As mainstream markets become saturated and competitive strategies for differentiation start running up against limited returns, most senior managers have eyed the relatively untouched non-mainstream markets with interest. Since the 1980s, managers have been aware that ethnic markets, low-income markets, and markets in emerging regions are quite large. Mexico, for instance, has a population of more than 45 million, targeted heavily by potato chip and soft drink makers. They are ripe as a market, but most people in these markets earn less than US$200 per month. Indeed, worldwide, there are roughly four billion people who earn less than $1,500 per year. Ethnic marketers speak about the rise in the number of Latinos in the U.S. This market is over 30.5 million (larger than Canada) with buying power of $400 billion. The real news that has companies scrambling to develop marketing materials in the Spanish language is that 20% of Latinos in the U.S. have incomes of over $50,000. As R. Todd Bradley of Gateway puts it, "This market is no different from our mainstream market. Hispanics want to educate their kids, want quality products that are well supported and available in their language." Precisely for that reason, Gateway knows that it will find its mainstream competitors, Compaq, IBM, and Apple, seeking to reach the same 20%, and consequently is preparing to raise its $2.5 million marketing budget to $25 million.

Can companies that sell transactionally complex products – products so expensive, that require so much savings, that customers stop and think before purchasing – enter low-income, ethnic, or emerging foreign markets and make acceptable profits? For producers of such products and services – high-tech companies like Gateway, high-cost companies like GM, or professional service companies like Smith Barney – successful entry into financially constrained markets has traditionally entailed selling at a slashed price a less-sophisticated, lower-cost product that still has appeal. Indeed, taking away a few of the product wrinkles of a sophisticated product or service to bring its cost in line with the anticipated purchasing power of the market has sometimes worked in moving from affluent markets to middle-class markets. Consider the success of discount brokers and H&R Block's tax business.

However, this strategy seldom works when going into financially constrained markets. AT&T failed to attract a large market for telephone usage in China. People purchased phones and rented them out to others. GM failed to build a market for its cars in Asia. Closer to home, high-tech companies have a tradition of failure in seeking those 50% of U.S. households (mostly low-income) without PCs. Most recently, Intel discontinued its Dot.Station Web appliance, which, like the iOpener by Netpliance and a host of others, failed to spark enthusiasm in this target market. Back in 1996, marketers and venture capitalists were predicting that by 2000 there would be 22 million household Internet appliances in use. Similarly, in 1984, Yugo Cars of Sun Valley, California, started importing and selling Yugos to give the new-car purchasing experience to low-income families. By 1992 the venture was abandoned. In each case, the producer acted on a strategy of lowering cost, lowering price, and trying to keep the high-appeal features. The products, however, just never became relevant to their target markets, even though the price and value combinations seemed like sure winners. Inventive ways to run prices to bargain-basement levels in order to make sales can produce disasters, as in the enormous loan default rate Conseco experienced on trailer homes once people discovered that the homes themselves depreciated faster than the equity buildup during the 30-year mortgage.

Two forward-looking companies have, however, focused their resources on developing a way to enter financially constrained markets without focusing on cost reductions for lower prices. Succeeding without price-slashing requires engaging in what we call "cultural innovation" – creating offerings that include both products sold in mainstream markets and systems for experiencing and paying for them. In this way, cultural innovation is not about technical or product innovations that are enhanced with additional services. Cultural innovation does not separate the product from the service. Rather, these innovations are based on understanding the differences in social values of a particular subculture and designing offerings that enable a person to become more productive in order to pay for them. The innovation of such systems enables their customers to enhance their lives and their productivity. As such it develops their distinctly cultural sense of what is good while bringing increases in wealth at the same time. Companies that engage in cultural innovation are seen as doing the work traditionally left to development banks and are receiving socially responsible investment dollars.

Since 1983 and after 5 years of successful pilot programs, the Grameen Bank has been extending credit to groups of the poorest of the poor, starting in Bangladesh and then in replication programs to Indonesia and now throughout South Asia, Africa, and Latin America. Grameen makes its borrowers bank members and achieves repayment rates near 98%, higher than most banks receive for collateralized loans. Many had assumed that Grameen was a fluke, but CEMEX, the world's third largest cement company, is using the same core methods to sell its premium-priced cement to increasing numbers of lower-income do-it-yourselfers who join patrimony-building clubs. CEMEX had been selling branded cement to the do-it-yourself market for many years without even realizing that it was selling a transactionally complex product. Because of the nature of Mexican building – which is like lower-income building in such diverse regions as Egypt and Indonesia – CEMEX is in the business of selling homes rather than cement. Cement is the core product for building a home, and the customers' basic difficulty is being able to save in order purchase cement, followed by the other materials needed to construct a room. The cost of such purchases runs at three times the average monthly salary. Collecting three month's wages seemed impossible to most. If CEMEX wanted to increase share among do-it-yourselfers without slashing prices, management saw that they would have to sell, in addition to cement, a home-building system like Grameen's group-lending system.

In the U.S., First Community Bank of Fleet Bank, a bank within a bank, has broken with the typical U.S. style of making offerings to poorer people. Instead of offering heavily promoted products at interest rates high enough to match the risk, First Community aggressively pursues cultural innovations that it develops jointly or that have been developed by others. First Community prides itself on taking a portfolio approach to cultural innovations, and for working on them more vigorously and more successfully than any of its competitors. See the box on page 26 for more on First Community and an account of two cultural innovations in its portfolio.

These companies distinguish themselves from others who enter these markets by their insistence on respecting the market's ability to pay for genuine value. They can have this respect because they shift the paradigm of how they view customers. These companies do not treat their customers as consumers, but as producers, who purchase products to use them to enhance their productivity and hence overall wealth. To offer production-enhancement systems to these people, these companies have to see them as producers in culturally meaningful terms. Companies have to provide a system that overcomes, in an acceptable way, the cultural obstacles to greater productivity. In short, they understand their customers as producers and sell them products with production-enhancement systems that produce cultural innovations.

Cultural innovations are enabling companies to define new markets in which customers see standard competitors as increasingly irrelevant. These companies are thereby gaining first-mover advantage in revenues, loyalty, and profits in low-income markets. Because of the low trust levels in these markets, a first-mover advantage in loyalty enables a company to sustain its advantage in profitability more easily than in other markets.

From the Consumer Paradigm to the Producer Paradigm

The reason for looking at low-income customers as producers is simple. They can at best barely pay for transactionally complex goods at their current levels of income, and they are not well positioned to raise their income levels in the near future. A company that can provide them with a culturally appropriate system of production, that can help them afford what sells as a consumer good in the first world, can not only achieve sales at first-world prices but also increase the purchasing power of the market for additional sales. Muhammad Yunus, a former economics professor and founder of the Grameen Bank, is clear about the paradigm with which he is breaking. "Microeconomic theory views individual human beings as either consumers or laborers and essentially ignores their potential as self-employed individuals." Yunus has built the Grameen Bank around the vision that all human beings are entrepreneurs. Consequently, Grameen does not make home loans to the poor but rather loans for their factories, their productive facilities, in which they happen to live.

