BUNDLING OF BUSINESS

DEVELOPMENT SERVICES AS A

MEANS TO OVERCOME

INSTITUTIONAL VOIDS

April 2016

Maren Peters, 900729-649-040

MSc Organic Agriculture, consumer and market

MCB-80436

Supervisors WUR : Paul Ingenbleek

Ivo van der Lans

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ABSTRACT

As a driver of income generation in low-income countries, the rural food processing sector could play

a major role in the fight against poverty. This research proposes product bundling as a new approach

to increase the probability of success of current business development services that support the

growth of small and micro food processing enterprises. The research extends literature on marketing

in low-income countries as well as institutional theory and market integration by combining the well-

researched concept of product bundling from marketing literature with institutional theory and

applying it in the context of small and micro food processing entrepreneurs in Rwanda. Furthermore,

it features the importance of latent needs in this context. A qualitative study included interviews with

21 key respondents from different fields, as well as observation techniques. Based on this, a semi-

experiment of 51 small and micro food processors was conducted. The data was analysed using

categorical conjoint and mixed model analysis. The results suggest that bundling of business

development services can increase the probability of success of the available public and private

support for at least two reasons. First, the perceived value of services that fill latent needs is higher if

bundled with other, complementary services. Secondly, the results show that overall intended

investments in services needed for business growth are higher if they are bundled than if they are

unbundled. The thesis provides important implications for both practitioners as well as marketing-

and development research by featuring the importance of latent needs in the context of development,

as well as partnerships and multidisciplinary research for the design of future policies and research

agendas.

KEYWORDS

Institutional theory, agro-processing, food processing, small and micro entrepreneurs, low-income

countries, developing markets, product bundling, business development, business development

services

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ACKNOWLEDGEMENTS

First of all, I would like to express my gratitude to my two supervisors, Dr. Paul Ingenbleek and Dr. Ivo

van der Lans, who pushed me to try, to reshuffle, to add and discard. Your guidance and support, even

from far away, was a great comfort throughout this research.

Secondly, I would like to thank the ‘Stiftung Fiat Panis’ for their financial support for the field study in

Rwanda, without which this research could never have be realised in the current extend and depth.

I would also like to express my thanks to Endeva, and especially Tendai Pasipanodya and Dr. Christina

Tewes-Gradl, who had a big share in inspiring this research. The work for the Co-packer, FreshBlends,

was a great practical application next to the scientific journey and considerably eased the data

collection.

I am deeply indebted to Jean de Dieu Rwirangira. Without your help, your extraordinary efforts and

support during the data collection, that went much further than your role as a consultant, this research

would not have been possible.

I would also like to thank all the people in Rwanda who contributed to this research, shared their

insights with me, allowed me to see their facilities and understand their circumstances. A special

thanks to all my interview partners.

Thank you, too, to everybody who made the longest part of this journey, the writing part, so much

more enjoyable. Thank you, to all my friends who had an open ear for me at difficult times, who kept

company with me in the study room, who made life more beautiful with their thoughts and support

even from far away, who shared lunch and coffee and ideas and massages with me, who prepared

awesome dinners and fresh bread waiting for me when I arrived home and who shared with me a life

outside of the university.

Especially, I would also like to thank my boyfriend, Simon. For your researcher point of looking at

things, your support with challenges that at times seemed unsurmountable and for being there for

me all the way.

Lastly, I want to thank my family. Vielen lieben Dank, Mutti, Papa, Gerd, Jonas und Maike, für euer

Vertrauen in mich und eure Unterstützung auf allen meinen Wegen, egal ob sie mich nach Indien, in

die Niederlande, nach Ghana, Sierra Leone oder Ruanda geführt haben.

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TABLE OF CONTENTS

1. Introduction ........................................................................................................................................ 1

2. Theoretical Background ...................................................................................................................... 4

3. Methodology ..................................................................................................................................... 11

4. Results ............................................................................................................................................... 19

5. Discussion and Conclusions .............................................................................................................. 36

References ............................................................................................................................................ 41

Annex 1: Methodoloy ........................................................................................................................... 46

Annex 2: Results .................................................................................................................................... 47

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LIST OF TABLES

Table 2.1 Institutional dimensions and their implications

Table 3.1 Descriptive Statistics of respondent’s characteristics (n=51)

Table 3.2 Summary statistics of respondent’s characteristics (n=51)

Table 4.1a Institutional voids of FPEs affecting product markets

Table 4.1b Institutional voids of FPEs affecting capital markets

Table 4.1c Institutional voids of FPEs affecting labour markets

Table 4.1d Institutional voids of FPEs affecting regulation

Table 4.2 Desirability values, importance weights and part worths per level

Table 4.3 Regression results: Contribution of bundle value and set to probability of

investment

Table 4.4a Stepwise regression analysis results: Contribution of service variables to probability

of investment

Table 4.4b Stepwise regression analysis results: Contribution of service variables to probability

of investment (second assumption)

Table 4.5 Regression results: Contribution of bundle value and set to probability of

investment

Table 4.6 Influence of control variables on the dependent variable ‘intended investment’

(linear mixed effects model analysis)

Table A1.1 List of interview partners during pre-study

Table A2.1 Summary statistics of desirability scores from desirability rating

Table A2.2 Sets for the attribute management consultancy

Table A2.3 Desirability scores calculated with OVERALS

Table A2.4 Desirability scores obtained from CATPCA analysis

Table A2.5 Self-expressed desirability scores for attribute financing

Table A2.6 Self-expressed desirability scores for attribute processing

Table A2.7 Results of CATPCA analysis: desirability values

Table A2.8 Desirability values, importance weights and part worths per level (assumption B)

Table A2.9 Aggregated bundle utilities and purchase probabilities

Table A2.10 Linear mixed effect model with interactions

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LIST OF FIGURES

Figure 2.1 Conceptual framework

Figure 3.1 Desirability rating cards: Services with associated service levels

Figure 3.2 Importance rating cards: Services

Figure 3.3 Bundle rating cards: Illustrative bundle descriptions

Figure 4.1 Rwandan coffee in local supermarket shelves

Figure 4.2 Locally produced fruit juice (inyange brand)

Figure 4.3 Locally produced potato chips (winnaz brand)

Figure 4.4 Cleaning of bottles for recycling

Figure 4.5 Banana beer fermentation

Figure 4.6 Collection of locally produced beverages

Figure 4.7 Locally produced fortified flour

Figure 4.8 Locally produced snacks

Figure A2.1a Observed vs. predicted probability of investment (A)

Figure A2.1b Observed vs. predicted probability of investment (B)

LIST OF ABBREVIATIONS

AIDP Amayaga Integrated Development Project

Approjubaar Association pour la promotion des producteurs de jus, boissons alcoolisees et

alcooliques au Rwanda

BoP Base of the Pyramid

CATPCA Categorical Principal Components Analysis

FPE Small and micro food processing entrepreneur

GDP Gross Domestic product

GIZ Gesellschaft für internationale Zusammenarbeit und Entwicklung

IFDC International Fertilizer Development Center

Minagri Ministry of Agriculture and Animal Resources

Minicom Ministry of Trade and Industry

NAEB National Agricultural Export Development Board

NGO Non governmental organisation

OVERALS Nonlinear Canonical Correlation Analysis

RCA Rwanda Cooperative Agency

RDB Rwanda Development Board

SME small and medium enterprise

UN United Nations

WDA Workforce Development Authority

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1. INTRODUCTION

To end poverty in all its forms everywhere is number one of the seventeen proposed ‘Sustainable

Development Goals’ of the UN (United Nations 2015). While poverty reduction has been the goal of

many diverse efforts of both scholars and practitioners in the past (Arku et al. 2011), poverty,

especially in rural areas, remains to exist in many low-income countries (The World Bank 2008). Over

the past decade, several authors found that small and micro enterprises in the rural nonfarm sector

could become a main driver of employment generation, innovation and economic growth in

disadvantaged regions (Jin et al. 2007; The World Bank 2008; Imai et al. 2015). In view of the wide

dependency of rural populations on agriculture in Sub-Saharan Africa (Byerlee et al. 2009; The World

Bank 2008), this is especially relevant for the agro-processing sector and its main actors, small and

micro food processing entrepreneurs (FPEs).

In this context, a range of (international) organisations, NGOs and the government have developed

support programs. Still, small and micro entrepreneurs remain to have difficulties to produce goods

that effectively respond to the needs and requirements of upcoming middle-class and high value

markets (Chikweche & Fletcher 2014; Layton 2011; Hounhouigan et al. 2014). Consequently, the

majority of them fails to grow their business to a sustainable, wealth-creating entity that generates

employment. Seeing this is an apparent missed opportunity for the wider rural economy and poverty

alleviation, there is a need to find ways to make support to small and micro entrepreneurs more

effective.

In exploring the challenges and solutions for entrepreneurs in low-income contexts, previous studies

commonly employ a macro-level viewpoint. Over the last decade, development- and agricultural

economics, operations management and Base of the Pyramid (BoP) literature increasingly adopted an

institutional theory perspective to generate contextual understanding of the general business

environment in low-income countries (Parmigiani & Rivera-Santos 2015; Seelos & Mair 2006; London

et al. 2010). According to North (1990, p.3), “Institutions are the rules of the game in a society” or,

more formally, are the “humanly devised constraints that shape human interaction”. Especially the

identification of institutional voids that constrain economic activity of farmers, customers and vendors

has become a central research and political theme (Mair & Marti 2009). Where these voids exist,

institutions are unable to provide the resources and services needed to support economic activity.

Typically, the authors conclude with policy implications to build a conductive institutional

environment and point to the role of governments (Reardon et al. 2000; The World Bank 2008;

Bryceson 2002).

The stream of institutional theory literature makes clear that entrepreneurs face a whole range of

constraints, which implies the need for a diverse set of assistance to elicit the full potential of an

entrepreneur’s business (Shaw 2004; North et al. 2001). Evidence from Rivera-Santos et al. (2012)

suggest that partnerships with partners from multiple sectors are needed to compensate for different

institutional gaps. However, current articles focussing on “filling institutional voids” look at solutions

to one or two barriers that are believed to be most pressing, such as access to finance, access to

markets and contract enforcement (e.g. Hohfeld & Waibel 2013; Adekambi et al. 2015). Thereby,

those insights fall short of acknowledging the importance of the interplay of different resources and

services and potential synergistic effects (Yusuf 2010). An additional consideration that is not yet

addressed in institutional- and development literature is the assumption that entrepreneurs may find

themselves unable to correctly identify the required support for their business. Especially for those

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that are not highly educated or did not receive formal management training, there is a difference

between “expressed needs”, the needs for support that entrepreneurs are aware of themselves, and

“latent needs”, the need for support that entrepreneurs are unaware of or not able to express (North

et al. 2001). This poses the danger of ignoring latent needs in favour of commonly expressed needs

when designing support services based on current scientific research.

To approach this problem, this thesis wants to combine insights from traditional marketing theory

that offer tools to address latent needs and increase value for the customer, with the insights from

institutional theories. The general objective of this research is to test whether the bundling of services

for FPEs facing institutional voids can increase their probability of success in growing sustainable

businesses that can respond to markets and lead people out of poverty. More specifically, by applying

both qualitative and quantitative methods, this research wants to test (a) if FPEs perceive the value of

business development services aimed at satisfying latent needs that compensate for institutional voids

higher when bundled compared to unbundled and (b) if, in an environment with a multiplicity of

institutional voids, the bundling of business development services needed for business growth

increases overall intended investment by FPEs compared to a situation in which each service is offered

individually.

This research wants to generate insights by examining 51 FPEs in Rwanda. Rwanda is a small,

landlocked country with the highest population density in Sub-Saharan Africa. 39% of the population

lives in poverty, mostly in the rural areas (UNDP 2015; USAID 2014). Agriculture, and mainly

subsistence agriculture, is the main economic activity for more than 80% of the households in Rwanda

(Musahara & Huggins 2005). It plays an important role in the Rwandan economy, contributing to

33.1% of the country’s GDP (The World Bank 2015). However, little value addition of agricultural

commodities takes place inside Rwanda and the country is highly dependent on imports (National

Bank of Rwanda 2015; Giddings & Pirzer 2014). This is why FPEs are still a relatively small and

heterogeneous group, struggling to compete on the market. The research context shows similarities

to other Sub- Saharan African countries in terms of rural poverty, a strong dependency on agriculture

and an underdeveloped small and micro scale agro-processing sector (The World Bank 2008). This

means that the findings can generate implications for development in other SSA countries.

While the application of bundling theory is common in North America and Europe (Stremersch & Tellis

2002), this thesis applies it to business development services offered by NGO’s, (international)

organisations, the government as well as private firms. In this way, it offers a new approach to

maximize the value of business development services for small and micro entrepreneurs that face

institutional voids and trigger investment in the business with the aim to create, develop, run or

expand it. By testing the established benefits of product bundling in a new setting, this research

contributes to literature on marketing in low-income countries. While, on a rather abstract level,

several scholars recognize partnerships as a means to compensate for institutional voids, with

bundling theory, this research can apply the concept in more practical terms (cv. Rivera-Santos et al.

