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Mohi Zaman
Principal, Anchorless Bangladesh

Often overshadowed by its regional counterparts, Bangladesh, South Asia's second-largest economy, with a GDP of US$450Bn+, is asserting itself on the global stage. With a GDP per capita of US$2,687 and ranking among the world's fastest-growing economies over the past decade, the Bangladeshi market is expanding and becoming increasingly dynamic. Sustained economic growth positions the country to potentially reach a trillion-dollar economy by 2033 and become the world's 20th largest economy by 2038, with an anticipated GDP of US$1.7Tn. The nation's population, exceeding 165 million, is comparable to the combined populations of Thailand and Vietnam and constitutes half the population of the United States, all within an area roughly the size of Iowa. This demographic density offers companies an opportunity to scale faster and achieve greater capital efficiency.

Bangladesh’s economy is driven by a substantial domestic consumer base, with private consumption expenditure (comprising households and businesses) constituting 68% of GDP in FY23. Anticipated to exhibit the fastest growth in its consumer market over the next decade, Bangladesh is poised to become the 9th largest consumer market globally, surpassing Germany and the UK by 2030. Key drivers of this growth include urbanization, smaller households, and an increasing number of women participating in the workforce, collectively fueling robust consumption levels. 

Bangladesh’s growth story is supported by fundamental drivers such as consumer optimism, a willingness to innovate in emerging economic sectors, the continued rise in middle and affluent consumers, an ambitious young workforce, and economic resilience. However, a detailed segmentation and examination of the distinct consumer classes contained within are essential to fully explore this consumer opportunity. This study aims to do that by organizing the segments into quintiles and examining for:

  1. No. of households (HH) in each consumer class
  2. Total and average income earned by HHs in each consumer class
  3. HH Spending capacity and possible purchase motivations

This article marks the beginning of a series dedicated to consumer landscaping and the expanding opportunities in Bangladesh. Part I, covered in this article, focuses on income segmentation and purchasing capabilities. Part II follows the flow of income into various expense categories, and finally, Part III examines the most promising business models in Bangladesh —both current and emerging— apt for different consumer segments. 

Income Segmentation: Consumer Classes and Their Purchasing Capabilities

The latest HIES Survey (2022) serves as a great starting point for this research analysis. By combining different data points from the report, a baseline table of household income and expenditure level can be constructed as presented below:

Consumption Expenditure excludes lumpy expenditures like durable goods, payment of tax, insurance, etc while Expenditure includes all expenses.

The table above shows a total household income of US$135Bn in 2022, with urban households accounting for 47%, equivalent to US$6Bn, and rural households earning 53%, totaling US$7Bn. At the national level, households collectively spent US$131Bn, with consumption expenditure representing 97.2% or US$127Bn. 

The savings rate remains at a modest 2.8%, evident from the Expenditure to Income Ratio. Rural households, in particular, encounter financial challenges, reflected in the high ratio of 102.6%. Their average monthly income of US$238 falls short of the average monthly expenditure of US$244, indicating potential indebtedness. This highlights their limited capacity for regular spending on non-essentials and emphasizes a notable preference for price sensitivity.

On the flip side, Urban households demonstrate a substantial savings rate of approximately 9.5%, with an average monthly expenditure of US$377 against an income of US$416. While comprising only 33% of the households, Urban households contribute significantly, earning 47% of the total household income and accounting for 44% of the total expenditure. This demonstrates their role as key contributors to durable goods purchases and indicates their financial stability, allowing them to move beyond strict price sensitivity in their purchasing decisions.

The table above offers a comprehensive snapshot of household income and expenditure at a high level. However, existing data can be further leveraged to extract deeper perspectives and insights. By segmenting the data into quintiles and integrating it with various data points, the ensuing table provides a more detailed and insightful breakdown.

The table above shows that 60% or 22.8 million HHs (Quintile 1 to 3), comprising roughly 60% of the population, earn less than US$200 per month, with the upper threshold likely including professions such as Garment Workers, Drivers, Waiters, Salespersons, etc. On account of their modest income, this group is expected to prioritize affordability, placing it above other considerations like quality, convenience, safety, waiting time, personalization, etc when making a purchase. To cater to this segment, startups or companies must be mindful of their inherent price sensitivity, and business models with built-in cost-saving mechanisms are likely to succeed. However, this segment may exhibit high Customer Acquisition Costs (CAC) and low retention rates, as customers are primarily swayed by discounts and promotional pricing, often churning when these incentives are withdrawn or reduced.

As we move to Quintile 4 and beyond, representing a monthly HH income of US$275 or more, equivalent to 15.2Mn HHs (roughly 40% of the population), the lower income stratum within this category can be considered as the burgeoning middle class. Their purchasing behavior is likely transitioning beyond mere price sensitivity to consider other various factors. Startups or companies targeting this group should aim to offer not only modest price savings but also other meaningful perks or benefits.