The shift from treating low-income customers as consumers to treating them as producers is subtle. Consumer goods promise consumers pleasure in the form of needs met and desires fulfilled. Consumer goods with strong brands are also a sign of achieved status. In contrast, productivity-enhancing systems promise producers a refinement of abilities that they will appreciate and from which they can profit. For a company that sells to financially constrained customers, a minimally acceptable enhancing system must improve the wealth of its purchaser. Customers must also understand what they are doing in the process. That is part of what it means for the system to be culturally appropriate. In many lower-income communities in many parts of the world, first-world planners could improve customer wealth by a variety of efficient financial and other tools. The obviousness is indeed the ground for failure. "Put your money here and watch it grow faster than you have ever seen before." Or, "Build like this and you will have equity in no time." Such offerings are not uncommon from businesses that have glimpsed the opportunity for helping customers as producers. But productivity-enhancing systems that seem obvious to first-world designers fail precisely because they are culturally inappropriate. A good rule of thumb is that if people are not doing something that is obviously a better way, it is because they find that doing things in that way interferes with their often inarticulate sense of a good life. Productivity-enhancing systems should give customers a certain sense of familiarity and ownership as they enter a new world. As a result of their ownership of the system, customers of Grameen and CEMEX talk proudly about the companies' success in helping them to overcome their resignation and take on a new set of ambitions, which, importantly, involve purchasing products in increasing amounts. CEMEX's customer Rosa Maria Sepulveda says, "We were living with my in-laws and it looked as if we were never going to build. With Patrimonio Hoy [CEMEX's patrimony building system], we are already finishing the second room. We have already changed our plan four times because we keep on thinking of new additions that we want to add in the future."

Under consumption standards, inciting a customer to return counts as success. Within productivity-enhancement standards, inciting a customer to return with higher aspirations counts as success. The Grameen Bank expects to give loans of escalating values to all of its members: a first loan for seeds; a second for seeds and a cow; a third for seeds, a second cow, and a store; and so forth. Likewise, CEMEX finds that aspirations increase – if the customer aspired to one additional room at the beginning, they would soon be wanting three additional rooms. Such companies as Martha Stewart, Home Depot, and Weight Watchers already treat their middle-class customers this way and might be harbingers of a new general producer economy. Grameen generally makes its first loan to its customers, especially poor women (94% of its loans go to women), so they can buy supplies to grow a home business, such as weaving bamboo. CEMEX likewise sells the poor a system for systematically adding rooms. Understanding customers as producers requires rethinking offer (or product/service) design in order to make sure that purchases will not simply satisfy a momentary need, but give the customer a qualitative change in life. That change must be measured in the customer's terms. Yunus tells the story of how the Grameen Bank takes Bangladeshi beggars who are generally living hand to mouth and puts them into a loan program that within one year will enable them to own a house, cookware, and new clothing, an equity increase of approximately $14. Such a little increase means virtually nothing in normal banking terms, but in the customer's qualitative terms, it is a movement from one world to another, from the life of humiliation to dignity. Likewise, CEMEX puts its customers in a patrimony-building club, which within 86 weeks turns an approximately 14,400-peso investment into a room worth 19,800 pesos. That represents a change from barely being able to take care of a family to establishing a sound footing for the family.

Unlike affluent or middle-class communities, lower-income communities tend to be highly networked and suspicious. That changes how customers are engaged. Both CEMEX and Grameen have found that it takes much courage to engage in a productivity-enhancing system, even one that provides ownership, can be understood, and produces a qualitative change. Therefore, these companies have found that they have to work with groups of customers in order to enhance mutual support, monitoring, and recognition. Without building some sort of group or network apparatus, customers will get overwhelmed with fear and isolation.

The table below shows the main points of the change in paradigm and the key areas where these changes have effects that enable a company to enter a financially constrained market.

(Table 1)

To make the necessary shift in paradigm, a business has to master three competencies mentioned in Table 1:

1. It must be able to distinguish what would count as a qualitative improvement in life, from the customer's point of view. This requires understanding and intervening with the customer's social values.

2. The business has to be able to design an offer that systematically enhances the customer's health, wealth, and wisdom, while remaining familiar enough so that the customer can own it. This is the work of cultural innovation.

3. The customer engagement process has to include community building, which requires a customer engagement model.

Cultural Innovation

Cultural innovation involves determining how to make a qualitative difference in the productive lives of customers, and how to enable them to find it a familiar enough change that they can take moral and emotional ownership of it.

Making a Qualitative Difference

Companies that are successful with lower-income segments make offerings that are experienced by the customers as making a significant qualitative difference in their lives. What counts as a qualitative difference is not simply what looks like a qualitative difference in the eyes of the middle class in the U.S., or even the middle class in the emerging economy.

The experiences of the two leading Mexican cement manufacturers, CEMEX and Apasco, show the problem of making judgments about the lower-income segment from middle-class eyes, even Mexican middle-class eyes. Managers at CEMEX noticed that customers had trouble getting the normal-sized bag of cement home, and then additional trouble using it all before it spoiled. As a consequence of these observations, CEMEX produced competitively priced smaller cement bags. Apasco went even further. It saw the enormous inconvenience low-income do-it-yourselfers experienced in both purchasing supplies and building their homes, and offered both convenient retail sites and technical advice. Both CEMEX's and Apasco's offerings flopped. CEMEX did not take adequate account of the sense of accomplishment and pride that a bag of regular-sized cement in front of one's house symbolized. Apasco did not take into account the pressure to perform that its sites put people under. In both cases, these companies' offerings failed because they did not understand the social values of people in the targeted segment.

Making a qualitative difference in the life of people in a segment requires more than observing their practices through the eyes of efficiency and convenience. It requires understanding the social values that guide people's lives. Once the social values are understood, an offering that makes a qualitative difference in a person's life has to meet two criteria:

1. It has to give a member of the segment something that is already highly valued by the segment, which means that it accords with the good life as marked out by the community's traditional values.

2. For the qualitative difference to be felt, the offering must bring members of the segment something that they have become resigned to not obtaining. This means that it must accord with a modern value that members of the lower-income community admire in others, but do not feel comfortable applying to themselves.

Even companies with sophisticated marketing tend to fail on one or the other of the two requirements. Yunus understands this dynamic well. The Grameen Bank loans its customers more money than they thought they would ever see all at once. In that way, the bank meets the second criterion of undoing feelings of resignation and making them feel a part of modern economic life. Nevertheless, the Grameen Bank has to be careful to lend an amount that still makes sense as part of a traditionally understood good life. If either the amount of the loan or the amount of the repayment is too large, then it no longer is part of the good life but something fearful. Fearful sums paralyze borrowers. A similar mistake occurs when companies believe that a high-tech product is an obvious good. It is fairly obvious that an inexpensive Internet appliance could help low-income customers get over the feeling of resignation that they are cut off from the information age. Few who are making and marketing Internet appliances to various low-income segments stop to wonder about how these people value time spent answering mail or working alone. In our research, we found that in a number of low-income communities, such time was understood as an onerous duty. Connection to other people is especially enjoyed in relaxed face-to-face encounters in the neighborhood and in the family. It is no wonder that inexpensive Internet mail appliances are ignored. They do not accord with a traditionally understood good life.

It is important to emphasize that most of the time low-income people do not feel resignation over not having things that are too expensive. They often have no taste for the expensive item and do not despair of getting it. Resignation generally occurs when low-income people feel that they are being pulled by two different social values – a traditional one and a modern one – to regard products or services in two different ways. Pious, poor Bangladeshi women certainly valued being able to make their own handicrafts and sell them. Doing such work was part of having autonomy, a fairly modern value. However, good women let their husbands handle money. Additionally, good Muslim women did not believe in paying interest. So when it came to borrowing money to make and sell handicrafts, the social values according to which they lived left them vexed. Even if they wanted to use a bank and a bank would make a small loan, they could not pay the interest. Yunus had to find a way of bridging the differences of these two values: a sense of autonomy and piety. Offerings that bridge such value conflicts we call cultural innovations because they change the way in which members of a segment relate themselves to their cultural values. Before cultural innovation, they find themselves in a hopeless conflict. Afterwards, they find whole new domains of action open to them.

The most difficult part of identifying value conflicts comes in overcoming the view of the customer. Consumers are needy, desiring beings. They want satisfaction. Low-income producers are builders, transformers, and balancers. They want new visions and systems for success. In serving consumers, companies entering low-income, ethnic, and foreign markets look for unmet expectations, breakdowns, and problems that members of these segments have with certain products. They typically see inefficiencies, inconveniences suffered, and technical problems. They do not, by and large, succeed. Companies that make successful offerings to these segments research unspoken resignations. They examine the roles in which various offerings make sense – women living under the constraints of Islamic tradition (the purdah) see their roles in dressing, working, and talking to friends differently from the way Western women do. They understand how modernity is affecting traditions. These companies then seek to take their products and transform them into systematic offerings that will enhance productivity within the lived roles, and will align modern and traditional lives.

