research@hec - Issue #28 - (Page 4)

CSR research hec “Double jeopardy” how the market penalizes the poorest Poor households, already subject to severe financial constraints, suffer further collateral damage because goods and services are not designed for them. This creates conditions in which the poor end up paying proportionally higher prices for their purchases compared to other members of society. Faced with this reality, certain businesses are developing special programs that cater to low-income groups, with results indicating that such schemes can be a rich source of opportunity. Frédéric Dalsace B IOGRAPHY Frédéric Dalsace (H85) is an associate professor at HEC Paris, where he holds the Social Business / Business and Poverty chair sponsored by Danone, Schneider Electric, and Renault. Frédéric Dalsace holds an MBA from the Harvard Business School and a doctorate in marketing from INSEAD. Frédéric Dalsace, Charles-Edouard Vincent, Jacques Berger and François Dalens analyzed the budgets of poor households (the lowest income decile) and discovered that what might be termed “essential” expenditure — rent, taxes, loans, insurance and housing costs — is equal to 31% of their income. The money that is left for families to live on once these bills have been paid can be divided into two other types of expenditure: “necessary” expenses — food, transport, phone, health, education and financial services — representing 40% of household budgets; and “discretionary” expenses, such as clothes, household items, leisure activities, etc. On average, poor households of 2.2 people are left with only €420 a month to pay for clothes, furniture, leisure activities, etc. In addition, the market has adverse side effects: the “poverty penalty” that the goods and services that poor households do purchase are not designed for them. age of around €500 a year more in additional costs, the equivalent to more than a month’s discretionary spending (this figure is only a statistical average; highly plausible scenarios indicate that it can easily exceed €1,000). However, the way the study was designed minimizes the extent of double jeopardy because the research was limited to additional costs that can be measured in a purely statistical analysis. Accordingly, no double jeopardy was identified in, for example, the areas of food or transport, even though poorer consumers are more affected by low quality “budget” products or the price of spare parts for cars. QUANTIFYING DOUBLE JEOPARDY IN FRANCE Double jeopardy is a well-known phenomenon in emerging countries, where it has always been put down to market inefficiencies. For the first time, this study makes it possible to quantify the double jeopardy mechanism in France. The authors discovered that poor French households pay an aver- MARKET MECHANISMS How can we explain these additional expenses? On the one hand, cost structures are often unfavorable to small-quantity purchases, as is the case, for example, with financial services where administration costs are fixed. Price structures can also penalize small volume purchases, with poor households paying an additional 20% in house insurance, which is more expensive per square meter for less sizeable homes. In addition, because the market is often tighter for low volumes, the price for goods and services consumed in modest quantities is frequently higher. For example, smaller accommo- 4 • August-September 2012

Table of Contents for the Digital Edition of research@hec - Issue #28

Cover & Contents
Public health: How to encourage people to have a healthier lifestyle
“Double jeopardy”: How the market penalizes the poorest
Responsible financing: You don’t have to be a star to play a major role

research@hec - Issue #28