2012; Parmigiani & Rivera-Santos 2015). Furthermore, this research complements current

institutional theory insights with a practical arrangement to increase investments in micro and small

food processing enterprises. Lastly, combining institutional and bundling theories in low-income

countries, this work contributes to the literature of market integration in low-income countries that

has brought theoretical insights into institutional voids affecting farmers, customers and vendors

(Khanna & Palepu 1997; Mair & Marti 2009).

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The next section will provide relevant background literature on FPEs and institutional theories as a

way to approach development. Based on this, bundling theory is introduced and two hypotheses that

combine the institutional theory with marketing theory are formulated. A qualitative pre-study will

test the applicability of theories in the given context. Based on these insights, the hypotheses are

tested quantitatively. The thesis concludes with a discussion of the findings and implications for

practitioners, researchers and recommendations for further research.

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2. THEORETICAL BACKGROUND

2.1. SMALL AND MICRO FOOD PROCESSING ENTREPRENEURS AS ENGINES OF DEVELOPMENT

Making the rural labour market a more effective pathway out of poverty is a major policy challenge

(The World Bank 2008; Haggblade et al. 1989). While agriculture traditionally is the main source of

employment and income, the importance of nonfarm-income is increasing and spurred by

demographic changes, globalization and trade liberalization (Reardon et al. 2000; The World Bank

2008). Furthermore, non-farm income is important for rural populations to smooth incomes and

distribute household risks (Reardon et al. 2000). While currently up to 60-75 percent of off-farm

income in rural areas is attributed to retail trade and services (The World Bank 2008), food processing

could become an especially promising pro-poor intervention (Arku et al. 2011). A well-developed food

processing sector can reduce post-harvest losses of perishable produce, create employment for both

skilled and unskilled workers and offer better sale value for agricultural produce (Arku et al. 2011; The

World Bank 2008).

For the development of this sector, small and micro food processing entrepreneurs (FPEs) play a

significant role. This thesis refers to FPEs as those individuals who organise, operate and take the risk

of a micro or small business that manufactures raw materials and intermediate products derived from

the agricultural sector in low-income markets. FPEs, for the largest share, constitute of individuals

from the upcoming, or “floating” middleclass. Even though differences can be small, compared to the

‘poor’ they have at least some capital endowments, earn slightly higher incomes, are better educated

and more market-oriented (Ncube et al. 2011; Banerjee & Duflo 2008). This can be seen as a

prerequisite to enter the food-processing sector.

Despite a generally positive contribution to household incomes and employment, several studies

found that income levels of small and micro entrepreneurs remain comparatively low (Daka 2008;

Arku et al. 2011; Akinyemi et al. 2010). Accessing high-value markets, either domestically, serving the

upcoming middle- and upper classes or regional and international export markets, is a key opportunity

to grow their business to small or medium size (Dadzie 2013; Babah Daouda et al. 2016). Medium size

businesses have considerably higher turnovers and employ more people on average (Ministry of Trade

and Industry 2010; The World Bank 2002). Supporting FPEs to achieve the status of a small or medium-

sized business is thus expected to achieve long-term business profitability, create employment

opportunities and benefit the wider economic community.

However, achieving the status of a small-or medium sized company, or sometimes merely surviving,

is not easy (Fafchamps 2004; Otoo et al. 2012). In order to grow their businesses and tap into the

opportunities of upcoming middleclass- and export markets (Dadzie 2013), FPEs do not only have to

span the boundary between the informal and formal sector but also overcome the mismatch between

what they currently supply and what high-value markets demand (Chikweche & Fletcher 2014;

Viswanathan et al. 2010). While small and micro entrepreneurs often offer products that are high in

perceived authenticity and quality (van Dijk & Rabellotti 1997; Ger 1999), a mismatch emerges

because middle class consumers demand products to be branded, to be aesthetic, to be secure and

to connect them to their peers (Chikweche & Fletcher 2014).

Producing to the standards of high value markets requires access to and investments in a variety of

resources (e.g. Babah Daouda et al. 2016; Reardon et al. 2000). Compared to other enterprises, food

processing is particularly complex and costly in that it involves multidisciplinary knowledge, including

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business management, product development, quality management and technical skills, amongst

others, as well as considerable start up investments for processing facilities. Usually, however, in low-

income countries, FPEs have difficulties accessing the required knowledge and resources (London et

al. 2010; Arnould & Mohr 2005).

Additionally, one point that is widely overlooked in institutional literature is that, without formal

management training, entrepreneurs may actually even remain unaware of the knowledge, resources

and external support requirements of their business (North et al. 2001). Next to expressed needs that

entrepreneurs are aware of themselves, there may be latent needs entrepreneurs are unaware of or

that address underlying problems and which cost- benefits they cannot correctly estimate upfront.

The same study revealed a low level of awareness of the resources and support available. However,

in order to elicit the full potential of a business, the identification of and response to latent needs is

of high importance (North et al. 2001; Williams & Williams 2010).

The lack of investment in knowledge and resources, the lack of awareness of their availability and the

presence of latent needs in increasingly sophisticated business environments means that a lot of FPEs

are not able to access high-value markets and manage and grow their businesses to a medium size

that could benefit the wider economic community. The reasons and potential solutions to this

situation have been a focus of development researchers and economists for many years and many

tried to find solutions in the institutional environment (e.g. Layton 2011; Khanna & Palepu 1997)

2.2. INSTITUTIONAL THEORY AND INSTITUTIONAL VOIDS: AN EMERGENT FOCUS OF

ENTERPRISE DEVELOPMENT APPROACHES

The contextual understanding of the business environment of small and micro entrepreneurs in

general was advanced by scholars from development- and agricultural economics, operations

management, sociologists and BoP literature, among others. In their research, they increasingly

adopted an institutional theory perspective (Parmigiani & Rivera-Santos 2015; Seelos & Mair 2006;

London et al. 2010). Hoskisson et al. (2013) point out that the accessibility of resources that firms need

to achieve competitive advantage depend upon the institutions shaping the economy. Especially in

low-income countries, institutions do not support economic activity as well as they do in higher-

income countries: Entrepreneurs find themselves in environments in which institutions are unable to

support economic activity with regards to to (i) product markets, (ii) capital markets, (iii) labour

markets, (iv) contract enforcement and (v) regulation. An overview of the institutional dimensions and

their corresponding institutions and implications can be found in Table 2.1. The absence or inefficiency

of these institutions results in “institutional voids”, which constrain investments in necessary

resources needed to create value for the firm, its employees and the wider community (The World

Bank 2002; Khanna & Palepu 1997; Eifert et al. 2008).

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Table 2.1: Institutional dimensions and their implications

Institutional dimension Institutions Implications

(i) Product markets Certification agency, regulatory authority, extrajudicial arbitration service

Existence, distribution and outreach of retail chains, methods of payment, supplier network, transportation infrastructure, information about product attributes

(ii) Capital markets Bank, venture capital firm, private equity provider, auditor, mutual fund

Effectiveness of banks, financial product and service offerings, information availability

(iii) Labor markets Schools, universities and training institutes, certification agency, head-hunting firm, relocation service

Availability of well-trained staff, workers’ rights, employee mobility, existence of recruitment agencies

(iv) Contract enforcement Courts, extra juridical

arbitration service Regulatory stability, corruption

(v) Regulation lobbyist Ease of contract enforcement

Source: adapted from Khanna & Palepu (1997); Khanna & Palepu (2010)

In line with the findings that emerged from institutional theory, efforts have increasingly focused on

developing and transforming institutions to create business enabling environments (Shaw 2004; The

World Bank 2008). Literature widely agrees that the government is responsible for the building and

functioning of institutions (Mair & Marti 2009; Reardon et al. 2000). On a micro-level, other scholars

find solutions in adapting the rules of conduct that parties deploy to support a given exchange,

referred to as institutional arrangements (Carson et al. 1999). These may include arrangements

between, for example, a buyer and a seller with regards to trust, payment arrangements or location

(cf. Fafchamps 2004; Adekambi et al. 2015).

Literature applying an institutional theory perspective makes clear that entrepreneurs, and maybe

especially food processing entrepreneurs, face a multiplicity of voids that ask for a range of concurrent

solutions (cf. Fafchamps 2004; Rivera-Santos et al. 2012). However, as of now, in most low-income

countries services that aim to solve the challenges related to institutional voids are provided rather

fragmented by a multiplicity of NGOs, international organisations and the government (Knack &

Rahman 2007; Acharya et al. 2006). Similarly, most studies focus on finding solutions to one or a few

voids relating to a particular field such as economics, sociology or business. These include, amongst

others, microfinance (Armendáriz & Morduch 2010; Shaw 2004), or reduction of behavioural and

volume uncertainties of producers (Souleimane A Adekambi et al. 2015). However, they sometimes

note that addressing one issue alone will not lead to the anticipated success. For example, Shaw (2004)

admit that improving access to finance alone is unlikely to be a panacea; London et al. (2010) make

clear that effectively responding to constraints of entrepreneurs requires bundling of resources, often

in partnerships with other organisations, to provide an integrated solution and substitute for

governance mechanisms (Rivera-Santos et al. 2012). As it can be read in project evaluations of many

developing organizations, focussing on a few voids in isolation may even lead to project failures and

resignation that obstructs development outcomes (The World Bank 1998).

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A growing stream of literature especially criticises the fragmentation of donors (cf. Knack & Rahman

2007; OECD 2008). The authors point out that in environments with fragmented services, the

identification and use of services comes with high transaction costs (Parmigiani & Rivera-Santos 2015;

Acharya et al. 2006). In the context of entrepreneurs, high transaction costs occur, amongst others,

because they have to invest considerable amounts of time, money and social capital in maintaining a

network that can provide access to the right services (Fafchamps 2004). In lack of institutions and

technology, individuals have to establish or join business networks and trade associations, travel,

attend meetings and verify information (Fafchamps 2004). Furthermore, entrepreneurs have to deal

with high risks associated with non-delivery or default for every service provider because of

information asymmetries and weak legal enforcement structures. To lower risks, entrepreneurs have

to establish long-term relationships of trust, build reputation mechanisms and bargain to prevent and

resolve conflicts (Fafchamps 2004). Often, individuals with lower social capital and smaller networks

face more difficulties in setting up relationships of mutual trust and are more vulnerable to the risks

described above (Fafchamps 2004; Souleimane A Adekambi et al. 2015). Lastly, contracting a range of

different service providers involves the threat that different services may not be provided at the right

time, in the right sequence and at the right place but rather incidental, following the presence and

capabilities of different providers. Evidence from both research and practice shows that this often

leads to the doubling of efforts and the squander of spill over and learning effects, making the service

offering less effective (Acharya et al. 2006; Folsom et al. 2011).

Examples for successful combination, or, bundling, of support to entrepreneurs can be found in the

micro insurance sector. Micro insurance providers often couple credit and insurance, credit and

savings accounts or credit and business training to increase both the effectiveness and repayment of

loans (The World Bank 2002; Armendáriz & Morduch 2010). However, combining solutions or related

business development services to holistically and more effectively respond to the multiplicity of

institutional voids that shape the business environments of small and micro entrepreneurs has

received attention in development literature only on a conceptual level with regards to partnerships

(cv. Rivera-Santos et al. 2012). Even though the context and implications could hardly be more

different, the challenge of addressing multiple, distinct needs through combining resources and

services is essentially very similar to the challenge that marketers in high-income countries try to

address with bundling.

2.3. PRODUCT BUNDLING

In high-income contexts, bundling is established as a pervasive marketing tool and has received

growing attention in marketing literature. Bundling is defined as the “sale of two or more separate

products in a package” (Stremersch & Tellis 2002, p.55). Bundling can take different forms: Product

bundling is the “integration and sale of two or more separate products or services at any price”

(Stremersch & Tellis 2002, p.57). It is clearly distinguished from “price bundling”, which refers to the

sale of two or more products in a package at a discount, without any integration of the products.

Whereas price bundling is a pricing and promotional tool, product bundling is more strategic in that it

creates added value (Stremersch & Tellis 2002). Because this research aims to introduce a strategy

that can improve the value and long-term probability of success of service offerings, following, when

referring to bundling, the focus is on what Stremersch & Tellis (2002) refer to as product bundling.

Bundling is used in marketing theory to achieve different goals. First, with the aim to increase a

company’s competitiveness and support the dissemination of innovations, product bundling finds an

important application in increasing the value of new or neglected products that serve latent needs

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(Stremersch & Tellis 2002; Slater & Narver 1998). Bundling can provide a new product with higher

visibility and trial. Moreover, it increases perceived functionality (Stremersch & Tellis 2002). By shifting

a consumer’s surplus from the highly valued offering to the less valued, possibly unknown and risky

offering, consumption variety can be increased (Monroe 2003; Bockstedt & Goh 2014).

Secondly, product bundling proved effective as a strategic tool to create added value for consumers

and increase sales of consumer goods (Stremersch & Tellis 2002). The added value is big enough to

observe a willingness to spend more money on a bundle than just the sum of the value of its

components (Venkatesh & Kamakura 2003). This is achieved by decreasing transaction costs to use

and identify services, by lowering the risk of purchase and by coordinating the products or services,

resulting in the creation of complementarities and real value for the customer (Stremersch & Tellis

2002; Guiltinan 1987; Basu & Vitharana 2009).