The table below summarizes the difference in looking for unmet needs as opposed to value conflicts:

(Table 2)

In developing its view of the low-income, do-it-yourself segment, CEMEX detailed the value conflicts that stood in the way of both better financial and better building practices of the workers. On the one hand, these do-it-yourselfers lived in a festive society in which people were given a certain status at birth, which it was shameful to violate. To maintain status in the community, individuals found themselves compelled to visibly spend large portions of their income on Quinceñeras [girl's fifthteenth birthdays], parties, baptisms, and other religious ceremonies. On the other hand, they lived on the edge of the transactional world of modern commerce where one sought to get ahead and improve one's life. Communal expenditures severely disrupted attempts at disciplined planning. Out of this conflict between traditional life and modernity sprang a number of value conflicts that led to resignation over both long-term saving and long-term building plans. On the one hand, a low-income do-it-yourselfer found that planning too much was an insult to God and fate. On the other hand, planning brought about positive outcomes. The tables below show the basic conflict. As a result, the segment had insufficient and inconsistent savings practices along with inadequate or non-existent building plans. This made for highly inefficient material purchases and utilization and a frustratingly long period of four to seven years for the completion of each room.

The two tables below show the conflicts CEMEX managers found in cultural tradition and in critical values.

Culture Conflicts
Traditional, Status Culture

Personal identity and reputation based on place in social network given at birth and confirmed by patrons. Modern, Socially Mobile Culture Getting ahead in possessions, education, and work status define one's identity.

(Table 3)

Value Conflicts

Fate or God determines outcomes. Therefore, planning is arrogant, particularly for more than a year. Planning and Regular Execution determine outcomes. Therefore, believing in an individual fate is foolish.

Family and Community Festivals put you in touch with meaning of life. Work to live. Failure to take part produces shame. Organizing people to act for the good of all makes life meaningful.

Patrons and Authorities are important. Important relations are hierarchical. Patrons give and forgive loans. Negotiated or Contractual Relationships are important. Important relations are equal.

Envy & Distrust (Win-Lose)

Anyone who gets ahead has taken something that could have been shared. Self-Motivating Attitude or Echarle Ganas

Working at something with a good attitude can get you ahead.

(Table 4)

Grameen's customers, mostly women, live with similar value conflicts. Their customers are comfortable with the role of handicraft producer, which fits well with the Bangladeshi traditions concerning gender and Muslim traditions surrounding the purdah. The role of the autonomous entrepreneur who borrows money and builds a business is quite new to these women. It entails significant value conflicts, many of which are similar to those in Mexico. For instance, in Bangladesh, pious women are supposed to let men handle money because commerce is masculine.

Women do not create value; they drain it. Producing handicrafts and selling them to traders is good because it reduces the drain, not because it produces autonomy or entrepreneurial behavior. Yet, many of these women are beginning to experiment with their businesses in search of an autonomy that they cannot well articulate. Cultural innovation begins with identifying value conflicts, particularly around roles that people are beginning to try out such as building a patrimony in Mexico or building a business in Bangladesh. Any offering that can bridge these conflicts will be experienced as a positive qualitative change in life.

Designing Offerings Around Ad Hoc Cultural Practices

Once it is clear which value conflicts low-income customers would face in using a company's core product – cement, business loans, computers, cars – efficiently, a cultural innovator seeks to identify ad hoc practices that produce economic value and at the same time bridge the value conflict. Yunus saw a number of ad hoc lending practices (or bridge practices) in place to enable women to engage in handicraft businesses. Generally traders will lend small amounts of money to handicraft workers to purchase the supplies for their crafts. Sometimes the loans are at no interest, but most of the time traders follow the custom of dadan in which they lend a small amount of money for production supplies and negotiate at the same time a below-market purchase price for the products. This custom usually prevents the handicraft producer from ever getting ahead. Yunus also saw that within the constraints of the purdah, women had practices for giving each other support and felt shame if they let another woman down. Likewise, the CEMEX innovation team came across the practice of the tanda, in which ten low-income people would join together for ten weeks. Weekly, each tanda member would contribute 100 pesos to the pool, which one person would "win" each week according to a lot drawn in the first week. In that way, each could have the fortune of receiving 1000 pesos all at once.

Each of these practices enhanced economic productivity and bridged a number of value conflicts. The usurious dedan gave women small amounts of money with which they tried to achieve some measure of autonomy – at least to avoid begging – through production of handicrafts. Yet the loan enabled women to feel secure in their piety because no interest was collected. The tanda worked in a similar way: It mixed the fate of the lottery, the celebrative tanda meetings, and the sense of potential shame at missing a payment, with an appreciation of organizing (in forming and joining a lottery), a plan-like commitment to pay, and joining others with a good attitude for getting ahead. Joining a tanda involved having a plan (to spend 100 pesos each week and to spend the 1000 pesos on something particular) and not having a plan, since most of the time the 1000 pesos got spent on the current emergency.

Designing the new offering that will provide a qualitative difference in the customer's life amounts to transforming those practices into a system around the core product. Such transformation involves thematizing the goal of these practices, intensifying their sanctioning mechanism, and institutionalizing them as part of a regular business offering. Thematizing means identifying the goal the business will set for these practices, the productive behavior it will enhance, and articulating the core promises of the business. Intensifying the sanctioning process means identifying what social mechanisms make people responsible and bringing them to greater prominence, even formalizing them into rules with duties and damages to be paid if they are broken. Institutionalizing means designing a structure for delivering the offer that primarily identifies the role the customer will play in regard to the business, and the market category of the business.

The table below summarizes how an ad hoc bridge practice is turned into a system that enables a company to offer a premium-priced, transactionally-complex product.

(Table 5)

Thematization

Like others who have value conflicts, low-income people develop bridge practices for navigating between the conflicting values. Again, like others, they seldom realize that the bridge practices they have are the seed of a new way to live, because the practices seldom have a focused purpose. For instance, people join tandas to build their homes. But they also join them to purchase appliances. They join them to help others out and to be with others. Most of the time they spend the money on "emergencies," which are mostly communal celebrations of one sort or another that just happen. The cultural innovator has, therefore, to determine the particular achievable goal that will bring out the practice's value-bridging function. Companies must articulate that goal in terms of a theme that sets the basis for the core promises of the new business to the customer. CEMEX chose building patrimony and Grameen chose credit as a right. The theme is not solely an advertising or communications ploy. Rather, it is the basis for designing the promises attached to the central offer.

Determining the theme is a matter of careful design. CEMEX sought to articulate for customers a sense of "getting ahead" that could fit with such a traditional festive community. Within the community, building a home was understood both as getting ahead and as building a patrimony, a family home that would be passed down. As such, it was also a statement of solidarity with the traditional community. Thus, building a patrimony captured concretely both getting ahead and remaining a member of the traditional festive community. Once this theme was identified, then simple research showed that members of the low-income community understood building patrimony as building at least a room. The tanda practice was then dedicated to achieving this goal. Instead of saving for ten weeks, people were required to save for 70 weeks. Instead of receiving money, a participant received the materials to build a room. The offering promised that people would build patrimony – one room today – in contrast to having a vague hope of a family home someday. CEMEX also promised high quality materials and technical advice as parts of the offering, because it wanted to be sure that the homes produced would serve as monuments of the value of the offering.

