s policy opposes this.

“It is punishable by dismissal from the company if someone fails to pay a supplier in one week in full, unless it has been discussed with me and there is a special case.” (Mr. C)

This has built up goodwill, which has played to Pies & Pastry’s advantage. By working with trustworthy partners (even at a higher cost), and agreeing to pay for supply on receipt, Pies & Pastry negates many of the institutional barriers to trade which could jeopardize the business. They do this at risk to themselves, but build trust with business partners. This style of doing business allows them to negotiate special arrangements like the meat pricing agreement, and a later agreement for hedging grain and flour.

Marketing Networks

As would be expected with a high volume, low price products, Pies & Pastry set out to distribute its product as intensively as possible. The original plan was to open branded stores and franchise outlets. But the capital costs and financial exposure was too great after the first franchises opened. However, they had local knowledge that customers often buy from micro-subsistence retailers, such as fueling stations, bottle shops and tuck shops. The challenge of distributing through these touchpoints was twofold. Locations such as bottle or tuck shops have very low profit margins, and do not have the capital to invest in the quality or range of goods. Alternatively, fuel stations in Zimbabwe, with a few exceptions, do not double as fast moving consumer goods platforms as they do in the West.

After carrying out some analysis, Pies & Pastry struck upon an idea that was to become the focus of its retailing strategy, and one of the main drivers of Pies & Pastry’s success. They identified that pie warmers were looked upon as mini-retail outlets by consumers, and a very effective way of building the brand. They were also aware of the difficulties that subsistence retailers had in accessing credit. They therefore decided to buy pie warmers and lease them at no cost to the independent retailers. This overcame the outlets’ lack of capital, and fulfilled retailer’s desire to improve the range of their offering.

Pies & Pastry invested further in their subsistence retailers by offering pies on credit, which, in a high risk economy, was significantly different from the accepted way of doing business. A retail outlet only pays for the pies after it had sold them, and the next resupply was being delivered. With its policy of ‘leasing’ its pie warmers at no cost, and effectively supplying its pies on credit, it set-up over 2,000 micro-retail outlets for the Pies & Pastry products. These retailers were identified, and then serviced by Pies & Pastry employees, mostly from the production line. These individuals are subsistence, or near subsistence consumers themselves, and knew the outlets their friends and family trusted to shop with. For this they were paid an additional commission.

More recently, the business decided to run its own fleet of vendor carts, which can be wheeled to employment hotspots during peak times (such as public events or government offices at lunch time). Acting on a franchise basis, cart drivers are independent retailers who hire the solar powered carts from Pies & Pastry, but carry a range of products. Set up as a partnership between Pies & Pastry, an existing vendor partner, and an investment foundation, the fleet is ready to hit the streets of Harare. Not only do they help maintain maximum production capacity, but diversifying income streams with the sale of other goods and hiring charges.

Discussion

As Viswanathan, Shultz, and Sridharan (2014) suggest, studying bottom-up approaches to solution provision in subsistence marketplaces provides valuable insights by helping to understand and facilitate a sustainable and just marketing system. This research was grounded in this desire to understand how subsistence marketing systems could be reshaped through the actions of local entrepreneurs. The aim was to explore the means by which a new entrant could change a marketing system dominated by a monopolistic supplier, and how entrepreneurs can overcome institutional voids which usually limit growth.

At its most basic level the paper presents an example of a local entrepreneur successfully building a business through localized, customer focused, and intuitive decision-making. On a deeper level it presents one approach for effectively changing the marketing systems in subsistence marketplaces. Single case studies are usually poor for theory generalization (Yin 2003). Nevertheless, articles from The Herald (2011) and Newsday (2013) highlight other local Harare entrepreneurs having success with similar approaches to Pies & Pastry’s: tackling consumer food monopolies head on, with lower priced, higher quality competition. Interestingly in both cases the entrepreneurs’ strategy was similar to Pies & Pastry’s original one of opening own brand and franchise retail outlets. Pies & Pastry have ultimately had more success than both of these entrepreneurs by staying more informal, and less asset invested in Zimbabwe. This protects the entrepreneurs from governmental oversight, legal challenge, and diversifies its risk into more stable markets like Kenya and Zambia.