Applied to the context of FPEs, facing institutional voids and fragmented services, bundling may be a

promising approach to increase the probability of success of business development services that aim

to fill these institutional voids by solving two challenges: First, the fact that certain services serving

latent needs are neglected by FPEs, and secondly, the low investment of FPEs in business development

services that are needed to access high value markets. Following this line of thought, the next chapter

formulates two hypotheses on the effect of bundling in the context of FPEs.

2.4. HYPOTHESES DEVELOPMENT

The conceptual framework (see Figure 2.1) pictures the relationship between the dependent variables

perceived value of neglected business development services and intended investment in business

development services, and the independent variable bundling of business development services. The

creation of customer value is a central theme in marketing literature (cf. Khalifa 2004; Payne & Holt

2001) and managing an organisation from this perspective will increase the likelihood of success

(Slywotzky 1996). While the concept of value is used in many disciplines with differing meaning

(Khalifa 2004), this research refers to the value of neglected business development services as the

relative desirability and importance a FPE assigns to a business development service that responds to

latent needs and does not receive proper attention by him or her. Neglected services are assumed to

be important to unleash the potential of other services and effectively respond to market demands

(North et al. 2001). Because this research is forward-looking in that it wants to generate conclusions

that can guide policy decisions and project implementation, this research looks at intended

investment. Intended investment in business development services is defined as the intended amount

of money spent by a FPE on services with the aim to create, develop, run or expand his or her business

with the expectation of future returns. Business investments in general are assumed to be a

prerequisite to get access to new markets that require a different, usually higher, quality or standards

(for example, Swinnen 2007; Babah Daouda et al. 2016).

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Figure 2.1: Conceptual framework

2.4.1. Product bundling to increase the value of neglected business development services

In environments with institutional voids, the neglect of certain business development services that fill

these voids decreases the probability of success of other business services and hinders business

growth (London et al. 2010; The World Bank 1998). Because multiple voids exist, a range of

fragmented services that make up for these voids is usually available to FPEs. However, without formal

management training, they may be unaware of their external support requirements and business

services that will enable business growth. This means, they may neglect important services that

respond to latent needs (North et al. 2001). To enable businesses to produce products that respond

to the needs of high-value markets and grow to the status of a medium-sized company, neglected

services need to be made attractive for FPEs (North et al. 2001).

Applied to the context of small and micro entrepreneurs, product bundling could be an important tool

to introduce neglected business development services that respond to latent needs stemming from

unrecognized institutional voids. Bundling of highly valued and neglected services may increase

visibility and perceived value of the neglected services whose cost-benefits cannot be correctly

estimated by the entrepreneur upfront if unbundled (Stremersch & Tellis 2002; North et al. 2001).

This leads to a higher chance of trial and variety in the services FPEs may chose for. Following this

logic, the first hypothesis is formulated:

Hypothesis 1: FPEs perceive the value of neglected business development services is higher

when bundled with highly valued services than when unbundled.

2.4.2. Product bundling to increase intended investment

FPEs capability to invest is influenced by the institutional environment (Hohfeld & Waibel 2013). In

contexts with multiple institutional voids and fragmented services, the identification and use of

services comes with high transaction costs (Parmigiani & Rivera-Santos 2015; Acharya et al. 2006).

Furthermore, FPEs have to deal with high risks associated with every exchange (Fafchamps 2004) and

often services are not be provided at the right time, in the right sequence and at the right place but

10

rather incidental, thus squandering synergies, spill over- and learning effects (Acharya et al. 2006;

Folsom et al. 2011).

The implication is that fragmented services in an environment of institutional voids cannot facilitate

business investments and FPEs are unable to grow to a level of a small- or midsize company that can

serve the needs of high value markets (The World Bank 2002; Khanna & Palepu 1997). Bundling may

be a promising approach to create added value for the business development services that is big

enough to stimulate FPEs to invest more on a bundle of services than they would if services would be

offered separately (cf. Venkatesh & Kamakura 2003). Bundling could lower the transaction costs in

amount of time, money and social capital needed to access the right services, it could lower the risk

involved in dealing with a multiplicity of partners, and it could reduce the doubling of efforts while

optimally utilizing synergies and learning effects (cf. Fafchamps 2004; Acharya et al. 2006). Following

this line of thought, it can be hypothesised that the benefits from product bundling are high enough

to cause a positive effect of bundling on intended investment:

Hypothesis 2: The overall intended investments by FPEs in business development services

are higher if they are bundled than if they are unbundled.

2.4.3. Control variables

Current literature explaining business investments of micro and small entrepreneurs in Sub-Saharan

Africa suggests the influence of an additional set of control variables. Hohfeld & Waibel (2013) found

that households’ capabilities to invest are influenced by external conditioning variables. Female

headed households and households with older and less educated heads have been found to be more

risk averse and therefore have a lower probability to invest (Bryant & Gray 2005; Hardeweg et al.

2012; Reardon et al. 2000). Hohfeld & Waibel (2013) also point to the importance of location-specific

variables, such as the distance to the service provider or infrastructural circumstances. Jin et al. (2007)

found that business experience of the manager increases propensity to invest, while years of existence

of the business are negatively related to business investments. Furthermore, the type of business and

product categories determine investment decisions (London et al. 2010). The variables that are

included in this research to control for possible effects on intended investment are therefore (1)

gender; (2) age; (3) education; (4) location; (5) business experience; (6) products/type of business and

(7) turnover.

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3. METHODOLOGY

3.1. QUALITATIVE STUDY

A qualitative, exploratory study was conducted with the aim to (1) identify the institutional voids that

FPEs face in Rwanda, (2) identify the current solutions to these voids and (3) examine if those solutions

are adequate to support FPEs in growing their business and accessing high-value markets. In order to

answer these questions, the study first tries to understand the gap between product requirements of

high-value markets and what FPEs currently supply. The insights will give a good understanding of the

need for business development services and give an indication for services that may be offered but

neglected or undervalued by FPEs.

The qualitative research applied different methods. First, a desk study reviewed scientific articles,

value chain analyses, reports and databases available from the Rwandan government, NGO’s and

other (international) organisations. This provided an overview of the setting in which FPEs operate in

Rwanda with regards to current products that are produced by FPEs and the institutional environment

in which they operate. During two months in Rwanda, ethnographic research was conducted to

crosscheck and validate the outcomes from desk research and to gain further insights about the gap

between market demand and supply, institutional voids and current solutions, as well as expressed

and latent needs of small and micro food processing entrepreneurs.

Semi-structured interviews with 21 experts were conducted. Respondents include actors from the

private sector, governmental sector, NGO’s and development organisations, consultants and business

associations active in the agribusiness sector (see Annex Table A1.1). The first respondents were

identified through desk research. They then could connect to further potential interview partners. The

interview questions were based on the findings from desk research (cf. Merriam & Tisdell 2015).

Depending on the expertise of the interview partner, different areas of interest were covered during

the conversation. All questions related to (1) the food processing sector, including input- and output-

markets, (2) the institutional environment of FPEs, (3) current support structures and their limitations

and (4) cultural characteristics. The interviews were recorded and transcribed. In order to compile a

reliable list of institutional voids and current solutions, only those issues that were mentioned by at

least two respondents or which could also be found back in scientific literature or internal documents,

reports and websites were used for the results (cf. Kumar 2011).

Complementary, observation techniques were used. To understand which local and imported

products are sold and demanded at the points where middle-class consumers buy processed products,

supermarkets and restaurants were visited. Tours through the processing facilities of several FPEs, on

the other hand, helped to understand the local production and challenges on a micro-level. The

observations were documented with pictures and written down in a notebook (cf. Merriam & Tisdell

2015).

12

3.2. QUANTITATIVE STUDY

Next, a quantitative study was carried out to empirically test whether the bundling of services for FPEs

facing the institutional voids identified in the qualitative study can be effective in supporting FPEs’

business growth. A semi- experiment is designed to test (1) how FPEs perceive the value of neglected

services when they are bundled with other services compared to their valuation in isolation and (2)

the influence of bundling services on intended investment.

3.2.1. Questionnaire development and pretesting

Insights from the qualitative study served as a background for the design of the semi-experiment.

Cultural characteristics that could influence the answers of respondents were considered in the

formulation of questions. Most of the traditional bundling literature focusses on the individual

customer as a level of analysis (Stremersch & Tellis 2002; Sett 2014). Similarly, this study focusses on

FPEs as potential recipients of business development services a unit of observation and key

respondent.

The questionnaire was developed in English and discussed with a Rwandan expert in the food

processing sector with vast experience in field research. Suggestions were incorporated and the

questionnaire translated into Kinyarwanda, the local language that is spoken by all Rwandans across

the country, by an experienced consultant specialized in agribusiness and marketing. The

questionnaire was back-translated into English by a third person to verify the correct interpretation

of the questions. The interviews were conducted by the consultant who had a good understanding of

the local culture and institutional environment of FPEs. The questionnaire was pre-tested with three

interviewees. Based on this, it was adjusted to guarantee smooth understanding and a good flow of

conversation (Ingenbleek et al. 2013).

3.2.2. Sample description and interview procedure

To identify a suitable sample, a stratified sampling method was used (Ingenbleek et al. 2013). The

National Agricultural Export Development Board (NAEB), the Agribusiness Platform AgriProFocus, the

Ministry of Trade and Industry (minicom) and the Rwandan association for the promotion of producers

of juice, alcoholic beverages and liquors (Association pour la promotion des producteurs de jus,

boissons alcoolisees et alcooliques au Rwanda “Approjubaar”) provided lists of SMEs in the food

processing sector. The chosen sources entail that respondents are part of one of the organisations and

officially registered, which normally suggests an active business attitude and the wish to develop and

grow their business. This assumption was confirmed by all respondents during the semi-experiment

orally.

In order to avoid potential bias stemming from important contextual differences between different

food processing sectors, only registered small and micro entrepreneurs that use agricultural crops as

raw materials to produce consumer food-products were considered. SMEs in Rwanda are categorized

based on their net capital investments, annual turnover and number of employees. Micro

entrepreneurs are those who make a net capital investment of under 580€, have an annual turnover

of less than 350€ and less than three employees. Small enterprises, on the other hand, are those that

make a net capital investment of up to 17 000€, have an annual turnover up to 14 000€ and employ

less than 30 people. Two of the three conditions must be met (Ministry of Trade and Industry 2010).

13

From the lists, a total of about 387 entrepreneurs, distributed in the different provinces of the country,

fitted those criteria. Within each of Rwanda’s five provinces, about 200 entrepreneurs were randomly

called on their phone to introduce the purpose of the study and ask for their participation. 51 FPEs

responded the phone and were willing to meet for an interview, which represents a response rate of

roughly 25%. The interviews were arranged at locations convenient to the interviewees in order to

overcome bias with regards to the ability of individuals to travel. During the interview, the interviewer

extensively explained the purpose of the study and respondents were assured of the anonymity and

confidentiality of their information. Then, questions were asked following the interview structure

described in section 3.3. Whenever respondents wanted to explain their answers, they were given the

time to do so. Wherever possible, the processing sites were visited to validate and put in context the

answers given during the interview. In total, a complete set of answers was obtained from 51

entrepreneurs.

Introductory questions covered the control variables (age, business experience, level of education,

location and approximate annual turnover) that the results of the qualitative study identified as

relevant to intended investment. Summary statistics of the samples’ characteristics are given in Tables

3.1 and 3.2. All respondents were between the age of 25 and 67, with a business experience varying

from 0 to 30 years. The number of male and female respondents is about equal. Annual turnover was

greater than expected given the official definition of small and micro enterprises. One respondent

even reported an annual turnover of 700 000€. Most respondents, however, stay in the range officially

indicated by the government. The majority of respondents visited a primary or secondary school; 30%

obtained a bachelors’ degree. About 55% indicated that beverages were their primary product, 15%

were millers, 12% processed nuts and snacks and the remaining 18% dealt with other products. The

characteristics are very much in line with the expectation that local FPEs primarily come from the

emerging middle class.

Table 3.1: Descriptive Statistics of respondent’s characteristics (n=51)

Variable N Min Max Mean Std. Deviation

Age 51 25 67 42.04 11.45 Years of business experience

51 0 30 8.75 6.691

Annual turnover (converted to €)

45 470 700 000 65 000 140 000

Relative intended investment, unbundled

51 3 100 62.72 22.70

Relative intended investment, bundled

51 18 100 75.92 27.00

14

Table 3.2: Summary statistics of respondent’s characteristics (n=51)

Variable Frequency Percent

Type of business Individual entrepreneur

44 86.3

Cooperative 7 13.7 Total 51 100

Gender Male 27 52.9 Female 24 47.1 Total 51 100

Level of education Primary 10 19.6 Junior Secondary 8 15.7 Senior Secondary 15 29.4 Bachelor 15 29.4 Master 2 3.9 Phd 1 2.0 Total 51 100

Location Kigali 21 41.2 Southern 8 15.7 Western 6 11.8 Northern 10 19.6 Eastern 6 11.8 Total 51 100

Main product Alcoholic beverages

16 31.4

Beverages 12 23.5 Flour 8 15.7 Nuts/snacks 6 11.8 Others 9 17.6 Total 51 100

3.3. OPERATIONALIZATION AND MEASUREMENT

The hypotheses are tested on the basis of Goldberg et al.'s (1984) experimental procedure on price

premiums for hotel amenities, applying a categorical conjoint analysis. The method allows to predict

preferences and intended investment for a bundles’ components but also for the bundle itself, beyond

that associated with its components. It also accounts for the fact that different combinations of those

components have varying utility to respondents. The data collection consisted of the three phases in

line with the methodology of Goldberg et al. (1984).