Yunus, and his Grameen Bank, thematized his offer as the right of credit for poor people. In calling his offer a credit offer, he eliminated the vagueness of the customs engaged in by traders and aligned it with modern business. Guided by the theme of credit, he redesigned the simple usurious practices to maintain simplicity and provide the normal benefits of credit. Thus, Grameen made loans for as little as would help a small business; the bank grew 20% per year, collecting every week starting one week after the loan was issued, and lent strictly for fifty weeks. By thematizing his offering as a right, with all the universal connotations, he called attention to the necessity of making it fit his borrowers' concerns, among which was Islamic piety. Guided by the notion of a right, he drew on the purdah practices, with which the vast majority of his borrowers had experiences of rights. Thus, Grameen lent to groups of five borrowers, normally women, who were jointly responsible for proposing the loans, and who would lose the opportunity to borrow more if any one of them defaulted. Last, Yunus made the women members of the bank to avoid any violation of Islamic law regarding interest. This set up the basis for the central promise to the customer: giving credit without collateral to poor people (mostly women) who want to grow their productive capacity. It is also worth pointing out that while many design elements are based on particular practices, they can translate to other environments where there are similar practices. Yunus has managed to export his credit practices to groups of women in other parts of the world. He has even had success in such individualistic places as Chicago, where the poor women found the practice valuable as a way of reducing their isolation.

Intensification

No matter how familiar the transformed bridge practices are, the rigor with which they are focused on the announced goal will be disorienting and thereby stimulate some fleeing behavior. Consequently, the offer designer has to intensify the sanctioning mechanism in the traditional practice, and shape the new offer so that the sanctioning power is both familiar but stronger than is customary.

In Mexico, it is rare that anyone defaults on a tanda payment. Unlike payments to patron-like institutions, which should forgive a default if a borrower does not have the money, failure to give money owed to a fellow neighbor is a breach of civil conviviality and causes a significant loss in status. A nonpayer could even be ostracized from festive gatherings. But the tanda practice does not have a specified punishment for a nonpayer. In developing Patrimonio Hoy, CEMEX found that the shame effect was felt whenever at least three people entered the system together. It formalized exactly what penalties a defaulter had to pay and how the group would be penalized as a whole. Ostracism was retained as the basic penalty. Members of groups with a non-reconciled default are not allowed to join other groups or receive any other benefits of Patrimonio Hoy. In order to bring out the responsibility of monitoring and collecting even more formally, each group has to elect a new leader, or gestor, every ten weeks, who is precisely responsible for keeping the group out of default.

Yunus's biggest achievement in intensifying the normal sense of responsibility and shame that comes to such groups of five women developed out of his additional requirement that the women become part owners of the Grameen Bank. As such, he requires that they take a week-long course on their responsibilities as bank members and individually pass an oral examination. Each has to pass before the group is authorized to receive any loans. Thus, Yunus causes them to institute shared support, monitoring, and governing practices in undertaking the formal educational program, before anyone obtains a loan. The practices of monitoring, supporting, and governing that they develop in taking the course are applied to each other as fellow borrowers growing businesses. Grameen intensifies the sanctioning power further by staggering the issuance of loans. The first two members of the group to receive a loan have to be nominated by the group, and then they have to pay for six weeks before the next two can become eligible for a loan. The last member of the group has to wait an additional six weeks. Yunus found that these groups not only monitor and support each other but also compete with other groups to run the most successful businesses. In order to make monitoring something other than fearful suspiciousness, Yunus established that groups have access to their own emergency funds and that they can apply to the bank as a group for an additional emergency loan. Finally, if there is a default that is not quickly corrected, the whole group is barred from additional loans.

Institutionalization

Institutionalizing the bridge practice means establishing the appropriate relationship between the new business (or new business channel) and the customer and then making the offer a new, recurrent part of the customer's life. Creating a new customer relationship for this segment requires defining the kind of organization that customers are going to deal with, so that customers do not fall back into old habits of business dealings. In order to fix new habits in place, the new category of business must relate itself to the customer by means of a new customer role.

CEMEX and Grameen did this in different ways: CEMEX created a Patrimonio Hoy Club that members join. Grameen has its customers become part owners and hence members of the bank. In both cases, the relationship to the business, the organization of the business, and the category of the offering is new for members of the segment. In each case as well, the new organization bridges the conflicting modern and traditional values.

Before settling on the club as the means to institutionalize the Patrimonio Hoy system, CEMEX toyed with partnering with social workers and mason education programs to create a more educational business. There were also discussions about running Patrimonio Hoy programs from the local corner store in order to emphasize familiarity and to simplify making payments. Basing Patrimonio Hoy in the local stores gave customers such a familiar sense that they quickly became focused on looking for bargains. Managers also found that the educational partnership, while it clearly drew attention to the new system,would quickly look like a form a patronage and weaken the sanctions for the weekly payments. The club arose as a way to combine an educational approach with a festive communal conviviality with planning. The club was also more commercial, which was necessary for customers to appropriate their new role as members who received services they paid for rather than being beneficiaries of a patron-client relationship. Indeed, to keep it commercial, the club emphasized many aspects of a preferred buyer program, including friendly attention, high-quality goods, and service.

The Patrimonio Hoy club became the institution which customers could join and build patrimony one room at a time. They received services to help them with the tanda-based saving and credit system – friendly delivery, warehousing, technical assistance, masonry certification, construction classes, and other club benefits. As club members, customers saw that they were purchasing a status in the community as a preferred customer who is getting ahead (a new value) by building patrimony (a bridge) in the beloved community (an old value). They did not compare belonging to the club and using a system to build a room with the price-sensitive shopping they used to do at the local dealer. As we will see below, CEMEX worked hard to design the experience so customers would not compare prices. They achieved this. In customer testimonials, customers expressed: "The fifteen pesos a week fee is nothing for everything I receive. " Nothing like the club existed in these communities before. It is clearly a channel that could be used for more than building materials. Indeed, cultural innovators at CEMEX are looking ahead to using it to upgrade utilities and build roads.

In offering credit within a traditional Islamic culture, Yunus had a strong pragmatic reason for making his customers members of the Grameen Bank. His customers could remain pious by paying interest to an institution of which they were part owners. Yunus could have left bank membership as a background device, as it usually was in the old savings & loan structure in the U.S. Instead, he raised its profile. As members of the bank they take on the role of responsible risk assessors. They do that first with members of their own groups, but they also meet weekly with seven other groups in each town to take up the affairs of the groups. They assess requests for emergency loans, as well as discussing business ideas and how to respond to upcoming economic and climatic conditions. They even look for ways to extend the bank's offering. One member of the eight groups is elected a chief who will play a key review role in evaluating all loans issued from that branch. Although these meetings draw on the practices of women meeting together under pious purdah conditions, they also reflect the role of small entrepreneurs advising a bank, more or less as a local board of directors, assessing the risk of the local branch's portfolio.

Hence, the offer of credit is made through membership with ownership in a bank in which the other owner-members are women. For this segment of the population, such anorganization is utterly new. Yet, although the category of borrowing by becoming a bank member is new, the Grameen Bank bridges between piety (old value) and entrepreneurship (new value). Precisely by being such a bridge, Grameen can appeal to customers to take up the role of risk assessor. Borrowers become risk assessors to enter Grameen, and within that role, their primary duty or new behavior is to make their own businesses into good credit risks.

Instituting a business as a particular category of organization sets up a background structure in which customers will deal with the changes they will come to experience. The category also sets in place the general style of the business's dealings with the community. To ensure the growth necessary to create a successful business focused on offering transactionally complex goods to low-income communities, a distinct customer engagement process has also to be established.

