Affordability Learn how to correctly analyse this topic.

Sarah Simon

25 min Read Time | December 24th 2021

Key takeaways

1

The topic aims to uncover how a product/service’s price boosts or hinders consumers’ ability to access basic needs, especially in the context of underserved/low-income populations.

2

The topic might cover the affordability of clothing, food, utilities such as energy, water and gas, connectivity, automobiles, etc.

It does not include luxury goods but only should consider basic needs. This is often a B2C topic.

3

This topic shall cover the positive or negative impact.

What is it?

Affordability is defined as the extent to which something is affordable, as measured by its cost relative to the amount that the purchaser is able to pay.This topic is intrinsically connected to basic needs; therefore determining how much an individual is able to access daily life necessities. If a product is not affordable, lower-income families or the average person might refrain from accessing and thus benefiting from a product and/or service.

Basic needs comprehend “food (including water), shelter, and clothing. Many modern lists emphasize that the minimum level of consumption of basic needs also includes sanitation, education, and health care.” The list can be larger including energy, internet services, etc.

Sources

https://www.definitions.net/definition/affordability

https://pallipedia.org/basic-needs/

SDG poster UN emblem PRINT 2020

SDG Choice

The SDG choice depends on the product or service discussed.

Example: Affordability of Energy companies - SDG 7

General Impact Assessment

To measure whether a product or service is affordable or not will depend on the industry the company is in, or the groups of products/services the companies offer. The guide is, therefore, broken down per group.

No matter the industry or the group, all analyses treating this topic should consider the following points:

1/ The headline should clearly state whether the cost of such goods or services is below, inline, or above the industry or country average, rendering it either affordable or unaffordable.

It can include a quantifiable metric to disclose the absolute impact.


2/ To describe the scale of the impact, take into account:

2.1 The breadth of the impact

  • Is the impact local, national, or global?

  • How many individuals are affected by this activity?

2.2 The depth of the impact

  • Is the well-being of the community/people profoundly affected, or does the issue just marginally impact them? How so?

  • Are the changes brought by the company profoundly changing society or the planet? How is the group coping with the external impact brought upon them?

2.3 The persistence of the impact

  • How long would the impact described last for? Months? Years? Decades?

  • How reversible is the impact described in the impact analysis? Can it be easily stopped/extended?


3/ CONCLUSION

It should wrap up the above discussion keeping the most salient information for the reader to correctly grasp the impact.

It should aim to answer the following questions:

  • Are the company’s products or services affordable or unaffordable?

  • If not in line with the industry average, then by how much?

  • Is it, therefore, ultimately hindering/boosting access?


Below you will find a breakdown of products and services including the way to treat their affordability that is industry and product/service-specific.

Essential Consumer Goods: Apparel, Accessories & Footwear, Household & Personal Products

The introduction shall explain why it is relevant and important to address the affordability of a company’s clothing products. It should try to answer the following questions:

  • Why is clothing important to consumers? Is it a basic need?

  • What is the relevance of clothing in people’s daily lives? How does it allow self-expression, protection from the environment?

  • If possible, how many people or what share of the population might be affected by the unaffordability of clothing (where the company has the greatest presence)?

  • Disclose the average price spent by people on clothing per month/per year (this is useful for comparison/benchmarking with products’ pricing).

Example:

One fundamental human right is clothing because it allows one to go to work, socialize, be educated, be protected from the environment, and other actions that help reduce poverty1. Clothes must be considered as part of the standards of quality living and realization1. Anyhow, 9.2% of the global population survives on $1.90 a day or less, meaning they cannot afford even basic clothing3.

In the US, 40% of the population struggles to afford basic needs, including dressing4. On average, the middle-aged adult in the US spends $161-$209 in clothing per month, and the average family spends $1,800 per year on clothing7.


THE BODY:

The body is crucial in proving how a product/service is relatively more or less expensive vis-à-vis the average price of the same in X country and/or globally (depending on the reach of the company and angle chosen).

It is important to select a basket of necessary basic/most bought/sold goods by the company. Discussing multiple items (at least 3) will allow for more nuanced analysis and basis for comparison within the industry.

Caution: We will not accept analyses based on only one product as many companies sell multiple and varied products.