Phase one: Desirability rating. During the desirability rating, respondents’ desirability of and intended

investment in certain service levels when offered separately, was identified. The respondents received

eight cards, one at a time. Each card depicted one proposed service that is deemed necessary to

enable FPEs access new, higher value markets (see Figure 3.1). The pre-study determined

management consultancy, access to finance, product development, processing, quality standards and

certification, packaging, marketing and branding and market access as the most relevant services. On

each service card, different levels of the service were described.

15

Each level was associated with a price, developed in consultation with experts from the pre-study1.

Respondents were asked to think about their current business services and indicate the level on the

card that best describes this. Then, they were asked which level would be their most preferred option

and to indicate if the remaining levels are either unacceptable or acceptable2. The procedure was

repeated for all 8 cards. A total of 25 service levels across 8 services were assigned a preference score.

Phase two: Importance rating. The importance rating tested the perceived importance of the different

services for respondents. The respondents were shown eight cards at once, each depicting one of the

services which’ levels had been evaluated earlier (see Figure 3.2). The respondents were asked to rate

their importance to their current business by distributing a total of 100 percentage points across the

eight services (Goldberg et al. 1984).

Phase three: Bundle rating. The bundle rating generated an insight on the respondents’ likelihood of

investing, and intended investment amount, in the services when they are bundled. Respondents were

shown five full-profile description cards (see Figure 3.3). The cards depicted a complete service

bundle, a subset of all possible combinations of the service levels evaluated in the desirability rating

exercise. Each card contained one level of each service, and represented a different service and price

scale. For every bundle, a total price was given, which represented the sum of the costs of the

individual services included in the bundle. A block design was chosen to reduce potential effects of

noise with regards to the specific components. Respondents were separated into two groups, (sub-

samples of 25 and 26). Respondents of each group evaluated the same number of bundles, whereas

the components of the bundles that were shown differed per subgroup3. For each of the full profiles,

respondents were asked to indicate the likelihood of investing in this option for their business on a

scale from 1 to 100 (Juster 1966).

The results from the quantitative study were documented on survey sheets, with some space for

additional comments. From there, data was entered into the statistical software package IBM SPSS for

further analysis.

1 The price was expressed as a percentage of the future, yet unknown, profit the entrepreneurs would obtain after the services were received. The payment was explained to be due within a maximum period of 5 years. This means that entrepreneurs would have to pay relative to the effectiveness of the services: If they would increase their profits by a lot, they would also have to pay relatively more for the service of the services: If they would increase their profits by a lot, they would also have to pay absolutely more for the service. 2 In this, the approach taken in this research slightly deviates from the methodology of Goldberg et al. (1984),

who did not include “current” as a potential answer. 3 For practical reasons, the bundle options presented to the respondents were not obtained using a factorial

design approach but rather compiled by the researcher, based on potential real-life applications. Consequently,

the subset of combinations is smaller than in the study of Goldberg et al. (1984).

16

Figure 3.1: Desirability rating cards: Services with associated service levels

17

Figure 3.2: Importance rating cards: Services

18

Figure 3.3: Bundle rating cards: Illustrative bundle descriptions

19

4. RESULTS

The results chapter first presents the findings of the qualitative study. This gives an understanding of

the context of Rwanda’s small and micro food processing entrepreneurs, including the gap between

supply and demand of processed food, institutional voids, current solutions to these and insights into

their limitations. Based on this, the results of the quantitative study that test the proposed hypotheses

are explained in more detail.

4.1. QUALITATIVE STUDY: THE CONTEXT OF RWANDA’S SMALL AND MICRO FOOD

PROCESSING ENTREPRENEURS

4.1.1. The gap between supply and demand of processed food

Even though poverty still exists, Rwanda has achieved great development progress during the last

decade. This is accompanied by the rise of the middle class at an unprecedented rate and scale (UNDP

2013). Moving around Rwanda’s towns, one can find many middle-class Rwandans working at laptops

and enjoying high-priced coffees in ever new cafes. This means that there is an upcoming high-value

market formed by a new group of customers with changing lifestyles and a demand for high-quality

and diverse products (Chikweche & Fletcher 2014; Giddings & Pirzer 2014).

Indeed, many respondents confirmed that during the last years, the rise in incomes was accompanied

by changing lifestyles and a demand for new types of food products and retail among middle-class

consumers. While low-income groups obtain their food almost exclusively fresh and unprocessed from

the markets, traders or family members, more and more consumers from the middle-income group

are willing to pay premium prices for processed food which is convenient and of high quality.

Processed food also reflects modernity and enables people to distance themselves from other social

groups. Often, brand reputation and packaging are used as an indicator to signal this. At the same

time, supermarkets gained popularity quickly. While only 7-8years ago, virtually everything was

purchased from local markets, nowadays the middle-class purchases an estimated 80% of their

groceries in the newly established supermarkets. This means that local processed products have to

compete with imported products offered in supermarkets in terms of quality, safety, appearance and

marketing.

Rwandan products that can visibly prove quality are well accepted by the (upcoming) middle class.

Rwandan teas and coffees prove that point: Backed by foreign investors and knowledge, packaged

and branded attractively, Rwandan coffees and teas could obtain a privileged position in Rwanda’s

supermarkets and restaurants in the last years and consumers are willing to pay premium prices for

Rwandan origin. The situation is similar for locally produced chips that are produced in collaboration

with an entrepreneur from the Netherlands (Hollanda Fair Food 2016), and juices produced by

Rwanda’s leading food processing company ‘Inyange Industries’. Inyange Industries was established

in 1997 as one of the first manufacturing businesses after the genocide in 1994, and produces juice,

milk- and dairy products. Recently, the investment company “Crystal Ventures”, invested about € 25

million in a new production plant (Inyange Industries 2016). Those products are of certified quality,

produced in high-standard processing plants and packaged attractively (See Figures 4.1-4.3).

20

Figure 4.1: Rwandan coffee in local supermarket shelves

Figure 4.2: Locally produced fruit juice (inyange brand)

Figure 4.3: Locally produced potato chips (winnaz brand)

Products produced by local FPEs instead are far from being competitive with their imported

counterparts. The equipment and quality of processing facilities varies per enterprise, but generally

cannot comply to the standards for (inter)national food safety certification. Processing facilities are

often an extension of the entrepreneur’s kitchen or built without advice from technical experts (see

Figures 4.4 and 4.5). The substandard processing facilities lead to variations in quality of the products

per batch, which also raises concerns about food safety. Furthermore, most local products are sold in

packaging that is not suitable to protect the food well, often damaged and carrying labels that are not

well designed, crooked, or fall off easily (see Figures 4.6- 4.8). Packaging is hardly ever used as a means

of communication to customers. Because packaging is used as a cue for quality, middle-class

consumers usually do not trust the products from local small and micro businesses and believe they

21

are of inferior quality. Under the current production circumstances, FPEs have to sell their products

mostly in their own province, and for comparatively low prices.

Figure 4.4: Cleaning of bottles for recycling

Figure 4.5: Banana beer fermentation

Figure 4.6: Collection of locally produced beverages

22

Figure 4.7: Locally produced fortified flour

Figure 4.8: Locally produced snacks

In order to access high-value markets, support services in different areas are needed. Technical

education on machines, product development and food safety, as well as considerable investments in

quality, closed- system processing lines would be required to achieve national or international food

safety certification (RSB 2016) and a consistent product. Additionally, a good understanding of the

value of marketing and access to suitable and attractive packaging are indispensable to build local

entrepreneurs’ reputation and sales in high value markets. The organisation of this, again, requires a

good set of management skills, including financial management, human resource management and

business planning. In line with propositions of Layton (2011, p.264), stating that “marketing systems

are influenced by and influence the institutional and knowledge environments in which they are

located”, it appears that the institutional- and knowledge environment for FPEs in Rwanda is not able

to facilitate food production that responds to the needs of high-value markets. The next section

investigates in more detail the institutional voids that small and micro food processing entrepreneurs

face.

23

4.1.2. Institutional environment of FPEs in Rwanda

Desk research and interviews with experts from different sectors gave a good understanding of the

institutional voids of FPEs affecting product markets, capital markets, labour markets and regulation

(cf. Khanna & Palepu 1997; Giddings & Pirzer 2014; Ministry of Trade and Industry 2010). The

institutional voids relate to challenges with regards to market information, infrastructure, packaging

and raw materials and inputs, each with several implications. Furthermore, challenges are observed

in the provision of adequate financial products, human capacity, sector innovation, legal protection

and quality infrastructure. An overview of the identified institutional voids, corresponding current

solutions and their limitations is given in Tables 4.1a-d.

Several steps have been taken by the Rwandan government, several NGOs and international

organisations to overcome institutional voids. These steps are built on the vision to build a market-

oriented, value creating agribusiness sector (Government of the Republic of Rwanda 2000). Solutions

include the creation of business platforms, grants and trainings in a range of different areas, as well

as adjustments in the regulatory framework. However, it was observed that most programs and

support initiatives remain rather generic and are seldom tailored to the needs of FPEs. The wide-

spread entrepreneurship trainings, for example, are designed to give advice to juice-makers in the

same way as they do for hairdressers and shop-owners. Furthermore, the quality of the services

offered are often poor or they are not well demanded. Several consultants reported that they knew a

number of individuals who attended up to 9 trainings on the same topic without ever starting a

business. Another observation is that the majority of efforts of the government to strengthen the

economic sector focus on large-scale investors.

Next to the formal solutions, it was observed that FPEs found informal solutions to their specific

problems. For example, it seems to be common practice amongst beer- and wine producers to bottle

their beverages in used Heineken-bottles. Instead of searching official market information or trade

platforms, most entrepreneurs obtain market information exclusively from the traders they work

with.

4.1.3. The fragmentation of services and implications for small and micro food processing

entrepreneurs

The study revealed that a multiplicity of voids exist that prevent FPEs from making the necessary set

of investments to access high value markets. Similar to many other low-income countries, currently,

solutions to these constraints are offered through a plethora of agencies and NGOs in the aid business,

as well as the government (Knack & Rahman 2007). In Rwanda, approximately 37 000 informal groups

and 319 registered NPOs can be found (ICNL 2013). Yet, it doesn’t seem like the interventions

mentioned were successful in turning FPEs into small or medium-scale businesses that effectively

serve middle-class markets (Ministry of Trade and Industry 2010).

Next to the limitations of the services itself, it was confirmed that the lack of alignment and integration

could explain the lack of success. Food processing businesses generally have a high level of complexity.

The qualitative study verified that in order to produce for high value markets, specialised knowledge

is needed in a range of fields, including sourcing, technical engineering, quality management, business

management and marketing, amongst others. The support services for the different areas are highly

fragmented; no single agency is currently able to advice on all aspects of a food processing business.

24

Many FPEs lack formal management training and skills related to business setup and success (Cho &

Honorati 2014). In line with initial assumptions, it was found that the fragmentation of services,

information asymmetries and a multiplicity of actors impedes the identification and correct estimation

of the value, costs and risks of certain services. Entrepreneurs commonly choose to make use of the

one or two services that are easily available and of which they think to be most valuable for their

business. This leads to the negligence of other services that may solve underlying or invisible problems.

One example for this is marketing. Interviews with experts and observations in supermarkets found

that middle class consumers directly translate the appearance of packaging and marketing activities

into perceived product quality and reputation of a business. However, most entrepreneurs that were

interviewed did not see the value of professional support in marketing and branding. The initiator of

a tomato-ketchup business expressed “Marketing companies are not profitable for local companies.

We do design and labelling ourselves. We just ask a trainee to design a label. We ask our friends to

give professional advice”. The situation is similar for food safety: FPEs with no scientific background in

food technology can hardly recognize the need for food safety measures which implications are not

visible. Not surprisingly, it could be observed that the self-expressed need for finance outweighed by

far the self-expressed need for other services.

This gives reason for concern. It has been proven both in theory and practice that the provision of

services such as finance are not effective without proper support in other areas like business

development, market access, inputs and technology development (Shaw 2004; London et al. 2010). In

a study for Rwanda’s Ministry of Trade and Industry (2010), SMEs mentioned that often they did not

have the tools to implement what they had learned from training programs in their daily business.

Evidence from several development programs make very clear that projects fail because the support

is designed too narrow (The World Bank 1998) . An incubation centre in Rwanda, offering machines

and initial training to food processing entrepreneurs failed due to the failure to design a complete and

integrated concept: No other business development services besides processing were offered.

This evidence suggests that there is a strong need to increase the perceived value of neglected

business development services and ultimately facilitate the range of business investments needed to

adapt current offerings to the requirements of high-value markets. In particular, the qualitative study

points to a strong negligence of the value of marketing services, business management services and

product development. The results give a strong indication for the applicability of marketing tools,

especially bundling theory, in the context at hand. The next chapter presents the results of the

quantitative research that tested bundling as a means to increase the perceived value of neglected

services and facilitate business investment.