Groups, Networks, and Communities

Both Grameen and CEMEX have found it best to make their basic offers to groups of customers, for similar reasons. Groups have a shame and monitoring mechanism that keeps customers honest. In addition, there are other mechanisms. In the U.S., Fannie Mae, teamed with the Housing and Urban Development Administration (HUD), has found that it can with sufficient safety give loans to people who have taken certain certified HUD courses in financial management and responsibility. These loans are issued to individuals. Nevertheless, in such cases, the loans are made to people who are in a network that they can draw on for mutual support. Successful cultural innovation requires such networks so that customers who purchase culturally innovative products can receive mutual support, gain acknowledgement, and develop ways of talking about their experience. Such networks are more critical with cultural innovations than with other kinds of innovations, because of the high level of envy and suspicion in low-income communities. The members of these networks tend to live in communities that are mostly geographically based and non-volunteeristic. Yet the members in these communities tend to have a stronger influence over people than do members of middle-class communities. For that reason, it is always critical for a business to attend to a network that can maintain itself and influence the wider community.

Customer Engagement Model: Four Phases of Customer Engagement

Since cultural innovations involve a change in the customer's basic practices to resolve a conflict between traditional and modern values, and at the same time enable the customer to become more productive, the engagement with the customer has to be as carefully worked out as the offering itself. While a qualitative change of this sort in a customer's life opens up new possibilities, it can also produce fears about the future, a sense of isolation from neighbors, and an inability to talk about what is happening. Businesses and other social groups have confronted such customer situations before. The best analogies are Weight Watchers and Alcoholics Anonymous. Depending on the business and change involved, a more festive club like Harley Davidson's HOG can also serve as a model for managing the change in the customer's life. Indeed, looser networks can sometimes be established. People who stay in touch because they took a class together could be one. Whatever the interaction strategy, whether a tight group or loose network, the engagement with customers must help them to recognize and receive acknowledgement from each other for the qualitative change they are undergoing. There are four basic phases of this recognition-acknowledgement process: overcoming resignation; contractual initiation into the new practice; support in keeping up the new practice; and communication of the achievement, advocacy, and scaling up.

Overcoming Resignation: Interactive Sales and Marketing Engagement

With cultural innovations, customers need to recognize that something they have rightly felt conflicted over can be had without doing harm to their way of life. No mass-marketing promotion and coordinated sales presentation can produce such recognition. Mass marketing is important for creating a program's credibility, but in cases of cultural innovation, much more is needed. Customers need to engage in intense exploratory conversations and frequently hear accounts from previous customers. The interactive sales and marketing experience must allow people to acknowledge that they are resigned about doing any better than they are while at the same time enabling them to acknowledge that the culturally innovative offering is a genuine way to make the improvement. In order to achieve a recognition of resignation and motivate the will to overcome it, a company must work on building trust followed by an experience of the offer that is emotionally accessible. The offer therefore has to accord with their way of life. The main challenge in the initial interactive sales engagement, then, is to give them a taste of their new roles and their new behavior while enabling them to feel it as their own.

CEMEX found that to build trust, it had to set itself up as a credible institution and draw on authentic voices from the community. To increase its credibility, it leveraged its local brand by issuing identity cards to all authorized Patrimonio Hoy representatives. The cultural innovators designed the sales and marketing experience to include testimonials from customers in the pilot. Patrimonio Hoy managers recruited and trained respected, local community leaders to spread word of mouth and to motivate people to build patrimony. These community leaders made the initial contact with the community members and recruited people for interactive sales meetings led by CEMEX sales representatives. To ensure that trust remained through the meeting, it began with a sales leader giving an overview of the CEMEX institution and of its intentions to be a part of the community.

To enable potential customers to recognize their own resignation and to give them a taste of what it would feel like to be a patrimony builder, CEMEX designed a series of interactive scripts. These scripts drew on a number of classic consultative sales approaches. The key, however, was making sure that the potential customer could experience what his new productive – not consumer – role would be. CEMEX saw that customers had to experience a sense of themselves as active patrimony builders, not as people hoping for a new room to watch the television channels that others do not want to see (which could be an alternative way to sell cement, although it would not give customers the productive capacity to pay). So, for instance, Patrimony Hoy sales representatives would ask customers how long it had taken them to build their current living structure, how many years it had been since they had built anything, did they have experience with any of various challenges, had they entered tandas with the intent of building, could they see themselves as members of a club for saving and building. The scripts were designed to enable customers to identify their challenges and then look at them in light of the system for working on patrimony. That would be their first experience of the new behavior. As with other programs for changing habits, customers had to say something along these lines: "I realize that I am not progressing on constructing my home, and hence not building something for my family, the way I am doing things now. But Patrimonio Hoy seems to be a credible and achievable way for me to advance on building a patrimony." The group sales environment allowed people to identify with the aspirations and challenges of other people in the community, making it much easier for them to recognize both their resignation and the real possibility of joining Patrimonio Hoy.

Finally, in order to make its promises of care for the community credible, CEMEX began organizing regular events in the community to recognize the success of those that have achieved exceptional patrimony advancements on their homes. Potential customers could then experience not only CEMEX's commitment but also the act of giving recognition to fellow community members for their patrimonial achievements.

Yunus describes Grameen's sales process similarly. Frequently, a bank worker would walk to a village and find a place where she could talk to a number of women at once. The conversation would be wholly interactive. The bank worker would get the women to talk about the handicrafts that they engaged in and how they purchased materials. In this way, she would be able to get the potential customer in touch with her aspirations and challenges in the productive domain. Once a number of women began telling their stories, a shared account developed. Then, the bank worker would ask what would happen if they could get the same quantity of materials for less or more materials for the same amount. As is the case in CEMEX's Patrimonio Hoy, selling in a group environment allows people to identify themselves with each other and to develop even more trust in the potential sale since they are able to experience the account as shared. Yunus is clear that bank workers have to move slowly and play the role of teachers who draw their students out. Bank workers have to be genuinely concerned about the businesses of potential customers. The subtle though critical point in these sales efforts by both Grameen and CEMEX is to get potential customers to imagine themselves working better, not necessarily having more. Appealing to members of the low-income segment as consumers triggers either price sensitivity or a sense that the offer is for someone else.

Once it is clear that lower lending rates would benefit at least the more courageous women, the bank worker begins to explain Grameen and its rules. At this point, the women are likely to say that such discussions are for their husbands, that interest is sinful and will cause them to go to hell, or that they have heard that Grameen will kidnap them and sell them to Christians. The bank worker has to speak to the concerns as a teacher, never anxious to make a sale. Part of any sale comes from a demonstration of the bank's persistence and care for its clients. So bank workers answer the first day's questions and then come back the next to answer more. Such persistence shows respect and trust for the experience of the customers. It takes time for these women to see how the bank's practices fit with traditions they already understand, especially as it also offers them something that they have never experienced before, financial autonomy. As the sales process progresses and the women talk to and negotiate with their husbands and their families, they begin to get a taste of respect for the autonomy that the bank gives them. By experiencing some aspects of the new behavior in the sales process, it becomes comprehensible and achievable. Indeed, when Grameen Bank establishes a new branch in an area, it sees the gradual elimination of fear and the transformation of these women from handicraft workers to autonomous entrepreneurs as so important that the first year's goal is to create only 100 customers from the most courageous. Word travels fast among women in the purdah. The success of 100 during the first year will produce necessary growth in the following years. In both the CEMEX and Grameen cases, customers must at first come slowly to see themselves as potentially more successful producers. That experience makes the sale.

Experiencing a New Transactional Equality: Formal Initiation Rights and Contract Management

Low-income customers need an initiation experience in which they acknowledge that they are making serious commitments to each other and to a company as transactional equals who freely act to bind themselves on terms they understand. Such a footing is taken for granted among the affluent, but is a relative novelty among members of the low-income segment. Failure to signal the new dimension of this transaction will ultimately lead low-income participants to disavow their new status, produce resentment, and disastrous word of mouth. The tendency to slip into vague patron-client or other hierarchical relations, where the patron takes care of the client in return for loyalty is very strong. The company has therefore to create simple agreements with terms clearly binding on each. Customers must understand how the terms bind each and how enforcement will take place on both sides.