Our entrepreneurs benefit from advantages traditional subsistence entrepreneurs lack (Sridharan et al. 2014; Viswanathan, Shridharan, and Ritchie 2010, etc.). They had some initial capital from liquidated businesses, connections to friends and family with available assets allowing them to overcome voids in the financial services in the country. They also had business experience and social networks with other skilled professionals, allowing them to overcome the lack of human capital. However they also maintained valuable close cultural and lived experience connections with their core customers, through their workforce, and individually (Sridharan et al. 2014; Toledo-López et al. 2012; Viswanathan et al. 2014a). As such, they had a starting position more similar to the vignettes discussed in Alvarez and Barney’s (2014) paper on transformational entrepreneurs, than typical subsistence entrepreneurs. The access to, and ability to leverage these limited resources has been key to disrupting a marketing system which dominates the Sub-Saharan food sector: a lack of quality supply, liquidity problems, and monopolists (World Bank 2016a). The result is market transformation on a speed and scale beyond that discussed in Sridharan et al. (2014). By reshaping the retail distribution system, supply system and customer interface, the entrepreneurs challenge the dominant marketing system and forced a reaction from the monopoly. The results were driving down like-for-like consumer prices by 75%, and providing employment, and income opportunities for 2,000 independent subsistence entrepreneurs. The key theoretical contributions of the paper however relate to the utilization of social networks, and the importance of intuitive customer insight in overcoming institutional voids. We therefore focus on these two issues.

Social Networks and Trust Relationships

Through the exploration of the critical incidents, the importance of the rich social networks our entrepreneurs were embedded in is apparent. This is not concentrated on the customer side as discussed by Viswanathan et al. (2014a), but on the B2B side of the enterprise.

There is often a misguided perception that business in subsistence marketplaces can be bought with bribes. However by conducting professional, protective, and mutually beneficial business, Pies & Pastry are able to build a solid foundation for their business based on social networks underpinned by cognitive and affective trust. Be that the Zambian meat partner, employing the pie importer as the operations director, or building constructive feedback loops with retailers; operating with a mutually respectful approach is perceived as crucial for cementing long term relationships. Thus by building trust-based relationships where all parties are mutually vulnerable to each other they are able to access needed resource. These trust-based relationships then form the “compensatory structures” (Kolk 2014, p. 188) upon which the business can thrive, rather than relying on weak institutional frameworks to provide stability.

Considering this finding in relation to the means of exploiting network relationships, we find that strong-tie relationships dominate this transformational business, not the weak-ties Granovetter (1973) postulates as most valuable. In markets with institutional voids, it appears that a clusters of network partners with close ties and embedded trust, can create the social norms necessary to allow new marketing systems to emerge (Layton 2015). Not just at a survival level (Chikweche and Fletcher 2012; Venugopal and Viswanathan 2015; Viswanathan, Rosa, and Ruth 2010), but at a growth level too. Where institutions are weak, entrepreneurs benefit from being embedded in close interdependent relationships on the customer side (Viswanathan, Rosa, and Ruth 2010), and on the supply and retail side. This approach however leads to a reliance on strong-tie network partners for most resource acquisition purposes. The entrepreneurs return to these same strong-ties for many different purposes; such as dealing with product inconsistency, hedging meat prices, setting up new operations, and starting the vendor cart business. Pies & Pastry has repeatedly returned to trusted partners and repurposed them for the business, rather than develop new network partners. Successful network exploitation is therefore more similar to a social resource theory (Lin, Ensel, and Vaughn, 1981), or a bricolage approach (Lévi-Strauss 1967), than either weak-ties or structural holes theory.

In working with these partners there is a reliance on both cognitive trust in existing business interactions (treatment of micro-retailers for instance), but then allowing a greater vulnerability through affective trust in a partners ability to serve a different function (such as the pie importer and Zambian meat producer). Within affective trust there is the relational trust which is based on a feeling of comfort based on past interaction, but also an emotional belief in the partner’s desire to do their best (Dowell, Morrison, and Heffernan 2015). We see this development of, and reliance on, affective trust, embedded in past interactions at times of uncertainty. Mr F. previous venture ultimately failed, but the Zambian meat producer trusted to work with him again. Similarly the pie importer lost his business as Pies & Pastry moved to manufacturing, but both trusted, and in turn was trusted, to become a board member and operations manager. These close group of relationships are based on affective trust; feeling and emotion, rather than calculation.

Ultimately this proposition makes a great deal of sense in highly unstable environments. Having been through economic collapse, and still experiencing significant economic uncertainty, businesspeople naturally gravitate to those contacts and networks that can be relied upon to try their best to repay that trust in times of crisis. This presents interesting opportunities with regards to governance. Strong-tie, and particularly familial networks could be derided for being nepotistic, but for entrepreneurs needing to find a social structure on which to stabilize a business; family, friends, clan, tribe, and caste relationships provide a stability and structure capable of supporting long-term entrepreneurial interaction. However as businesses grow, there must come a point at which these resources are fully exploited, as in the case with further expansion within Zimbabwe for Pies & Pastry. At this point the decision on where to look for new growth opportunities becomes paramount, and in need of further study.

Intuitive Customer Insight

Business process innovation and adaptability also play a role in the ongoing commercial success in this case study. Pies & Pastry’s provision of pie warmers at no cost to its network of retail outlets, is very much in the spirit of Chakravarthy and Coughlan’s (2011) Mexican cement, and Ireland’s (2008) Venezuelan beer manufacturer examples of developing new retail outlets. In all three examples relatively simple, if unorthodox solutions were found to unlock financial institutional voids in subsistence retailers, and generate significant market growth. The key to all three of these successful cases is the intuitive customer insight of entrepreneurs who understand their customers retailing habits.