25

Table 4.1a: Institutional voids of FPEs affecting product markets

Institutional element

Description Current solution Limitations Source

Market information

Lack of consumer information and formal market research that feeds back to producers

International agribusiness platform for market information and exchange, connecting people from different sectors

Accessible for educated middleclass but not heavily used by small and micro entrepreneurs

Get It, AgriProFocus

Market information published on a website of the ministry of agriculture and animal resources

Accessed by researchers only Inkomoko, AgriProFocus

Entrepreneurs obtain market advise from traders

High dependency on traders Entrepreneurs

Sector-specific business communities to exchange information, discuss and lobby for business interests

Not all business communities are open for all small and micro businesses

GIZ, AgriProFocus, PSF

Lack of access to and connection with reliable buyers

Organisation of farmers in cooperatives with collection centers

Only an estimated 3% of total produce is marketed through cooperatives

RCA, Shema Consult, Asili Oils, AIDP, IFDC, Spark

Infrastructure Costs for labor, energy and water are higher than in other food processing countries in the region (mainly Tanzania, Kenya, Uganda, Congo)

Reduced rates for water and electricity for businesses with an investment certificate

Investments certificates cannot be obtained by small and micro enterprises

AgriProFocus, IFDC, SRB, Kigali Farms, Asili Oils, Ndiyo

Electricity- and water supply is unreliable

Free trade zone with reliable infrastructure

High minimum investment requirements are not feasible for small and micro businesses

Inkomoko, Ndiyo

Production during night-hours with more reliable water and electricity supply

The majority of labourers cannot commute during the night, workers’ rights

Inkomoko, Ndiyo, AIDP

26

Institutional element

Description Current solution Limitations Source

Generators and water tanks

High investment-and running costs Ndiyo, AIDP, Inkomoko

Hilly environment increases costs of transportation

Traders and middlemen collect and distribute products

High costs, lower margins for entrepreneurs

IFDC, AgriProFocus

Packaging Adequate, affordable packaging is not available and plastic packaging is banned

Packaging is sourced from abroad or in supermarkets

High costs; packaging is selected based on the options available, not suitability for the product

AgriProFocus, Shema Consult, SRB, AIDP, Kigali Farms, NAEB, Get It, Urwibutso, Soimex, Ejo partners, Asili Oils, Inkomoko

Re-use of Heineken- beer bottles Unhygienic, not clear if this custom is legal (legal grey area)

Observation

Raw materials, inputs

Smallholder farmers have difficulties producing consistently and high quantities

Contract farming arrangements between FPEs and farmers/cooperatives

Cannot mitigate production risks (flooding, droughts), high transaction costs

AIDP, Get It, Inkomoko, Ndiyo, RCA

The production of crops is not market-oriented and the variety of products on the domestic market is low

FPEs provide designated seeds to farmers Requires upfront investments, time lag between planting and availability of the input after harvest

Get It, Ejo partners, Asili Oils

High-quality processing machines are not easily available

Low- quality machines are sourced from India and China

Frequent breakdowns, low quality of produce

NAEB, Get It, Ejo partners, RCA, RDB, Nyarutarama Incubation Center

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Table 4.1b: Institutional voids of FPEs affecting capital markets

Institutional element

Description Current solution Limitations Source

Availability of finance

Lack of adequate, long-term financial products for small and micro entrepreneurs in the agribusiness sector

Banks invest in agribusiness

Very few banks have a focus on agribusiness, interest rates remain high

AgriProFocus, Shema Consult, SRB, Get It, IFDC, Urwibutso, Ejo partners, Inkomoko, RDB

FPEs use own resources or borrow from family and friends

Limited amounts can be made available FPEs, AIDP, Shema Consult, Inkomoko

Microfinance institutions provide micro-loans

Not well established in Rwanda AgriProFocus, Shema Consult, IFDC

Interest rates between 17%-40% shoot up investment costs

Grants from NGOs and international organisations

Often narrow eligibility criteria, not every entrepreneur can get access

Shema Consult, SRB, Urwibutso

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Table 4.1c: Institutional voids of FPEs affecting labour markets

Institutional element

Description Current solution Limitations Source

Human capacity

Lack of experience and skilled people in the food processing sector that can advise entrepreneurs on managerial and technical aspects of the business (including product development, food safety, quality control and preservation techniques)

RSB offers training and advice on standards and quality management

Shema Consult, Spark, AIDP, Urwibutso, RDB, WDA, Kigali Farms, RCA, NAEB

Incubation Centres

Offer valuable training, but lack a holistic strategy to support graduates set up their own business

Entrepreneurs lack business skills (financial management, business planning)

Free entrepreneurship and business trainings by NGOs, the government and international organisations

Very generic, sometimes of poor quality and not well demanded

IFDC, Ejo partners, RCA

Business Development Centres implemented by the government to support SMEs

Understaffed, do not work well Urwibutso, Inkomoko

Skilled staff is hard to find due to low standards of education and specific knowledge sources cannot be accessed.

Presence of specialized private firms (marketing, IT, design, communication)

Quality of service is often low, good services are too expensive for small and micro entrepreneurs

Urwibutso, Ndiyo, Ejo partners

Sector innovation

“Copy and paste culture” destroys business case for innovators

Spark, Kigali Farms, NAEB, RCA, Ejo partners

29

Table 4.1d: Institutional voids of FPEs affecting regulation

Institutional element

Description Current solution Limitations Source

Legal protection

High import duties and VAT on imports of unfinished products, but exemptions for finished products

Influential business people are in constant exchange with the concerned ministries

Not accessible for less influential small and micro enterprises

SRB, Kigali Farms, Urwibutso, Asili Oils, Ndiyo

PSF discusses regulations with business communities and suggests business-friendly regulations to the government

Not all small and micro enterprises are represented in business communities

Border corruption, certification requirements and a lack of professional network are high barriers to formal export

Informal export

High risks involved, high transaction costs Urwibutso, NAEB

No tax exemptions for startups Entrepreneurs remain in the informal sector

Loss of legal protection Urwibutso, Asili Oils, Ndiyo

Quality High investments required to be

eligible for (inter)national food safety certification or private certifications s.a. organic, Fairtrade

Introduction of compulsory food safety regulations and voluntary national quality standard

Compulsory regulations are easier to obtain; S-mark is costlier to implement but highly appreciated among middle-class consumers

AIDP, Kigali Farms

30

4.2. QUANTITATIVE STUDY

4.2.1. Hypothesis 1: The effect of bundling on the perceived value of its components

The data analysis for hypothesis 1 roughly follows the methodology of categorical hybrid conjoint

analysis as proposed by Goldberg et al. (1984). In their study, Goldberg et al. (1984) predict

respondents’ preferences for a bundle of hotel amenities and their overall price as a linear function of

the respondents’ self-explicated desirability and importance scores for the bundle components.

Following this line of thinking, this research tests the relationship between FPEs’ self-explicated values

for the individual service levels, composed of desirability and importance scores, and their preferences

for a bundle of services.

In order to find evidence for Hypothesis 1, the analysis first identifies neglected services based on

importance scores that respondents attain to the services. Next, it tests if these services are higher in

perceived value and are more likely to be accepted when they are part of a bundle. For this, the

categorical conjoint analysis can, from the desirability and importance scores, predict desirability

values for the different service levels per respondent when unbundled. Then, the relationship

between the valuation for the different services and the actual probability of investment is tested. This

allows conclusions over the change in perceived value that respondents attribute to the services

relative to each other when bundled. A relatively higher valuation of a service previously identified as

neglected when bundled compared to unbundled will support hypothesis 1, stating that the perceived

value of neglected business development services is higher when bundled with highly valued services

than when unbundled. The detailed technical explanation of the analyses and interim results behind

hypotheses 1 can be found in Annex 2.

From table 4.2, it can be seen that the importance that respondents attribute to different services

differs. Financing seems to be most important to almost all respondents. On average, it receives an

importance weight of 27%. By contrast, marketing does not seem to be very important to

respondents. Marketing received an importance weight of only 7%, aggregated of all respondents.

Management consultancy (8%), product development (9%) and market access (9%) also scored

relatively low compared to packaging (14%), processing (13%), and quality and certification (12%).

Based on these importance scores, it can be assumed that marketing, management consultancy,

product development and market access are neglected services. This is in line with the findings from

the qualitative study. However, relatively high standard deviations suggest a high variability within the

sample.

The categorical conjoint analysis yielded desirability values for every desirability answer

(unacceptable, current, acceptable and preferred) per service. Because of certain limitations due to

the heterogeneous dataset, the desirability values for the answer current for financing and processing

could not be computed. Since no alternative analysis could deliver the required results and this

research did not want to falsely support or reject hypothesis 1, the researchers remedied this by

making assumptions on the desirability values for the services financing and processing. These values

are based on a value that would logically follow the order of desirability of unacceptable, current,

acceptable and preferred. More details on this procedure can be found in Annex 2. The values were

applied to the answers given per respondent. Table 4.2 shows the desirability scores per service,

aggregated over all respondents.

31

Table 4.2: Desirability values, importance weights and part worths per level

Service Level Desirability value

Stdev Importance

weight

Stdev Part worth*

Stdev

Management consultancy

None 0.020 0.140 8% 7% 0.000 <0.001

Generic training 0.400 0.440 0.029 0.040 Tailormade advice 0.794 0.330 0.070 0.073 Financing None 1.608 0.511 27% 19% 0.446 0.336 Link to financial institutions 0.919 0.313 0.260 0.197 Product development

None -2.388 1.420 9% 5% -0.205 0.183

Tailormade advice 0.312 1.190 0.033 0.113 Product development

service 0.657 0.390 0.055 0.045

Processing None -22.881 20.122 13% 11% -3.673 4.933 Processing facilities to rent -2.786 11.041 -0.216 0.996 Full processing service 0.620 0.045 0.095 0.117 Quality and certification

None -1.744 2.610 12% 10% -0.129

Generic training -2.480 3.060 -0.403 0.628 Tailormade advice 0.409 1.251 0.034 0.222 Complete certification

service 0.637 0.425 0.085 0.909

Packaging None -3.031 1.890 14% 9% -0.476 0.428

Assistance in sourcing of packaging

0.464 1.196 0.081 0.171

Complete packaging service 0.600 0.388 0.079 0.071 Marketing and branding

None 0.206 0.244 7% 5% 0.013 0.018

Generic training 0.437 0.241 0.033 0.032 Brand development 0.613 0.296 0.045 0.035 Design of branding and

marketing campaign 0.706 0.377 0.053 0.053

Market access None -1.639 0.981 9% 5% -0.160 0.142 Create link to buyers 0.487 0.923 0.049 0.093 Identification and

management of buyers 0.536 0.550 0.047 0.048

From the self-explicated importance weights of the services, as well as the desirability values, part

worths were computed. They represent the perceived value that respondents assign to a certain

service level if offered unbundled. Table 4.2 shows the average desirability scores, importance weights

and part worths per level, aggregated over all respondents. Again, the corresponding standard

deviations make clear that there is a very high variability of desirability- and importance- scores, and

consequently, part worths, within respondents. Broadly speaking, however, it can be observed that

respondents prefer the most expensive option. Except for financing, packaging and market access, the

most elaborate and expensive service level consistently received the highest part worth (see tailor

made advice for the management consultancy service, product development service, full processing

service, complete certification service and design of branding and marketing campaign). For packaging

and market access, the part worths for the different options are very close to each other. Overall, it

seems that the enhanced service levels seem to be perceived as being worth the money.

32

Based on these findings, a backward stepwise regression analysis was conducted to estimate the

relationship between the individual services and the probability of investing in the bundle. The analysis

dismisses the attributes financing and quality and certification; they do not significantly contribute to

the model (see Table 4.4a). This reflects the fact that respondents do not change their value

perception for these services whether this service is bundled or unbundled.

An analysis of variance shows that for all remaining independent variables, value perception changes;

they significantly contribute to bundle prediction at α=0.05. The coefficients allow to draw conclusions

about the change in perceived value respondents attribute to the services relative to each other when

bundled. The coefficients indicate the influence of a particular service on probability of investment,

when multiplied with its self-explicated part worth. For example, the service design of branding and

marketing campaign carries a self-explicated part worth of 0.053, whereas complete certification

service carries a self-explicated part worth of 0.085. This means that the service offering complete

certification has a higher self-explicated value to the respondents and would be important in making

a choice about investment into a bundle. However, respondent’s actual probabilities of investment

reflect something different. In the bundle, the marketing service seems to gain higher influence. The

service design of branding and marketing campaign, with a part worth of 0.053 and a coefficient of

14.904, influences probability of investment by 0.8004. Complete certification service, on the other

hand, with a part worth of 0.085 and a nonsignificant contribution to the regression model, influences

probability of investment by 0.0854, relatively less than the marketing service. This means that the

influence of, and thus value attributed to, the marketing service is relatively higher than that for the

quality and certification service if the services are bundled, while it is lower when the services are

offered separately. A leave-one-out cross validation procedure yielded an R2 of 0.30. While an R2 of

0.30 is far from an outstanding predictive performance, the results are encouraging, given the

complexity of the bundles (see bundle rating data).