Patrimonio Hoy managers designed the experience of becoming a club member around generating the feeling that a business institution trusted the members as a group and that there would be consequences for all members if that trust was broken. For this purpose, CEMEX instituted a contract management role different from the sales role. The contract manager would sit down with the group members and walk them through the rules of the contract and club they were entering. These managers made very clear the consequences for all group members if payments were not made on time. This role was designed so as to emphasize customer understanding and commitment rather than one of overcoming resignation to close a sale. Moreover, Patrimonio Hoy managers are currently instituting an entrance test that club members will take, about their mutual responsibilities with the club. It is critical that the test, the membership agreement, and every other document be simple enough to be well understood. Drafters of these documents have to be constantly on the lookout for consequences that these customers will understand as hidden, as such consequences can build distrust, resentment, and harmful word of mouth.

Simply making sure that a contract was linguistically simple and drew on common notions of action and equity was not enough to produce a new experience of transactional equality and responsibility. The very simple basis of Patrimonio Hoy's system – building a room at a time – had to be made real. Research showed that asking about the dimensions of the room to be built intimidated these customers. They never really contemplated a whole home, or even its stages. Homes were as fluid as life. If a daughter was divorced, then a new room was needed. This lack of planning led in the past to all sorts of construction problems. It also interfered with having a genuine meeting of minds that would breed genuine responsibility. Consequently, CEMEX instituted a second element to the initiation process. A construction advisor would sit down with customers to help potential club members figure out the room that they wanted to build in the context of their more general future plans. Operationally, such a role was needed in order to identify the supplies that these customers were signing up for. But even more importantly, the construction advisor talked customers through dreams and scenarios in order gradually to bring them back to a specific plan for a specific room, which looked much more achievable by virtue of the process. In the light of this conversation, they could see that there were indeed mutual promises and expectations. They were promising to engage in weekly saving, building, and periodic receiving of goods, and Patrimonio Hoy was promising to deliver goods of specific quality and quantities on specific dates. The initiation into Patrimonio Hoy, then, meant agreeing to a contract, as people became convinced that they had seen the future and could live it. Only such an experience really enabled them to sign with a genuine sense of responsibility.

Grameen not only requires its customers to form groups in which each member endorses and shares responsibility for the plans of the others but also requires each group member to join the Grameen Bank and undertake a separate set of responsibilities as an owner. Thus, Grameen establishes the first group activity as studying for the oral membership examination. The examination covers the rights and responsibilities of Grameen customers and owners.

Most of Grameen's customers face this examination with much trepidation. Since they have had little if any formal education, most have never been through an examination let alone had ownership shares in a large business institution. Not only that, each group member understands that if she fails the exam, the entire group will have to go back and study again for some extended amount of time. The one who fails will be shamed, will feel foolish in front of her equals, and will delay the loans they could receive. Thus, studying for the exam puts in place the basic group mechanisms of shame and also mutual support that will ensure impeccable behavior for the duration of the customer's relation with Grameen. On passing the test, the new members experience themselves anew as entrepreneurial business people. They are not just trainees but are on an equal status with other longer-standing group members and voter-owners who will make determinations about how Grameen is run. Virtually none of these people has been trusted or felt that she has earned so much trust before in her life. And they have to act with new responsibility right away. They decide who among their group applies for the first loan.

Experience of New Social Behavior: Support Group Formation and Recognition

When low-income customers begin to engage in regular savings, payments, building, or any other highly disciplined activity away from formal jobs, they feel cut off from their normal comforting behaviors and fellowships. Additionally, the network of fellow customers they become connected to is unlikely to be the same as their familiar convivial community. Customers come together over a shared concern in a certain kind of productivity, not neighborliness. So even the new network of fellow customers does not make up for the lost simple pleasures. These changes then will create loneliness, self-doubt, and fear, all of which will need to be managed, because these experiences can be so strong that customers might well drop out of the programs and never return. Moreover, since these customers are acting in a new way that is not well understood by them or by their communities, both small accomplishments and slipups need to be recognized for what they are. The sponsoring business might even have to lead the way in showing members of these customer networks how to support each other morally and emotionally. For those companies that have succeeded in these markets, these negative emotions are the opening to create a new channel that can be used for additional offerings. To manage the negative emotions, companies must establish support groups or some other form of networked interactions among customers. The weak ties that customers feel toward each other need to be strengthened with the unifying theme that brings customers into a relationship with one another. "Why are we going through this?" the customers ask. The systematic interactions will allow customers to fill in the theme, with answers such as: "We are doing this to build a patrimony for our children." "We are doing this to become financially independent." Or, "We are doing this to live longer." So long as some credible theme is generally articulated, the new network forms the basis of a new channel.

In its pilot, CEMEX found that customers were experiencing both isolation and an inability to communicate credibly. Because they were engaged in weekly, disciplined saving, they could not freely engage in important community festivities such as quinceñeras. Since spending freely for such celebrations is a prerequisite of community status, joining Patrimonio Hoy seemed to be the cause of a diminishing sense of self. This decrease in personal status was compounded by the isolation arising from family and friends who simply did not understand what was going on. Customers would frequently say, "My friends and family don't understand. They think that I am lying about the materials I have saved or that I am trying to act as though I am better than they are."

In response, CEMEX developed the role of retention managers who selected exemplary savers from the groups and organized biweekly meetings in which these savers would speak about their practices and be celebrated by the other club members. These savers would often say, "This is amazing. Before, I used to try to save for my house in tandas, but I would always end up spending the money on something else. Now, I am really saving and progressing on building a house for my family. I know that if I continue on this road, I will have a patrimony for my family." The meetings allowed Patrimonio Hoy members to meet others in the network that were undergoing similar experiences. Customers could share their savings achievements as well as their temptations to fall on old practices. Customers who led the sessions felt recognized and important by the Patrimonio Hoy and other club members. It is clear, as well, that at CEMEX these meetings are the basis of a channel that can be used for selling whatever products count toward producing a patrimony.

Grameen lent to groups of five and promoted both emotional and financial support among group members. Grameen structured such support into the group dynamics by requiring that each group manage an emergency savings account totaling five percent of each loan. Additionally, if a member of the group got into trouble that required assistance beyond the means of the groups own emergency fund, the group could petition the local federation of eight groups to receive additional emergency financing. A bank worker and the federation leader elected from among the groups would consult with the groups and make the decision. In order to keep the group members active in monitoring and advising each other, Grameen required each group to meet weekly with a bank worker.

As these group meetings and the federation meetings give members more and more experience assessing risk, they cannot help but see themselves as a channel for loans beyond the basic micro-credit business loans. Yunus's thematization of Grameen as turning credit into a right authorizes such thinking. Yunus himself took advantage of the channel to start making "factory" loans, which were longer-term loans for building homes. Still later, as members saw themselves more and more as managers, Yunus ended up taking over the Bangladeshi government-owned fisheries, which Grameen managed through a series of subleases. Today Grameen has a number of enterprises which developed out of the basic experience it offered members in these group meetings.

Engaging With Wider Community: Encouraging Customer Advocacy and Making Laddered Offerings

The fourth phase of engaging low-income customers is critical for long-term retention, which is a key driver of profitability for a cultural innovation. Companies can only manage retention if they are aware of how customers are fitting the cultural innovation into their broader community life. Transactionally complex product offerings, by their very nature, will tend to create a new "class" or category of people in a community. They are the people with the bigger homes or the nicer appliances. Frequently, low-income customers will feel remorse or confusion over this change. As they had a hard time talking about it with fellow customers, they will have a still harder time talking about this change in the broader community. And since many low-income communities have well-developed practices of envy and suspicion, the inarticulateness of the customers can be turned into vicious word of mouth. Given this ill-will, low-income customers will resist talking about their accomplishments and seek to "take a break." This can be devastating to the business since it starts with the most motivated, most courageous members of the community. If they do indeed take a break, credible word of mouth never reaches the critical mass necessary to build up volume.