Pies & Pastry rely on networks to maintain this intimate knowledge too. The directors of the business are a mix of former middle class and subsistence consumers, but the employees are almost all drawn from urban, or urban rural subsistence consumer groups (Chikweche, Stanton, and Fletcher 2012). The management have harnessed their knowledge at a strategic level by providing incentives for employees to commission new retail outlets. However, as the employees are responsible for, and service the outlets, they commission people they trust from their own social network. In so doing Pies & Pastry gain retail distribution where their core customers shop, and benefit from the social capital and interdependence between the retailer and employee.

Pies & Pastry then attempt to maximize local knowledge by keeping close relationships with retailers and customer through feedback loops. The hotline, MD’s dealing with complaints, collecting customer data, etc. all of these activities are rarities in Sub-Saharan Africa, but work well in this case. Respecting the customer, trying to deliver to their needs, and focusing on quality perceptions becomes the businesses defense to the powerful institutional player. There is limited research comparing the use of commonplace marketing activities such as these in subsistence marketplaces (see Viswanathan 2016 for suggestions of activities), and could provide valuable insight for empowering subsistence entrepreneurs.

However customer knowledge is not perfect, especially when it is based on intuition. Pies & Pastry have been surprised by customer responses to variations in product quality. A 6% reduction in meat quantity, variance in meat consistency and a slight drop in production quality; each led to substantial drops in sales until remedied. This is however consistent with Chikweche and Fletcher’s (2012) finding that food purchases are high cognition decision-making events for subsistence consumers. According to ZIMVAC (2016) food purchases make up 54-59% of all consumption spending for the average Zimbabwean. Value for money is therefore vital in a country where 33% of children are malnourished and 20% of pregnant women have vitamin A and iron deficiency (World Bank 2011). This level of customer cognition is however at odds with Viswanathan et al.’s (2014b) assessment of subsistence consumers as having low cognitive tendencies in assessing attributes of value. Literacy levels could be a factor here; Zimbabwe has a 92% literacy rate (UNESCO 2016) whereas Viswanathan’s body of work often revolves around low literacy consumers. Alternatively this finding may be more universal, but little active research has been done on subsistence consumer loyalty to make this assessment.

Future Research Directions and Limitations

Through the discussion we have identified research gaps related to opportunity recognition, subsistence consumer loyalty, and the application of formal customer insight strategies in subsistence consumer goods sectors. However we also identify the potential issue of when social networks resources becomes exhausted. Where can a transformational entrepreneur then turn? In our case we see the movement to other strong-tie networks in other geographies, but how can capacity be built to expand into areas where little social network or marketing systems exist, such as rural Zimbabwe? If the situation Pies & Pastry are addressing is largely pervasive across Sub-Saharan Africa (World Bank 2016a), could opportunities such as franchising, or business model cloning be effective means of changing marketing systems? Little work has explored business models for growth outside of small geographical areas in subsistence marketplaces, and a more holistic, multiregional study into transformative business models would be valuable.

Studies focusing on core subsistence consumer goods sectors are also necessary. As requested by Viswanathan and Venugopal (2015), more research is need that focuses on subsistence food, water and sanitation markets. Although we would add to this energy and hygiene. These are the core markets in subsistence marketplaces, but also the same markets dominated by monopolies and cartels (World Bank 2016a). Investigating how to disrupt and improve these marketing systems is of paramount importance for releasing subsistence consumers from survival lifestyles. Solutions to overpricing of these products would release a high proportion of subsistence spending, with only small changes in the existing system, as shown in this paper.

The approach in this paper is however limited with regard to these future research directions. Single case studies are good for demonstrating insightful contextual nuance, but poor for providing generalizable theory. In this case there is the additional limitation of a lack of data directly addressing the employees or micro-retailers so vital to the success of this story. Even the bottom-up theory approach espoused by subsistence marketplace scholars has its limits in terms of the ultimate goal of providing solutions for macro-level issues. Ingenbleek (2014) provides a valuable review on how to raise the level of theory development from bottom-up to midrange theoretical development. The coalescence of multiple disciplines on poverty alleviation also helps facilitate this transition to higher order theorization. Documentation of how individuals have overcome institutional voids is the first step, but facilitating some form of institutionalized structure for these activities is still a long way off. Partly due to the immense contextual diversity under which subsistence living exists. More research which frames solutions at a cross contextual level would therefore be highly valuable, cutting across subsistence marketplaces, rather than deep insight into individual contexts.

Footnotes

Declaration of Conflicting Interests

The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.

Funding

The author(s) received no financial support for the research, authorship, and/or publication of this article.

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