Because all coefficients are positive, it can be concluded that respondents attribute an overall higher

value to services when they are bundled with other complementary services. From Table 4.4a it can

be seen that marketing receives the highest coefficient, followed by management consultancy and

processing. This means that bundling those services with other services significantly increases the

respondent’s perceived value for them. The services with the highest coefficients, meaning the ones

that received the greatest relative increase in perceived value, correspond to the services that

attained the lowest importance weights, thus, neglected services (see Table 4.2). Hence, the results

provide strong evidence for Hypothesis 1: FPEs perceive the value of neglected services that

compensate for institutional voids higher when bundled with highly valued services than when

unbundled.

4 The value of the part worth is multiplied with the coefficient of the stepwise regression analysis

33

Table 4.4a: Stepwise regression analysis results: Contribution of service variables to probability of

investment

Service Estimated coefficient

Sig. GLM

Sig. Mixed model

Relative contribution to the model

Intercept *** 3.133 <0.001 <0.001 na Management consultancy** 8.116 0.003 <0.001 14.72% Finance ns ns 0.242 ns Product development*** 4.931 <0.001 <0.001 27.53% Processing*** 6.931 <0.001 <0.001 13.38% Quality and certification ns ns 0.353 ns Packaging*** 2.160 <0.001 <0.001 17.88% Marketing*** 14.904 <0.001 0.002 17.10% Market access 2.077 0.051 0.075 9.39%

ns= not selected

Additional validity checks

In order to check if the hypothesis is also supported under a different assumption on the desirability

values for the current for the services financing and processing, a second analysis is run with a different

assumption. This time, the values represent the average value assigned to the answer current among

all other services. More details on this procedure can be found in Annex 2. Table A2.8 shows the

desirability scores per service, aggregated over all respondents.

The analysis followed the exact steps described above. The self-explicated part worths are reported

in Table A2.8. It can be observed that respondents assign the highest value to the most expensive

service levels for finance and processing. The backward stepwise regression analysis, however, yielded

different results: The attributes quality and certification as well as market access are dismissed; they

do not significantly contribute to the model (see Table 4.4b). Under this assumption, respondents do

not change their value perception for quality and certification services as well as market access

services whether bundled or unbundled.

Again, the analysis of variance shows that for all remaining independent variables, value perception

changes; they significantly contribute to bundle prediction at α=0.05. The same R2 of 0.30 was

obtained for the model under this assumption. Again, all coefficients are positive. This is in line with

previous findings: Respondents attribute an overall higher value to services when they are bundled

with other complementary services. Again, marketing receives the highest coefficient (Table 4.4b).

However, under this assumption, the services with the highest coefficients do not correspond to the

services that attained the lowest importance weights (see Table 4.2). Finance, for example, receives

the second highest coefficient. This is an unexpected result, not in line with the first assumption. This

issue is further discussed in section 5.2. Still, looking at a strong increase in perceived value for

marketing and the positive coefficients for all other services, the results support Hypothesis 1.

34

Table 4.4b: Stepwise regression analysis results: Contribution of service variables to probability of

investment (second assumption)

Service Estimated coefficient

Sig. GLM

Sig. Mixed model

Relative contribution to the model

Intercept *** 3.543 <0.001 <0.001 na Management consultancy** 3.543 0.006 <0.001 14.01% Finance* 7.241 0.035 <0.001 10.18% Product development*** 0.736 <0.001 <0.001 22.83% Processing*** 4.018 0.000 <0.001 17.57% Quality and certification Ns ns 0.392 ns Packaging** 2.404 <0.001 <0.001 16.60% Marketing*** 16.916 <0.001 <0.001 18.83% Market access ns ns 0.326 ns

ns= not selected

In order to test for blocking effects (see chapter 3.3), a regression analysis was carried out with bundle

value and set as predictors for probability of investment. This yielded a significant effect of bundle

value on probability of investment. As noted from Table 4.5, the regression coefficient associated with

the self-explicated bundle value is significant at α=0.05. Set, however, is not significant with p= 0.066

(A) or p=0.90 (B). The results show that self-explicated bundle value significantly influences probability

of investment, whether respondents received the first or second set of bundles. No blocking effect is

present.

Table 4.5: Regression results: Contribution of bundle value and set to probability of investment

Predictor variable Estimated coefficient (first assumption)

Sig. Estimated coefficient (second assumption)

Sig.

Constant 3.713 <0.001 4.345 <0.001 Bundle value 2.287 <0.001 1.607 <0.001 Set 1.488 0.066 1.378 0.090

4.2.4. Hypothesis 2: The effect of bundling on intended investment in business services

The results from the previous analyses provided evidence for the increase in value of neglected

services when they were bundled. The following analyses will test whether bundling also leads to a

general higher intended investment in business services. In order to test for Hypotheses 2, a linear

mixed effects model was carried out to explain the variance in intended investment when services

were offered in a bundle or unbundled and to test for the influence of the control variables. A stepwise

multiple regression analysis identified the variable’s contributions to intended investment.

The data of the desirability rating and bundle rating were translated into the dependent variable

intended investment. For intended investment without bundling, the prices attached to the service

levels that were indicated as preferred by the respondent in the desirability rating were summed up.

The total was then expressed as a percentage of the highest possible expenditure (summing up the

most expensive service levels). For intended investment with bundling, the price of the bundle option

that had the highest probability of investment (at least >50%) in the bundle rating exercise was taken.

Again, it was expressed as a percentage of the highest possible bundle price. Expressing intended

35

investment relative to the highest possible expenditure makes the values comparable across the

different sets of bundles. After these preparations, a dataset in long format was obtained, in which

bundle was expressed as a dummy variable (1-unbundled; 2-bundled). The characteristics of the

respondents (the control variables gender, age, level of education, annual turnover, business

experience and location) and bundling were treated as fixed effects. The intercept was chosen to

randomly vary across respondents.

Table 3.1 shows that the mean relative investment when services are unbundled is about 62.72

(st.dev= 22.699), whereas it is about 75.92 (st.dev= 27.00) when services are bundled. The results of

the main effect model can be seen inTable 4.6. The results indicate that bundling is highly significant

at α=0.05. All control variables are not significant at α = 0.05. The results from the linear mixed effects

model analysis revealed that no interaction effects were present. Consequently, we can accept

Hypothesis 2: The overall intended investment by FPEs in services needed for business growth are

higher if they are bundled than if they are unbundled. The effect of bundling is much stronger than

the effect of any of the control variables adopted from literature.

Table 4.6: Influence of control variables on the dependent variable ‘intended investment’ (linear

mixed effects model analysis)

Predictor F-value Sig Relative contribution to the model

Intercept*** 508.77 <0.001 - Bundling*** 12.79 <0.001 35% Gender 2.66 0.111 12% Age 1.83 0.184 10% Level of education 0.78 0.381 7% Annual turnover 0.19 0.664 5% Business experience 1.03 0.317 3% location 0.52 0.4769 3%

36

5. DISCUSSION AND CONCLUSIONS

5.1. BUNDLING AS A TOOL TO INCREASE BUSINESS DEVELOPMENT SERVICES’ PROBABILITY

OF SUCCESS

The general objective of this research was to test if the marketing-tool of product bundling applied to

business development services for FPEs facing institutional voids can increase their probability of

success in growing sustainable businesses that can respond to markets and lead people out of poverty.

The research examined the effect of bundling on the perceived value of neglected business

development services responding to latent needs, as well as the effect on overall business investment

for FPEs in environments with institutional voids. The results suggest that bundling of business

development services can be effective in increasing the probability of success of the available public

and private support. This chapter discusses the findings from the qualitative study, as well as the

support for hypotheses 1 and 2.

Qualitative research shows that many circumstances described in both institutional- and

entrepreneurship theory (cf. Babah Daouda et al. 2016; Chikweche & Fletcher 2014), can be found

back in Rwanda. There is a huge potential to serve upcoming high-value markets, which are yet

inaccessible for FPEs. A gap exists between what middle-class consumers demand and what FPEs

currently produce. In order to support entrepreneurs to access these high value markets, fragmented

services are available through a multitude of NGOs, (international) organisations, the government and

some private businesses. The fragmentation of donors is widely seen as obstructive to deliver

development outcomes (Knack & Rahman 2007; OECD 2008). To tackle this challenge, there is a strong

indication for the applicability of product bundling to increase the probability of success of the services

offered. In this way, the multiplicity of donors bears the opportunity to bring a wide range of

knowledge and ideas to the sector (Han & Koenig-Archibugi 2015).

The study provides substantive support for the first hypothesis. For FPEs in Rwanda that aim to access

high-value markets, the perceived value of neglected business development services that fill in

institutional voids seems to be higher when bundled with highly valued services than when

unbundled. Both the qualitative as well as the quantitative part of the research made clear that certain

services that are offered in the arena of service providers are valued more than others by small and

micro food processing entrepreneurs. The perceived value generally increases when bundled,

especially for those services that received a low importance weight by respondents.

This study found an especially strong case for marketing. Marketing could be defined as a neglected

service: it received an average importance weight of only 7% by respondents, compared to an

importance weight of 27% for financial services. Seldom, marketing was perceived as a problem to the

business, while literature, observation and interviews with experts and consumers clearly pointed to

the importance of credible brands and an attractive packaging as an indicator for product quality and

determinant for purchase decisions. When bundled with other business development services,

however, the value of marketing increased significantly (see Tables 4.4a-b).

Overall, it can be concluded that bundling is able to shift some of the customers’ surplus from the

highly valued offering to the less valued, or possibly new or risky, offering (Monroe 2003) and increase

consumption variety (Bockstedt & Goh 2014), putting it in the words of marketers from high-income

markets. This means that the probability that entrepreneurs make use or invest in business

development services that respond to important underlying needs will be higher if they are bundled

with other services that respond to expressed needs: bundling can be seen as an effective introduction

strategy.

37

Strong evidence is also found for the second hypothesis. The results showed that overall intended

investments by FPEs in business development services needed for business growth are higher if they

are bundled than if they are unbundled. The study finds that people, on average, invest 13% more if

the services are bundled (see Tables 3.1 and 4.5). This reflects a substantive amount, given the fact

that FPEs are resource-constrained and the services are a major investment. The effect was found to

be independent from the control variables. This is in line with findings from high-income countries,

indicating that the benefits that consumers, in this context, FPEs, derive from bundling of

complementary products or services, are high enough to observe a willingness to spend more money

on a bundle than just the sum of the value of its components. (Venkatesh & Kamakura 2003). Putting

the findings of high-income markets to the context of FPEs, the most likely explanation is that bundling

can decrease transaction costs to identify and use services, decrease risks attached to contracting

several partners, and optimize complementarities and synergies.

5.2. IMPLICATIONS FOR MARKETING- AND DEVELOPMENT RESEARCH

By applying bundling theory to the context of small and micro food processing entrepreneurs with the

aim to create effective development interventions, this research contributes to the literature stream

of marketing in low-income countries (e.g. Parmigiani & Rivera-Santos 2015; Adekambi et al. 2015;

London et al. 2010). At the same time, it complements current institutional theory and especially

literature of market integration in low-income countries facing institutional voids. The research brings

down theories on partnerships to the application of bundling (Rivera-Santos et al. 2012; Khanna &

Palepu 1997; Mair & Marti 2009). The importance of a multidisciplinary approach that has been to

development interventions has important consequences even for more general development

research.

While the findings are in line with the expectations build on research findings in high-income

countries, they have very different implications in the development context. While product bundling

was, in the first place, developed as a marketing tool to increase sales of consumer goods (Stremersch

& Tellis 2002), in the context of development, the same principle could be used as a strategic tool to

create added value for business development services that are currently fragmented. Achieving a

higher perceived value for and investment in both latent and self-expressed service needs, the

arrangement of bundling could enable FPEs to grow their businesses to sustainable, wealth-creating

entities that can effectively respond to high-value market needs, drive employment and innovation

and spur the development of low-income economies. Consequently, this study provides evidence for

the potential of adapting long- established marketing tools to the context of low-income countries to

contribute to poverty reduction.

The findings of this research can complement the insights and solutions generated for the support of

entrepreneurs in low-income countries from studies that approach development from an

institutional- or market integration theory perspective. Bundling offers a promising approach to

increase the probability of success of current business development services. However, it cannot

substitute for services that are of low quality, or coupled to other unfavourable arrangements relating

to payment, trust and location of the service provision (cf. Fafchamps 2004; Souleïmane A. Adekambi

et al. 2015). Thus, only when combined with insights from earlier studies that help designing high

quality and relevant services, bundling can increase their probability of success.

The fact that this research was forced to make assumptions that influenced the results for finance and

that the analysis yielded unexpected results with regards to this service under the two assumptions

provides implications on the role of finance within other business services. Despite the heterogeneity

38

of the sample, 80% of the respondents indicated that they currently have no access to financing

options. At the same time, 86% indicated that they would want a service linking them to financial

institutions (see Table A2.5). This implies that the categorization of services that were made in this

research may not be suitable and that scientists may have to look differently at the role of financing

within other service offers: Finance may be a much more general business-restricting value than the

other proposed services that contribute mainly to the proficiency of a business. In fact, it could be

formulated more as a precondition rather than a service. Without adequate financing, any other

service may not be able to support FPEs at all. A separation of finance and other services when looking

at the design of business development services and bundling should be considered for subsequent

research.