To resist the break-taking tendency, companies must create customer advocacy and establish special laddered offerings for customers who have been through the first round. The goal of a customer advocacy program is to enable customers to speak about the company and its program because they have made it their own. To do that they have to see how the program and the new network are part of their broader community, not an isolated part of their individual lives. The first building block to customer advocacy is publishing customers' achievements in the broader community. Such publishing can take as many different forms as there are local differences. Block parties, newspaper reports, and open houses are just a few. At such publicizing events, customers will begin to speak with authority and pride about the offering to others in the community.

Laddered offerings make customers feel that their good record in the first round of disciplined activity counts for enabling them to receive even more trust and better products. In effect, it is critical to keep customers seeing ways to get further ahead and to enable them to be positively represented in the broader community. The return to the company is cross-selling, critical positive word of mouth, higher brand equity, and lower sales generation costs.

To create customer advocacy, CEMEX seeks to make Patrimonio Hoy an inherent and prized part of the community. For instance, the local offices have pictures of local network leaders and selected savers. Patrimonio Hoy also established school representatives to attend local meetings, conduct local outreach, and launch grassroots marketing programs with the local schools. A special program was established to show that Patrimonio Hoy helped the whole community, not just a select few to be envied. With each purchase, the purchaser was credited with points for gifts of building materials to local schools. Whenever a school completed something built with these gifts, the community representative commemorated it with a celebration honoring those who had contributed. To reward high performers, CEMEX established large community events two times per year. Exemplary savers, strong word-of-mouth advocates, and successful builders are rewarded at these events. In addition, CEMEX sponsors a small party whenever a member completes a room. Additionally, all members display special Patrimonio Hoy plaques in front of their houses. By establishing Patrimonio Hoy as a fixture in the neighborhood, these programs effectively combat both envious word of mouth and the sense of alienation from the community that members fear.

To determine who can ladder up and receive the next better offering, CEMEX monitors its patrimony builders closely. Have they completed their room on time? How many rooms were they building? Have others come to Patrimonio Hoy on the basis of their recommendation? Have they warehoused a significant amount of material for quite some time? If members establish a good record, then CEMEX makes an even faster building plan available. These plans feature smaller groups, earlier delivery of materials, and more credit. This laddered offering makes developing a good credit history meaningful and attainable. On being selected for the faster-building program, Patrimonio Hoy members feel more recognized as important community members. A typical customer put it this way: "They selected me and recognized me as someone responsible. They noticed that I had been consistent with my payments. They recognized me as someone who is committed to building a better standard of living, one with quality, for my family."

The Grameen Bank created advocacy by turning a cultural disadvantage into an advantage. As a bank that lends micro-credits primarily to women, Grameen is constantly hounded by mullahs who suspect its work runs against the Quran, the purdah, and Islamic law in general. Grameen is accused of kidnapping its borrowers, converting them to Christianity, and so on. Thus, Grameen constantly has to fight off vicious rumors. Bank workers are frequently attacked physically. To respond to this vicious word of mouth and brutality, Grameen relies heavily on the network that Bangladeshi women form when they live according to the restrictions of the purdah, which permits them only to assemble and speak freely with other women. For all other contact, they need to be accompanied by a close male relative. This restriction forms these women into natural advocacy groups.

Yunus tells as typical a story about a town in which a mullah was disseminating vicious rumors. Bank workers came to fear for their safety and closed the bank and began operations in another town. As bank owners, the women of the original village confronted all who had been spreading the dangerous rumors, including the mullah. After arguing with him on their own behalf rather relentlessly, he said that he would simply leave them to their fate and not oppose the reestablishment of the bank. Yunus says that after such an acknowledgement, which happens regularly, the women tend to be triumphant, but that is not enough for the Grameen Bank. The bank manager then told the women that in order to get the bank back in town, they would have to prevail upon the mullah and anyone else who had been vigorously disseminating dangerous rumors to invite the bank manager and workers back. In cases like this, the women usually succeed. The value of word of mouth is enormous. As such a dispute goes on, many people in the town become aware of Grameen's value and the passion of its customers.

Such focused controversies are part of Grameen's marketing efforts. They depend on the intensity of the connection that the original borrowers form among themselves and other women living under the same restrictions that they live under. Yunus has also taken micro-credit lending to both Mexico and the United States with success. There his customer-owners are also expected to counter bad word of mouth, but the disputes do not have the power of publicity they had in Bangladesh.

The Grameen Bank also provides its customers with laddered offerings. Since Grameen lends in micro-amounts, laddering up is critical. Typically a borrower will start with 500 taka (at roughly 32 taka to a U.S. dollar) and graduate to a second loan of three times the initial amount. The Grameen Bank sees its customers go from loans for basic production; to larger scale production; to production, store, and "factory" loans; and then to loans for land and enterprise diversification. The required weekly meetings in the informal educational environment at Grameen Bank turn into brainstorming sessions on how to expand productive capacity.

Indicators for Measuring Successful Cultural Innovation

What makes a cultural innovation a success? Since customers are understood as producers, one set of indicators has to involve the wealth or income the offering brings to them. That wealth or income must be sufficiently understood and appreciated for the customer to ladder up and purchase a higher-priced version of the offering. Another indicator will be market growth, stimulated by word of mouth. These indicators should be confirmed by correlative standard measures of increases in the amount of product sold, increases in brand equity, and customer retention that leads to decreases in cost per sale.

We will focus on how CEMEX and Grameen look at the wealth they bring their customers and their standards for laddering. We will also look at an unusual financial opportunity available for the cultural innovators. Since culturally innovative businesses engage in development work, they have available the prospect of receiving funding from non-profit foundations that will help finance growth.

Measures of Additional Wealth for Customers

Patrimonio Hoy provides a clear financial gain for customers, even the ones who do not have masons in their immediate family. Patrimonio Hoy participants spend 7,200 pesos on materials, roughly 6,000 pesos on mason services, and 1,200 pesos on Patrimonio Hoy club fees, totaling 14,400 pesos for a room, which is built in 70 weeks. In contrast, the traditional way of building generally costs 17,160 pesos and takes an average 208 weeks. Patrimonio Hoy club members build, then, at almost three times the speed and save 20% of the costs. In addition, the average Patrimonio Hoy room is significantly better designed and constructed. With an illiquid secondary market in homes, it is difficult to attach a value to a room, but best estimates based on the rental market and the few existing sales show a traditionally made room in a standard five-room house to be worth 16,300 pesos. A Patrimonio Hoy room in a house mostly constructed at Patrimonio Hoy quality levels is worth 19,800 pesos. Consequently, the traditional builder turns 17,160 pesos into equity worth 16,300 pesos, producing an equity loss of 860 pesos after 208 weeks. That comes to an annualized return of -1.1%. The Patrimonio Hoy builder, in contrast, turns 14,400 pesos into equity worth 19,800 pesos, a gain of 5,400 pesos in 70 weeks. That comes to an annualized return of 27%. These are the most conservative numbers. Approximately 54% of people in these neighborhoods have a mason in their extended families. Do-it-yourselfers who manage the masonry as well as the general contracting have much higher rates of return. A traditional builder who does the masonry will see a 10% rate of return. A Patrimonio Hoy participant will see an 89% rate of return.

Yunus takes the 1980 case of Mufia as an example of how Grameen changes the wealth and productive capacity of the poorest of the poor. When Mufia joined Grameen in 1979, she was a divorced beggar with a couple of children and no home. Since one of Grameen Bank's workers discovered that Mufia had once done some work weaving bamboo into baskets and mats, the bank lent her 500 taka to restart that business. With her profits, Mufia was able to purchase 330 taka's worth of clothing, 105 taka's worth of cookware, and serve her family regular meals. Although 500 taka is and was worth less than $16, the loan changed her life. At the end of her first loan, Mufia took out a second for 1500 taka. And she continued taking loans from there.