You should aim to answer the following questions:

  • What is the company’s market share?

  • How many people purchase the products offered?

  • What is the basket of goods selected? Should not be luxurious goods, but focus on more basic products (T-shirts, undergarments, sockets, etc.)

  • What is the cost of these products?

To compare/benchmark with the above products’ pricing:

  • What is the average cost of the above in X country?

  • Depending on data availability, you can provide added value, such as the average price of the same products from cheaper brands and/or average price from more expensive brands - but companies that are still comparable and close competitors in the industry).

Example:

Hanes is a global apparel-maker with a presence in +40 countries in 20205. The volume the company sells is quite high, making it the 10th-largest apparel company in the world6.

Hanes is a reasonably affordable brand; as an example, on its website for the US, a pack of 6 cotton women's underwear can cost as little as $9.998, women's leggings and pants start at $162, and its cotton t-shirts' prices start at $109. The average price of these items at a cheap store in the US is $20, $42, and $17.5, respectively, putting Hanes' products at a lower price than its competitors10. At a more expensive store, these can cost more than $15, $32.5, and $30 per just one item, making Hanes' products even cheaper10.”

Good indicators to include:

  • How affordable a company’s clothes are in absolute terms ($ or €) and in percentage (%)

  • Comparison to the industry average: between the Company and average prices in Country X (this might not always be available),

  • If unavailable, you can make a competitor comparison: Company with the average price between Competitors 1, 2, and 3 (main competitor in the market).

Analysis example: https://app.impaakt.com/analyses/32166/hanes-offers-affordable-clothing-in-40-countries-worldwide

Technology: Hardware, Software & IT Services

INTRODUCTION:

The introduction shall explain why it is relevant and important to address the affordability of a company’s products/services (i.e., photography, smartphones, computers, software services). It should try to answer the following questions:

  • Why are the products/services offered important to consumers?

  • What is the relevance of hardware/software in people’s daily lives? Does it allow self-expression, well-being, and/or productivity?

  • What is the average cost of these products/services for the industry or in the country/globally (average price and/or minimum & maximum prices).

  • Considering an average income, how much is spent on those products on average?


Example:

Photography is important as it frames moments, helps us remember better, tells us stories, can be a therapy tool, allows us to express, create art, and share with others1. Photographs can be influential, impactful and communicate certainties of facts that are happening all around the world, aiding us to communicate to others and connect1.

However, the tools to be a photographer can be expensive; the intermediate gear can cost up to $2,000, and a professional set +$4,0002. In 2019, the world's net income per capita was $9,484, meaning that, to be a professional photographer, the average person should spend more than 1/4 of their yearly income, and even more in countries with lower wages3.


THE BODY:

It should try to answer the following questions:

  • What is the company’s market share?

  • How many people purchase/use the products/services?

  • Taking the lowest-priced product, medium-priced item, and highest-priced product, what is the price?

  • How does this compare to the industry average?

  • If this is unavailable, benchmark it with the main competitors for the same range of prices/type of product/service.

  • Are the company’s products/services below, inline, or above the average price for the same ones?


To compare/benchmark (alternative):

  • You can come up with one average price figure for the company’s products/services by averaging the prices: (low price + medium price + high price) / 3 = average price.

  • Should compare the same products to competitors.

  • You can apply this whenever you need only one general average figure to draw the affordability discussion.


For instance: We know that in the US the average cost of X product is $100. We do not have the average price for Company 1’s products/services. We have a range of prices however depending on the product or service for the Company. We pick the lowest priced one: $100, one middle priced one: $150, and one high priced one: $200. The average is equal to $150 (100+150+200 / 3). Therefore, Company 1’s average product price is $50 more expensive than the average price in the US.

Example:

Nikon is the 3rd most important producer of photography gear worldwide, with 13.7% of the market share and selling an estimated +1.137Mn units in 20194. Its cameras are considered some of the best in the market5, but are quite expensive in 2021, especially against its main competitors, Sony and Canon6,4. For example, Sony offers its cheapest intermediate camera at $668, while Nikon's most affordable and similar model costs $1,096 (+60%)7. Nikon's high-end cheapest camera costs $2,236, while Canon's offers a similar model at $2,085 (only 93% of -Nikon's)7.