5.3. IMPLICATIONS FOR DEVELOPMENT PRACTITIONERS

This research generated several implications for practitioners and policy makers. Looking at current

development reality, the practicality of bundling of services can already be observed in development

practice linked to commercial entities. Micro insurance providers, for example, commonly bundle

credit and insurance, credit and savings accounts or even credit and business training to increase the

effectiveness of their offerings (The World Bank 2002; Armendáriz & Morduch 2010). On a more

aggregate level, the Paris declaration on aid effectiveness and Accra agenda for action (OECD 2008)

recognise that a coordination and alignment of aid strategies is needed to increase impact.

The first and most obvious recommendation for practitioners is that the bundling of complementary

services can increase their probability of success. Entrepreneurs, or beneficiaries of organisations’

programs, will value a portfolio of services that can offer support to all weak areas and institutional

voids higher than services that are very focussed, as is the case for most development aid programs

at the moment. This will go along with a higher probability of investment. While the results of this

study referred to monetary investment only, in circumstances in which the services are offered for

free, the investment could as well be expressed in the effort, motivation, or time beneficiaries put into

the business to make it a success. Bundling could be very useful for (international) organisations, NGOS

and the government to improve their track records.

Bundling can also be a chance for those services that entrepreneurs or beneficiaries more generally

neglect because of experiences in the past. In this research, it became apparent that most people do

not value management trainings to a great extent. Some entrepreneurs attended one of the many

business management trainings and found that they were not helpful in supporting business growth.

Others believe that they are experts already, based on trainings or a related education. Consequently,

they tend to neglect management services when searching for business support, even though well-

designed management consultancy may considerably enhance the effects of other services. Bundling

offers an opportunity to increase the perceived value of these services and make up for service failures

from the past. In this context is has to be noted that of course, bundling cannot substitute for low-

quality services.

Partnerships between (international) organisations, NGOs and governmental agencies offer a great

opportunity to bundle otherwise specific business development services. If services can be

coordinated, centrally offered and the partners make use of each other’s expertise, experience and

resources, this will considerable increase the probability of success of their interventions and

eventually be able to create sustainable businesses. In this way, a partner’s strategic focus can be

39

optimally used and service offerings of high quality can be designed. Consequently, the presence of a

multiplicity of parties could potentially increase the effectiveness of aid instead of obstructing it.

Lastly, the study points to the presence and importance of latent needs. So far, latent needs have been

virtually ignored in development literature, that mainly builds conclusions on expressed challenges

and needs. However, latent needs play an important role in the success of related interventions. This

poses an opportunity for policy makers, NGOs and (international) organisations to increase the

effectiveness of their programs by addressing both expressed and latent needs of their customers or

beneficiaries already in the design phase.

5.4. LIMITATIONS AND DIRECTIONS FOR FURTHER RESEARCH

The findings of this research should be considered within their limitations, both in terms of

methodology and scope. The following chapter will reflect on both and, based on this, provide

recommendations and directions for further research.

First of all, the chosen research group is a group that is very important for future development, but at

the same time very difficult to research. FPEs are hard to find, operating in a very small and

heterogeneous sector and lists obtained from official institutions do not usually reflect business

reality. Due to institutional voids and unfavourable regulations, entrepreneurs often withhold

information about their real business numbers from government officials. Furthermore, they are

mostly busy running their businesses and thus not available for personal interviews. Because of these

constraints, the sample is smaller and more heterogeneous than samples in comparable studies from

high-income contexts.

This became apparent especially during data analysis. The sample of Goldberg et al. (1984) must have

been much more homogeneous than the sample of this research. With homogeneous data, the

categorical conjoint analysis can detect an underlying perceptual order of the dependent variables

current, unacceptable, acceptable and preferred. This research, however, found that if the sample is

heterogeneous and the respondents express inconsistent preferences for the different service levels,

the categorical conjoint analysis shows large deviations from monotonicity in the dependent variable.

Consequently, the values for finance and processing had to be replaced with more intuitive values

chosen by the researcher (see technical annex, Annex 2). This had an influence on all subsequent

analyses. Instead of assigning too much importance to the numbers attached to the coefficients per

service, the results for the service levels finance and processing should be interpreted from a general

point of view, indicating a relatively higher perceived value when services were bundled and a

relatively higher increase in perceived value for certain (neglected) services compared to others.

Future research could use conjoint techniques that are more robust for heterogeneous samples.

The costs for each service level were set by the researcher after consultation of experts. Because

current prices of comparable offerings were not available, those prices may not reflect real prices.

Furthermore, all respondent’s answers are based on the assumption that the mode of payment is “a

percentage of the profit over a period of five years”. Since the test for institutional arrangements

proved the influence of payment mode on intended investment, a different experimental design

regarding payment mode and prices, would most likely yield different preference scores. While this

uncertainty is mitigated by formulating the results based on relative changes and differences instead

of using absolute numbers, future research could test the findings under different financing

arrangements.

40

This research offers insights about bundling in the context of FPEs in Rwanda. Even though the

challenges that this research tries to address with bundling are rather generic and the hypotheses are

built on observations and assumptions that hold for entrepreneurs in environments with institutional

voids more generally, different countries and sectors may vary remarkably in their institutional

context, their development, complexity and needs. These differences may limit the generalizability of

the presented results and should give an impulse for further research to test the impact of product

bundling in different sectors and countries.

Additional to the suggestions for further research that stem from the limitations, other directions for

future research emerge from this study. The research found that the value of neglected services and

overall intended investment is higher when bundled with other services. However, it did not test for

mediation variables to test for the rationales behind this. While research in high-income countries

suggests that value and intended investment of bundled products are higher because of a decrease in

transaction costs and risks, and an increase in complementarity and synergistic effects (Stremersch &

Tellis 2002), these insights cannot be easily generalized to the context of low-income countries

(Ingenbleek et al. 2013). Additional considerations could be thought of and the proposed mediators

need verification. Further research is needed to find out what exactly drives entrepreneurs to value

bundled services more than unbundled services and increase investments. Based on such insights,

optimal bundling strategies can be designed.

The scope of this research is forward-looking in that it tests intended investment to generate

conclusions that can guide policy decisions and project implementation. On the longer term, if

bundling is adopted in practice, this study should be complemented by a post-hoc evaluation study

that looks at actual investments and behaviour to verify the outcomes and allow a deeper insight into

further influencing factors.

Lastly, this research addresses the existence of “latent needs” and neglected services of entrepreneurs

in environments with institutional voids. So far, this topic did not receive a lot of attention in

institutional theory, marketing in low-income countries or development economics. However, the

identification and provision of support services responding to unidentified or underlying needs is key

to business success (Nazemoff 2014). Further research should be done on the nature and importance

of latent needs of entrepreneurs in environments with institutional voids and on ways to identify

them. This could be of value for policy makers as well as development practitioners in designing

effective interventions.

41

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46

ANNEX 1: METHODOLOY

Table A1.1: List of interview partners during pre-study

Organisation Function of interview partner Description

1 AgriProFocus Assistant Coordinator Agribusiness Sector Platform 2 Amayaga Integrated Development Project (AIDP) Co-founder and CEO National NGO with tomato ketchup production project 3 Ejo Partners CEO Business Consultancy Service 4 Get It Rwanda Founder and CEO Product delivery company 5 International Fertilizer Development Center

(IFDC) Regional Value Chain Advisor International Organisation with agro-SME development

program 6 Kigali Farms Training and Extension Officer Company selling mushroom substrate to urban farmers and

providing secured market Production and quality manager 7 National Agricultural Export Development Board

(NAEB) Deputy Director Division Manager Quality Assurance and Regulation Division Manager Horticulture Program

8 Shema Consulting CEP Agribusiness consultancy 9 Urwibutso Ese

Entrepreneurship expert, production management Enterprise engaged in agricultural production and processing

of a range of products 10 Soimex Plastic Managing director Producer of recycled plastic packaging 11 Spark International Program manager Int. organisation aiming to strengthen (cooperative)

entrepreneurship 12 SRB General manager Only manufacturer of paper bags in Rwanda 13 GIZ Program manager private sector development Company specialised in international development 14 Rwanda Cooperative Agency (RCA) Development cooperative manager 15 Rwanda Development Board (RDB) Head of SMEs and Business Development

SMEs Advisor, Export and Business Devleopment Department

16 Ministry of Agriculture and Animal Resources (MINAGRI)

Chairman of Post-harvest and agribusiness support project (PASP)

17 Asili Oils Director Processors and exporters of Moringa oil 18 Inkomoko/ African Entrepreneur Collective consultant Business service provider for startup entrepreneurs 19 Ndiyo Business Group Founder and CEO Producer of potato chips 20 Nyarutarama Business Incubation Center Manager Training and business incubation Center 21 Workforce Development Authority (WDA) Manager incubation centres Governmental institution implementing programs aimed at

skills development

47

ANNEX 2: RESULTS

QUANTITATIVE STUDY: TECHNICAL PART

Hypothesis 1

For the sake of better readability, the detailed technical explanation of the analyses behind

hypotheses 1 were abridged in the main text. This technical part provides the reader with a deeper

understanding of the categorical conjoint methods used to calculate the desirability scores.

Furthermore, it explains the interim results, including the calculation of part worths and bundle values.

More explanation is also given on the rationale behind the stepwise regression analysis to draw

conclusions about the change in perceived value of services.

In summary, the data analysis comprised of the following steps that will be explained in detail further

on:

1. First, desirability values for every service level were calculated with a categorical conjoint

analysis.

2. By employing the self-explicated importance weights of the respective services, part worths

were obtained for every service level per respondent.

3. By summing the part worths of all service levels included in a respective bundle per

respondent, each respondents’ self-expressed value per bundle was obtained.

4. Fitting these utilities to a linear model, the contribution of the self-explicated values on

probability of investment and blocking effects of the two different bundle sets were tested.

5. Lastly, the change in the perceived value of services that are bundled or unbundled was

obtained applying a backward stepwise regression analysis and mixed model analysis.

1. Find desirability values for the service levels

Goldberg et al. (1984) carry out a categorical conjoint analysis to find desirability values for each

attribute level, which are the service levels in this research. With this approach, one does not have to

assume that the dependent variable (current, unacceptable, acceptable, preferred) is ordered. Rather,

the idea is to find desirability values associated with the independent variables (the service levels)

such that additive combinations of these values maximally correlate with similarly obtained values for

the response categories. The desirability values are calculated based on data from the desirability

rating. In the desirability rating exercise, respondents were asked about the desirability of the

different levels per service as either current, unacceptable, acceptable or preferred. Whenever

preferred was not given as a response for any level of a service proposition, current was recoded into

preferred. This allows for a consistent measurement of the highest valued level of a service.

Descriptive statistics about the answers given can be found in in Table A2.1. Except for the attribute

level processing, no missing values are present.

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Table A2.1: Summary statistics of desirability scores desirability rating

Current

Unaccept able

Accept able

Preferred Total

Management consultancy

None 21 28 0 2 51 Generic training 18 7 11 15 51 Tailormade advice 1 4 11 35 51 Total 40 39 22 52

Finance None 41 3 0 7 51

Link to financing options

1 4 2 44 51

Total 42 7 2 51

Product development

None 40 8 0 3 51 Tailormade advice 5 5 17 24 51 Product development service

0 11 16 24 51

Total 45 24 33 51

Processing None 28 10 0 12 50 Sanitary processing facilities to rent

4 17 18 11 50

Full processing service

0 15 8 27 50

Total 32 42 26 50

Quality and certification

None 16 35 0 0 51 Generic training 25 7 13 6 51 Tailormade advice 2 3 28 18 51 Complete certification service

0 13 11 27 51

Total 43 58 52 51

Packaging None 37 11 0 3 51 Assistance in sourcing

3 3 18 27 51

Full packaging service 0 11 19 21 51 Total 40 25 37 51

Marketing and branding

None 23 26 0 2 51 Generic training 21 6 19 5 51 Brand development 3 4 29 15 51 Design of branding and marketing campaign

0 7 14 29 51

Total 47 43 62 51

Market access None 40 9 0 2 51 Create link to buyers 5 3 15 28 51 Identification and management of buyers

1 12 17 21 51

Total 46 24 32 51

49

The categorical conjoint analysis is equal to the Nonlinear Canonical Correlation Analysis (OVERALS)

method in SPSS. Using OVERALS, a categorical conjoint analysis is carried out with data from the

desirability rating, split in 2 sets as exemplary pictured in Table A2.2 for the attribute management

consultancy.

Table A2.2: Sets for the attribute management consultancy

Set 1 Set 2

None Current Generic training Unacceptable Tailormade advise Acceptable Preferred

To compare desirability values across attributes, the results were normalized, with preferred=1 and

unacceptable=0. The Nonlinear Canonical Correlation Analysis (OVERALS procedure) yields large,

unsystematic departures from monotonicity in the dependent variable (see Table A2.3). This means

that the results obtained with the data of our sample do not imply an underlying perceptual order as

expected. Because this outcome is counterintuitive and does not correspond to the results of Goldberg

et al. (1984), we will discard them for subsequent analysis.