7.6Mn households or roughly 32.5Mn people (roughly 20% of the population) fall into Quintile 5 with a monthly HH income of US$815 or more. Despite constituting only a fifth of the population, this group commands 55% of the total HH income, amounting to US$75 billion—a significant market for any consumer-facing business. Predominantly clustered in 2 to 4 major cities, their concentration likely facilitates cost-effective customer acquisition. Their comfortable financial position allows them to risk exploring new channels, products, and services. Many within this group are not only open to but actively seek premium offerings, valuing and willing to pay for non-monetary benefits such as quality, convenience, personalization, exclusivity, etc. As such, they emerge as the prime target for many startups and innovative businesses.

With almost 75% of HH income, Quintiles 4 and 5 emerge as the group with the highest purchasing power, warranting a deeper and more granular look. Table 4 below shows the income breakdown in deciles with further segmentation for the top 10% of HHs. It is very interesting to note that starting from Decile 9 (with an average income of US$430+) the Income over Consumption Expenditure figure turns positive, which means groups below this are either running down on their savings, funding through asset sales, or taking on loans. Therefore, segments below Decile 9 are unlikely to fall under the purview of, for example, Fintechs focusing on savings and investments, travel startups, food delivery businesses, etc.

It is noteworthy that a substantial 55% of the total income is concentrated among households in Decile 10. With an impressive Income over Consumption of US$445, this segment has considerable room for spending on durable goods and other financial / non-financial endeavors. Upon closer examination, the top 5% or 1.9 million households (comprising 8.1 people) within this category command 44% of the total household income, equivalent to 73% of Decile 10 income. These households boast a monthly average income of US$1,771, suggesting a high standard of living comparable to high-income countries (equivalent GDP per Capita) like Oman, Greece, Portugal, etc. Positioned at the pinnacle of the convenience spectrum, they possess the financial capacity and willingness to pay a premium (i.e. are price insensitive) for non-pecuniary benefits. 

While Table 4 effectively breaks down the top two quartiles of the consumer class, we can gain a more detailed understanding of their characteristics by integrating dwelling conditions and durable goods ownership data. This additional layer of information helps us assess the number of households aspiring to improved standards of living and track the evolution of consumer behavior, particularly the shift from price sensitivity to a preference for convenience.

Table 5 highlights that approximately 22.3% or 8.5 million households reside in brick/cement-roofed houses, likely all of Quintile 5 HHs and only the upper segment of Quintile 4. This poses an interesting question for businesses targeting Quintile 4 as part of their current market—do their typical customers inhabit houses with tin/CI roofs? If not, their current market size might just be confined to 8.5 million HHs (90% of Quintile 5 HHs) and share similar characteristics. 

Additionally, about 8.1% or 3.1 million households own a laptop/desktop/tablet, typically considered a discretionary expense often derived from savings. This assumption (although simplistic) implies that a considerable portion of laptops is individually owned, chosen for added convenience beyond smartphones. Predominantly falling within Decile 10, these households constitute a significant share (80% of Decile 10 households). With an average household income exceeding US$1.2K and a surplus income of over 25% after consumption expenditure, these households emerge as avid users of digital goods and services. 

This preference is underscored by their choice to invest in digitally advanced discretionary items like laptops, desktops, or tablets. While smartphones can fulfill similar functions, the ownership of these additional devices not only signals their financial capacity but also signifies a heightened desire for enhanced convenience.

As we trace the evolution of convenience preferences, owning a washing machine stands out as a significant milestone, symbolizing a well-established inclination for valuing convenience. This notable purchase (averaging US$250 to US$300) is typically made when there are ample savings, a spacious house, possibly multiple earners, and a strong preference for convenience (as laundry can easily be done manually through maids or HH members themselves). Unlike other durable goods such as ACs or TVs, households rarely possess multiple washing machines, allowing the assumption of equating cumulative sales over the product's lifetime (8 years assumed in this study) to the number of households owning it. As such, data suggests that approximately 1.4 million or 3.7% of households own a washing machine, sharing characteristics with the top 5% of households, boasting an average monthly income of US$1.7K or more.

At the pinnacle of the convenience spectrum are households that own a car, a substantial cost ranging from US$10K to US$15K on average. While incurring explicit costs like fuel, maintenance, driver salary, tax, and insurance, owning a car primarily provides implicit benefits such as security, flexibility, and time savings (primarily convenience factors). Accordingly, only 0.5 million or 1.3% of households fall into this category, assuming a rough balance between downward adjustments for multiple ownership and upward adjustments for scrapped or non-operating vehicles. These customers likely belong to the business class, top management, or wealth-endowed/inherited class of the country. Their purchasing decisions are likely less influenced by price sensitivity and more by factors such as quality, personalization, exclusivity, and time considerations. Understanding their motivations can be key in determining suitable services or products for them.

Closing Thoughts:

This analysis aims to deepen our understanding of the diverse consumer classes in Bangladesh within the context of income distribution. By segmenting consumers into different income groups, key indicators are derived to gain insights into their purchasing capabilities and motivations. This serves as a complement to market sizing and product positioning analyses of any consumer-facing business, offering a quick estimation of current and emerging opportunities present. While the focus here is on household spending capacity, a comprehensive examination of income flow into specific expenditure categories remains crucial—an aspect explored in Part II of this three-part series. 

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Bangladesh's Consumer Landscape: An Income Segmentation Study

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