    Analysis Example - Hardware:

    https://app.impaakt.com/analyses/36977/nikons-products-are-more-expensive-than-its-competitors-sometimes-more-than-double

    Analyses Examples - Software & IT Services:

    https://app.impaakt.com/analyses/35940/-80-percent-of-all-lowcost-airline-seats-flown-worldwide-in-2019-were-in-amadeus-platform

    https://app.impaakt.com/analyses/41633/worday-is-the-3rd-most-expensive-hcm-provider-among-the-top-5-market-competitors


    Mobility: Automobiles

    To treat the affordability of cars, we recommend using the sources below:

    1/ To calculate the personal loan (calculator): https://economiapertutti.bancaditalia.it/calcolatori/personal-loan-calculator/

    2/ The World averages to know about the lending interest rates:

    https://tradingeconomics.com/country-list/bank-lending-rate

    3/ The below statement to benchmark the affordability of the car: 

    An affordable car is regarded as one that costs 10-15% of a person's annual income, including its re-payments and other expenses3.


    INTRODUCTION:

    The introduction shall explain why it is relevant and important to address the affordability of cars. It should try to answer the following questions:

    • Why are cars important for society?

    • What is the relevance of hardware in people’s daily lives? Does it allow self-expression, well-being, productivity, mobility?

    • Mention how much should be spent on a car (maximum) out of one’s annual income.

    • (Optional) add any other data that might be useful to describe the affordability of cars, i.e., did prices increase lately?

    Example:

    Automobiles have a vast impact on shaping the economy2. Owning a car offers privacy, safety, time flexibility, and a means to avoid exposure risk during health emergencies2. A car is more of a necessity in the US, and owning one is considered a lifetime investment2. An affordable car is regarded as one that costs 10-15% of a person's annual income, including its re-payments and other expenses3.

    Compared to a decade ago, a new car/truck now costs 38% more, while the average transaction cost rose by 50-70%, making them unaffordable for ordinary people (working-class people)4.


    THE BODY:

    It should try to answer the following questions:

    • What is the company’s market share?

    • How many cars were sold by the company in the latest year?

    Caution: the analysis should tackle the impact in absolute terms, ideally. This might not be possible on many occasions. Therefore, the analysis should focus on the country, region, where the company has the most sold cars (largest impact).


    What is the average price of the company’s cars offered?*

      1. Insert the cost into the personal loan calculator under “loan principal amount” → here

      2. Look at the average loan interest rate in the country under investigation here

      3. Insert the average loan interest rate into the loan calculator under “annual interest rate” → here

      4. Insert 72 months as the average loan term as stated in this source

      5. Click “Calculate” to obtain a monthly instalment result

      • Is the monthly instalment (transformed into yearly) meeting the criteria in the introduction stating that a car is affordable if it “costs 10-15% of a person's annual income”?


      What we want to know is the cost of a car for a specific company, versus the comparison to the average cost of an affordable car.

      I.e. the cheapest car costs $10,000, and on average people pay 2-3% more than the cost of the car mentioned due to loans/registration fees/etc. (ballpark figure). Together, this is more or less than the average cost of an affordable car.

      On average, people end up paying X% more than it costs, i.e., “The base cost of the car + X% as this is the average amount”

      If the figure does not exist, can look at a stack ranking.

      Repair cost: find the average repair cost for any given company or stack ranking of the brands with the most affordable maintenance and repair costs.

      Example:

      After following the above first 5 steps, we obtain a $686.88 monthly instalment in the US for a car costing $44,877. (12,481)

      Yearly, a person will spend $8,242.56 on instalments ($686.88*12), meaning a person buying this car spends 8.4% of its annual average income ($97,974) to afford this car. Thus, this car is in line with the definition of 10-15% provided in the introduction, rendering it affordable.


      *If the average cost of the company’s cars is unavailable:

      • Estimate the average cost yourself:

      • You can do this by taking 3 least expensive cars, 3 middle range cars, and 3 most expensive cars from the company

      • Average the above to obtain one average figure


      **If the average transaction cost in a region is unavailable:

      • To estimate the average transaction cost in a country, look into the most sold brands in a given country/region.