Table A2.3: Desirability scores calculated with OVERALS

Attribute Desirability values (normalized)

Most preferred current acceptable Unacceptable

Management consultancy 1 0.23 0.82 0 Financing 1 -1.21 1.06 0 Product development 1 1.39 0.99

0

processing 1 -2.77 -0.9438 0 Quality and certification 1 0.07 0.845 0 Packaging 1 1.8 1.12 0 Marketing and branding 1 -0.1 0.79 0 Market access 1 -1.31 1.06 0

With only one variable per set, the OVERALS procedure described above is similar to categorical

principal components analysis (CATPCA). While being able to handle similar data, CATPCA offers

different options during the analysis. To complement the OVERALS procedure, CATPCA was carried

out with a different set of options. In the second analysis with CATPCA, an underlying perceptual order

of unacceptable, acceptable and preferred is assumed and forced to the data by assigning numerical

values to each of the categorical values (unacceptable=1; acceptable=2; preferred=3). Because an

underlying order for current cannot be assumed, current is treated as a missing value. Other than in

OVERALS, CATPCA allows the option to impute missing values as an extra category. As such, the

method can assign current a value independent from the ascribed order of unacceptable-acceptable-

preferred. Again, to ease comparison of all desirability values across attributes, the results were

normalized with unacceptable=0, acceptable=0.5; preferred=1; current=x.

The CATPCA analysis yields more intuitive results. As noted in Table A2.4, in five out of eight cases,

current carries a lower desirability value than unacceptable. For the management consultancy and

marketing and branding attributes, current carries a desirability value higher than unacceptable but

lower than acceptable. Only in the case of financing, the desirability value seems to be higher for

current than for preferred.

50

Table A2.4: Desirability scores obtained from CATPCA analysis

Attribute Desirability values (normalized)*

Most preferred

current acceptable Unacceptable

Management consultancy 1 0.00 0.5 0 Financing 1 1.85 0.5 0 Product development 1 -3.12 0.5 0 processing 1 -39.83 0.5 0 Quality and certification 1 -5.56 0.5 0 Packaging 1 -4.12 0.5 0 Marketing and branding 1 0.37 0.5 0 Market access 1 -2.14 0.5 0

*Quantification level of preference (normalized)

While it is somewhat reasonable to assume that most respondents were dissatisfied with their current

business solutions, and assign the lowest desirability score to their current option, two values do not

seem to reflect reality.

1. Financing (desirability score for current= 1.85). The desirability score of 1.85 suggests that

most respondents assign a higher desirability to their current option rather than their

preferred option. Intuitively, this is not in line with the responses that people gave. Table A2.5

shows that 80% of the respondents (41 out of 51) indicated that they currently have no access

to financing options. At the same time, 86% (44 out of 51) indicated that a service linking them

to financial institutions would be their most preferred option. The problem in this case is that

the number of responses for the other two categories unacceptable and acceptable are very

low compared to the other response categories. Consequently, CATPCA can no longer detect

the correct order. This problem is mitigated by running the subsequent analysis with two

different, assigned desirability values for the attribute financing. At first, a desirability value

of 0.25 is assigned, representing a desirability somewhere between the desirability of

acceptable and unacceptable. Secondly, a desirability value of -2.428 is assigned, which

represents the average desirability score for current across the other attributes.

Table A2.5 Self-expressed desirability scores for attribute financing

Financing option

none Link to financing options

Total

Level of preference

Current 41 1 42 Unacceptable 3 4 7 Acceptable 0 2 2 Preferred 7 44 51

Total 51 51 102

2. Processing (desirability score for current= -39.83). This extremely high desirability value

suggests a large gap in desirability between the current options and all other options. Compared to the values ascribed to current for the other attributes, this does not seem to reflect reality. Looking at Table A2.6, we can see that respondents gave somewhat consistent answers about the current option within the processing attribute. 88% of all responses for current fall into the none option. For the other responses, unacceptable, acceptable and preferred, responses are much more mixed. This is why CATPCA mainly makes a distinction between current and all other options, which is reflected in the object scores outcome: Unacceptable, acceptable and preferred are very close together, whereas current turns into

51

an outlier. Similar to the desirability value for current in the financing attribute, this problem is mitigated by running the subsequent analysis with two different, assigned desirability values for the attribute processing. Again, a desirability value of 0.25 is assigned, representing a desirability somewhere between the desirability of acceptable and unacceptable. Secondly, a desirability value of -2.428 is assigned, which represents the average desirability score for current across the other attributes.

Table A2.6: Self-expressed desirability scores for attribute processing

Processing option

none Sanitary processing

facilities to rent

Full processing

service

Total

Level of preference

Current 28 4 0 32 Unacceptable 10 17 15 42 Acceptable 0 18 8 26 Preferred 12 11 27 50

Total 50 50 50 150

The subsequent analyses are based on the desirability values expressed in Table A2.7. The datasets

employing desirability values of 0.25 and -2.428 for the attributes financing and processing will

subsequently be referred to as assumption A and assumption B, respectively, and denoted with (A) or

(B).

Table A2.7: Results of CATPCA analysis: desirability values

Attribute Desirability values (normalized)*

Most preferred

Current (A)

Current (B) Acceptable Un- acceptable

Management consultancy 1 0.00 0.002 0.5 0 Financing 1 0.25 -2.43 0.5 0 Product development 1 -3.12 -3.12 0.5 0 processing 1 0.25 -2.43 0.5 0 Quality and certification 1 -5.56 -5.56 0.5 0 Packaging 1 -4.12 -4.12 0.5 0 Marketing and branding 1 0.37 0.37 0.5 0 Market access 1 -2.14 -2.14 0.5 0

*Quantification level of preference (normalized)

2. Employ self-explicated importance weights

For every respondent, part worths were obtained per level by multiplying the self-explicated

importance of the respective service (data from importance rating) with the desirability values

corresponding to the answer given per level in the desirability rating. This corresponds to Equation 1.

Pwij is the part worth of level i of service j, wj is the self-explicated importance weight of service j and

uij is the desirability score of u on level i of service j.

Equation (1)

𝑝𝑤𝑖𝑗 = 𝑤𝑗𝑢𝑖𝑗

52

Table 4.2 provides an overview of the desirability values, importance weights and part worths per

level, aggregated over all respondents under assumption (A). Table A2.8 gives the information

calculated under assumption (B).

Table A2.8: Desirability values, importance weights and part worths per level (assumption B)

Service Level Desirability value

Stdev Importance

weight

Stdev Part worth

Stdev

Financing None -1.747 1.327 -0.545 0.488 Link to financial

institutions 0.835 0.545 0.260 0.197

Processing None -22.881 20.120 -3.673 4.933 Processing facilities to

rent -2.786 11.040 -0.216 0.996

Full processing service 0.620 0.450 0.095 0.117

3. Calculate values for each bundle

As a next step, the effect of self-explicated part worths on probability of investment was tested. The

values of the different bundle options were calculated for every respondent by summing up the part

worths attributed to the levels included in the respective bundle, following Equation 2. Uh describes

the total value of bundle alternative h The results can be found in Table A2.9. In line with the previous

finding that respondents generally assign a higher value to the more expensive service levels, the value

of a bundle tends to increase if more of the elaborate services are involved, even when it means an

additional price.

Equation (2):

𝑈ℎ = ∑ 𝑤𝑗

𝐽

𝑗=1

𝑢𝑖𝑗ℎ

Table A2.9: Aggregated bundle utilities and purchase probabilities

Bundle value (A)

St. dev. (A)

Bundle value

(B)

St. dev. (B)

Purchase prob. (A)

St. dev. (A)

Purchase

prob. (B)

St. dev. (B)

Set 1 Bundle 1 -4.437 6.059 -1.614 0.700 0.042 0.204 0.042 0.204 Bundle 2 -4.051 6.011 -1.228 0.774 2.500 2.226 2.500 2.226 Bundle 3 -0.039 1.529 0.507 0.458 4.917 2.145 4.917 2.145 Bundle 4 0.037 1.340 0.583 0.288 5.979 2.792 5.979 2.792 Bundle 5 0.791 0.138 0.792 0.138 6.708 3.071 6.708 3.071 Set 2 Bundle 1 -3.691 3.988 -0.408 0.844 4.222 2.395 4.222 2.395 Bundle 2 -3.814 4.089 -0.531 0.601 3.889 1.761 3.889 1.761 Bundle 3 0.675 0.234 0.675 0.234 8.630 14.500 8.630 14.500 Bundle 4 0.591 0.462 -0.534 0.571 5.833 9.198 5.833 9.198 Bundle 5 0.697 0.231 0.697 0.231 5.889 7.415 5.889 7.415

53

4. Self-expressed bundle values as predictor for probability of investment

With Uh known, a model analogous to equation (3) was fitted to the data from the bundle rating

exercise. Yh describes the likelihood of purchasing bundle alternative h. The dependent variable Yhi1i2…ij

is described by the answers given for each bundle by every respondent on a 1-10 likelihood-of-

purchasing scale during the bundle rating. The main predictor variable is the bundle value, composed

of the sum of self-explicated part worth of the bundle’s components. Since each respondent received

one out of two different sets of bundles, set was added as a dummy variable predictor to measure

possible block effects. In equation (3), s is the dummy variable for set k (1 or 2). The results of this

analysis, depicting the contribution of bundle value and set to probability of investment, can be found

in Table 4.5.

Equation (3):

𝑌ℎ𝑖𝑙𝑖2…𝑖𝑗 = 𝑎 + 𝑏𝑈ℎ𝑖𝑙𝑖2…𝑖𝑗

+ 𝑏𝑠𝑘

5. Change in perceived value of services

In order to assess each service’s contribution to probability of investment separately, a model

analogous to equation (4) was fitted to the part worths data per respondent. The likelihood of

purchasing bundle alternative Yh is described by the intercept a and the part worths wj ui1h. w

describes the self-explicated importance weight of service j, uij1…8h describes the desirability score of

level i of service j (1 to 8) in bundle alternative h.

Equation (4):

𝑌ℎ𝑖𝑙𝑖2…𝑖𝑗 = 𝑎 + 𝑏𝑤𝑗𝑢𝑖𝑗 + [… ] + 𝑤𝑗𝑢𝑖𝑗8ℎ + 𝑒

A backward stepwise regression analysis and a subsequent analysis of variance were conducted to

estimate the relationship between the services and probability of investment. A separate linear mixed

model analysis was carried out to account for variance in the unobserved respondent-specific

parameters and allow efficient estimation when there are repeated choices by the same respondent

(Revelt & Train 1998; Sandor & Wedel 2002). Another linear mixed model analysis was done to test

for interaction effects (see Table A2.10). The results were then compared with the outcomes of the

backward stepwise regression analysis. In a third step, the predictor’s relative contribution to the

model was obtained with a leave-one-out cross validation procedure (Fenwick 1979) to see how well

the model can predict individual-respondent probability of investment. Each respondents’ ranking of

the profiles was predicted based on the parameters computed for the rest of the sample. The results

of this analysis can be found in Tables 4.4a-b. Figures A2.1a-b plot the observed vs. predicted

probability of investment.

54

Table A2.10 Linear mixed effect model with interactions

Sig. (A) Sig. (B)

Intercept <0.0001 < 0.0001 Management consultancy <0.0001 < 0.0001 Finance 0.2896 < 0.0001 Product development <0.0001 < 0.0001 Processing <0.0001 <0.0001 Quality and certification 0.3379 0.3871 Packaging <0.0001 0.0002 Marketing and branding 0.0011 0.0013 Market access 0.0654 0.3223 Management consultancy : Finance

0.9452 0.6337

Management consultancy : Product development

0.1255 0.4446

Management consultancy : Processing

0.1743 0.3193

Management consultancy : Quality and certification

0.1394 0.2686

Management consultancy : Packaging

0.2023 0.1962

Management consultancy : Marketing and branding

0.0526 0.1649

Management consultancy : Market access

0.4012 0.4044

Finance : Product development 0.0029 0.1642 Finance : Processing 0.0666 0.9114 Finance : Quality and certification 0.8368 0.7209 Finance : Packaging 0.0664 0.6245 Finance : Marketing and branding 0.5953 0.4720 Finance : Market access 0.4260 0.3386 Product development : Processing 0.4986 0.0121 Product development :Quality and certification

0.6516 0.7853

Product development : Packaging 0.6219 0.9430 Product development : Marketing and branding

0.1482 0.1182

Product development : Market access

0.2488 0.2999

Processing : Quality and certification

0.2753 0.9834

Processing : Packaging 0.8150 0.7052 Processing : Marketing and branding

0.2464 0.6058

Processing : Market access 0.0821 0.6095 Quality and certification : Packaging

0.7939 0.8647

Quality and certification : Marketing and Branding

0.2382 0.8206

Quality and certification : Market acces

0.1491 0.1217

Packaging : Marketing and branding

0.4106 0.7072

Packaging : Market access 0.9986 0.5126 Marketing and branding : Market access

0.8790 0.5022

55

Figure A2.1a: Observed vs. predicted probability of investment (A)

Figure A2.1b: Observed vs. predicted probability of investment (B)