Cross-selling and Laddering Up

Because low-income markets grow at slower rates than more affluent markets, profitability requires a higher degree of retention and cross-selling so that customers ladder up to more valuable and profitable offerings. Given both the initial lack of purchasing power and the suspicion generally present in low-income communities, Yunus is happy if each new bank location gets 100 new customers in the first year. It is critical, therefore, that customers repeatedly avail themselves of the offering, or a pricier version of the offering. That lowers the cost of customer acquisition and increases the average value of each customer. CEMEX has found that the likelihood of a customer returning depends on the customer's level of trust. Many in low-income communities have been subject to various forms of pyramid schemes and have an ingrained sense of mistrust. In order to make sure that members do not see their economic progress as merely a matter of luck, or of getting in early, Patrimonio Hoy managers have developed early indicators of trust to identify people who might drop out or not come back. Accepting the warehousing benefit turns out to be a significant early warning indicator, since it requires trust in the company to let it store the goods. CEMEX finds that a good early indicator of growth in a region is that between 40% to 50% of Patrimony Hoy customers are asking for warehousing of materials. Hector: What would be more interesting is if we can say, in the first month, X% of customers in a new area ask for warehousing, by month 5, Y% ask for warehousing. An additional measure of trust comes in the changed attitudes about the number of rooms customers want to add to their houses. In a study conducted at the end of the pilot period, managers found that however many rooms people had, the Patrimonio Hoy program led satisfied customers to aspire to two or three more. Consequently, the program had the effect of enlarging the market for building materials. As customers completed three rooms, they wanted five. When they completed five, they wanted seven. Most houses in these communities had fewer than seven rooms, but managers found that after customers completed seven, they wanted to start building a child's home. Measuring that aspirational change is a key indicator trust, retention, and future market growth.

Grameen expects that borrowers will continue borrowing through the course of their productive lives. Moreover, it expects that loans will get larger. By virtue of their inclusion in the bank, borrowers make borrowing to grow their businesses a normal part of their lives. Indeed, distrust in the process is normally noted by bank workers who visit the customers. A customer who is not developing a view of how to use the follow-up loan midway through paying off the first needs special attention. Although the first loan is very small, the second one is typically triple the original size. Yunus presents Pramila as a typical example of retention and laddering up. She first borrowed to buy two milk cows, then took another loan for a third cow, then a loan for seeds, then to build a grocery store. Finally twelve loans later she is still borrowing but now as someone who owns and leases agricultural land as well as a store. Since the basic loans are for supplies that they will turn into profitable goods, there is a natural incentive for customers to borrow more and more until they have exhausted their (and their family's) capacity to produce.

Word of Mouth and Market Growth

Since cultural innovations have to do with overcoming resignation, one critical indicator of their effectiveness is how many new people are brought in through word of mouth. CEMEX's case is exemplary here. Patrimonio Hoy managers seek to ensure that at least 15% of their new customers have had stalled building projects, have been accustomed to using lime instead of cement, and have first heard about Patrimonio Hoy from a customer, not a sales agent. That means that word of mouth is successfully enlarging the market. In the case of CEMEX, by constructing a home in 70 weeks as opposed to the usual average of 208 weeks, CEMEX is able to accelerate the consumption of cement. Moreover, the system is such that customers construct more rooms than they would have otherwise. HECTOR: if we could say something more concrete about acceleration, that would be better. Can we say that the market is grown by at least 6% since the survey showed that those people had not constructed in so long that they may never have (see survey with boxes we did).

Correlative Business Measures

An effective cultural innovation should stimulate enough good word of mouth to have a measurable positive effect on the brand. The good word of mouth ensures the continuance of premium pricing, while also serving as a barrier to entry and effectiveness of price competition. According to studies CEMEX commissioned, the local CEMEX brand, Cemento Tolteca, originally had little to differentiate it from its competitors. After launching Patrimonio Hoy, the brand index for Cemento Tolteca was 4.6 out of 5, while the closest competitor achieved a 3 and most competitors achieved an index of less than 2. The renewed strength of the Cemento Tolteca brand can also be seen in its price premium over competitors. Cemento Tolteca charges 3.5 pesos a bag more than competing brands.

Along with brand recognition goes increasing sales of the core product. Grameen shows how successful the growth of a cultural innovation can be. To take a couple of typical three-year periods, the total amount dispersed in basic loans in 1989 was $60.2 million with 662,263 members, and in 1991 it was $86.18 million with 1,066,426 members. In 1995, it was $343.8 million with 2,065,661 members, and in 1997 it was $370.14 million with 2,272,503 members. From 1990 to 1997, the dollar growth rate was 23% per year. Repayment rates averaged over 97%. Membership increased from 869,538 in 1990 to 2,272,503 in 1997. That is an annual growth rate of 15%. The comparison of the percentage of increase in members to the percentage of increase in dollars lent shows the laddering up of the members as well.

Since CEMEX's core product is cement, Patrimonio Hoy's key measure is the increase of cement consumption. Before Patrimonio Hoy, the average do-it-yourself customer consumed 1,040 kilograms of cement every 4 years. Now, with Patrimonio Hoy, the same 1,040 kilograms are consumed every 1.25 years, or at three times the rate. After setting up business in three typical locations in the last five months of 2000, Patrimonio Hoy increased sales from 20 to 60 tons in one location, from 10 to 38 tons in a second, and from 100 to 200 tons in a third. CEMEX requires that that new ventures produce a minimum return of 15%. Patrimonio Hoy is exceeding this standard.

Development Agency Funding

Culturally innovative for-profit businesses that are focused on high volumes and growth can receive financial recognition from the development community. But they cannot simply ask for money for their for-profit businesses. In order to tap into development money, Yunus set up a non-profit trust in which organizations like the World Bank could donate money to establish additional Grameen programs beyond the normal rate of growth. The Grameen Trust started in 1989 with a $200,000 grant from the MacArthur Foundation, and by 1994 had assets of $11 million. Cultural innovators see themselves at the crossroads between the private and public sectors, and therefore entitled to development funding. These companies are reshaping the nature of markets and development. Governments can benefit from taking an interest in them as well as businesses looking for a strategic edge.

Conclusion

CEMEX and the Grameen Bank have pioneered a new kind of innovation that has enabled them to change the way business is done in low-income markets. Their basic framework can be applied to a wide variety of goods whose sale is transactionally complex. Goods like cars, washing machines and refrigerators can be sold to "producers." Low-income customers can make a small or informal business of driving, washing, or preserving for their neighbors. Cultural innovators go further. They identify the value conflicts that block the development and flourishing of such homegrown businesses. Does it violate a value of neighborliness to charge for driving neighbors around? Is it wrong for women to be far from the home? Is it a matter of self-sufficiency to take direct care of your children, laundry, or food? A culturally innovative business identifies the conflicts in the values that would prevent homegrown business development and then finds the traditional bridge practices on which to build a culturally innovative offering. Could a club purchase a washing machine? Could a course make driving the neighbor's children acceptable, even wonderful? Will it make a difference if the shared food preservation is linked with a small catering business or a weight watching association? The low-income community will show the way to bridge the conflicting values.

The community will not, however, show how to take the bridge practice and turn it into a business: give it a determinate goal, strengthen its informal sanctions, and identify the new business category. These elements of innovation require trial and refinement. Likewise, cultural innovations appear to require complicated customer engagement processes including high touch network and trust building, managing word of mouth, and community outreach. In this respect, marketing to low-income communities leads businesses to adopt the skills they will need to handle the cyber-networked world of affluent customers. The intended rewards of cultural innovation are profitable entry into, first mover advantage in, and a knowledge barrier to competition in low-income markets. The unintended reward is that much that makes cultural innovation work in low-income markets can be leveraged in affluent markets. The affluent have value conflicts too. High touch customer experiences can create a franchise among the affluent as well.