      • Pick 3 low priced branded car costs, 3 medium, 3 high, and calculate the average.


      To provide added value, look into the following:

      1/ How affordable/expensive the company’s products are compared to the average car transaction cost in a country, or compared to the industry average, and/or to main competitors.

      2/ What are the maintenance costs of the car (optional)? 

      3/ Assessing whether the average price of a car is within the 10-15% rule is important, yet it might be more expensive than close competitors and/or the national average. This means that it might still not be the cheapest option even though it is considered affordable.


      Analysis Example: https://app.impaakt.com/analyses/36143/stellantis-average-car-price-is-9-percent-more-expensive-than-the-average-american-transaction-car-price

      Feed the World: Processed Foods

      INTRODUCTION:

      The introduction shall explain why it is relevant and important to address the affordability of food. It should try to answer the following questions:

      • Why are the products offered vital to society?

      • What is the relevance of food in people’s daily lives?

      • How many people and who in such areas are affected by food insecurity? (Note that the answer of this question depends on imports)

      • What is the role of food retailers to combat food insecurity?


      Example:

      ~3 billion (Bn) people cannot afford a healthy and nutritious diet with fresh food1. The poorest families can spend up to 63% of their income to afford it1. People living in low-income, underserved areas often make do with the less healthy and more expensive foods sold in smaller local stores2;p6. Large food retailers are uniquely positioned to close the worldwide grocery gap between the rich and the poor2,p17.

      Commodity prices in Sweden are high compared to other countries; in 2021, food prices had risen substantially in the nordic country3,4;p1. The majority of the country's population is not poor, but more than 600,000 (6% of its 10.3Mn population) fall under low-income standards, and this number is rising rapidly as in 2016, only 1% of the Swedish population suffered severe material poverty and was unable to afford nutritious food for their necessary daily intake5. Newcomers to the country (migrants) are some of the most affected by the high prices3.


      THE BODY:

      It should try to answer the following questions:

      • What is the company’s market share?

      • How many people benefit from its products (reach)?

      • Select a basket of basic food needs that can be bought from the company?

      • What is their cost?

      • How do they compare to the industry or country average?

      • If unavailable, benchmark it with three main competitors using the same comparable basket of basic food products (to calculate an industry average).

      • Are the prices above, in line, or above the industry/country average?

      • Is the company providing daily discounts? Loyalty programs? (This can only be discussed if this has not been captured in the Core Business Impact topic)


      Example:

      ICA Gruppen is the biggest Swedish grocery retailer with 35% of the market share in the country6;p1, reaching +1.68Mn Swedish households each year (3.18Mn individuals according to an average household size of 1.9)7,11.

      According to ICA's customers, the store brings high-quality groceries at affordable prices3. As an example, by buying 1kg of apples, 1 box of cereal, half dozen of eggs, 1L of milk, and 1kg of potatoes at ICA Maxi store, the customer will pay €6.53, while at Willi's, they will pay €6.64 (101.7% of ICA's), at Lidl, they will pay €6.89 (105.5%), and at Coop, they will pay €8.51 (130%)9.

      Moreover, the company offers daily discounts to its regular customers registered at its loyalty program, returning €2 to €15 every month to each one8. A year and a half after launch, there are ~5Mn regular customers currently registered on the program10;p4.

      Analysis Example: https://app.impaakt.com/analyses/36981/ica-reaches-3mn-individuals-each-year-with-affordable-food-prices-cheaper-than-its-competitors


      Utilities: Gas Utilities & Distributors, Electric Utilities & Power Generators, Water Utilities & Services

      INTRODUCTION

      The introduction shall explain why it is relevant and essential to address the affordability of energy products/services. It should try to answer the following questions:

      • Why are energy products/services essential to consumers? Is it a basic need?

      • What is the relevance of energy products/services in people’s daily lives?

      • What are, then, the side-effects stemming from the unaffordability/affordability of energy products/services?

      • How energy affordability is a critical factor in boosting/hindering access to basic energy coverage for people

      • (Optional) add any other data that might be useful to describe the affordability of energy products/services, i.e. Did prices increase lately?


      Useful for comparison/benchmarking with products’ pricing:

      • Disclose the average monthly amount spent on residential energy consumption in a given country/region/globally

      • The average monthly median and minimum salary earned of an individual working in that country/region, and what percent (%) is spent on residential energy consumption


      Example:

      Energy poverty can cause severe health problems, including heart and mental diseases1;p2. Japan's electricity rates were 22c/kWh in 20198 and 26 c/kWh in 2020, 89% higher than the global electricity price (13.7c/kWh) for households4. Energy poverty has been defined "as having to pay more than 10% of the households’ income" in basic energy needs1;p2. The percentage of Japanese who could not afford electricity varied from 6.8% to 13.2%, depending on the region2;p2.

      An average Japanese household spent USD101 per month on electricity in 20193. With a rate of 22c/kWh, this means an average household consumed 460kWh. The average Japanese household disposable income is $26,0006, thus, the average Japanese spent 4.7% of their annual income to pay the yearly bill in 2019.


      THE BODY:

      It should try to answer the following questions:

      • What company is the note about? What is their market share?

      • What is the company’s average cost of energy services/products? (Y) If information is available

      • Using Y, calculate what % of the monthly median and minimum salary an individual would spend on the company’s energy products/services.

      • Compare the company’s average monthly energy services/products cost with the national average monthly spend on residential energy consumption


      Example:

      Emera, a Canadian company wholly owns a subsidiary Nova Scotia Power (NSP) that delivers electricity to 500,000 residential, commercial and industrial customers in Nova Scotia, Canada4. NSP electricity charges are 12.76c/kWh along with a monthly charge of $8.635. Thus, an NSP customer spends $72.44 for a 500kWh electricity consumption and $136.24 for a 1000kWh electricity consumption5.

      The average electricity price in the province of Nova Scotia was 13.63c/kWh (including all costs) for 1,000kWh monthly consumption in 20201, thus, the electricity charge per kWh of NSP is lesser than the state’s average. A resident of Nova Scotia earned an average of $38,853.09 in 20202, thus, the customer of NSP spent around 4% of their annual income to pay the yearly electricity bills. In 2019, the poverty rate of Nova Scotia was nearly 12.1%6, thus, nearly 60,500 NSP customers may be struggling to pay the electric bills4.

      Analysis Example: https://app.impaakt.com/analyses/29260/emeras-customers-spent-around-4-percent-of-their-annual-income-to-pay-the-yearly-electricity-bills-in-2020

      Connectivity: Telecommunication Services

      The services offered by telecommunication companies to provide connections to the internet or some other communication network to end-users. These services include; Mobile voice plans, Internet, Tv connection, etc.

      Companies may offer more than one of these connectivity services. Depending on the services offered, if only one makes up the majority of the company’s portfolio, then the analysis can focus on that.

      If the company is offering more than one of these services, make sure to discuss their affordability as long as they make up a majority of its portfolio.

      Focus on B2C services.


      INTRODUCTION:

      The introduction shall explain why it is relevant and important to address the affordability of connectivity services. It should try to answer the following questions:

      • Why are connectivity services important to consumers? Are they a basic need?

      • What is the relevance of connectivity services in people’s daily lives? For example, are they essential to businesses, schools, hospitals?

      • What are, then, the side-effects stemming from the unaffordability/affordability of connectivity services?

      • How connectivity affordability is a critical factor in boosting/hindering access to basic connectivity of people

      • (Optional) add any other data that might be useful to describe the affordability of connectivity services, i.e., did prices increase lately?


      Useful for comparison/benchmarking with products’ pricing:

      • Disclose the average monthly amount spent for connectivity services in a given country/region. If there are no proxies use the average price of three competitors of the company

      • The average monthly median and minimum salary earned of an individual working in that country/region, and what percent (%) is spent on connectivity services


      THE BODY:

      It should try to answer the following questions:

      • What company is the note about? What is the market share?

      • How many people benefit from it? 

      • What is the company’s average cost of connectivity services/products? (Y) If information is available

      • Using Y, calculate what % of the monthly median and minimum salary an individual would spend on the company’s connectivity services.

      • Compare the company’s average monthly connectivity services cost with the average monthly spend on connectivity services.


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