How to tap the market at the bottom of pyramid

The critical success factors for BoP-oriented companies should be highly decentralised innovation and a strong focus on tasks, scale and efficiency. Product-centric firms are turning more customer-centric, as a customer and a firm can co-create value of a product. The core mother industries in a BoP milieu would include connectivity (such as mobile phones), micro-finance, and access to energy, education and healthcare. Corporations can benefit from cost arbitrage by operating in industrialised as well as BoP markets.

The people in BoP earn less than $2 a day which means they have negligible buying power. So, right now, I think we should see them as a producer rather than consumer. In this way, their ecomic power will grow which, in due course of time, will become a huge consuming market for us with such a huge population.

Though individually they consume less but are far far ahead in numbers than at the top so here comes the advantage of the above stated economy.

Companies are already tapping them , I suppose, like '10 ka chota recharge' (Panwala, Riksha Wala, Sabji Wala all using cellphones), 1 Rs Parle G, 1 Rs shampoo & many more products as such.

If Only 25% of the people here use your Only 1 Rs product; Only once in an year; still it accounts for a turnover of 1 Billion/annum & thats a handsome turnover with that, I believe.

This is important for the development of a nation. Few years ago, when AB Vijpayee was the Prime Minister, the Golden Quadrangle project was initiated to join many highways into National Highways and this segment of the people were employed as Food for Work. India has so many labour intensive project and the best way for upbringing them and also for the economic development is to make use of the resources available by employing them. They should atleast get 90 days work and develop their own skills.

To start with, the Gram Panchayat and Municipal corporation should use these workforce for constructon works and sanitary work, instead of outsourcing to MNC

Everybody is looking at them as consumers. alright there is not harm in it. But I think if we try and involve them also. Than a whole new world of opportunities will open up and we will be able to see some if not more big businessmen. This way not only their incomes will improve but also economy will see a seachange in its approach towards these people.

Survival market will continue to survive unless until they find new ways to emerge.
For this they will have to incorporate the new trends and technologies emerging to stay upfront.
These new trends and new technologies will make them consumers.

Then the divide between Emerging level and Survival level will diminish.

Emerging markets apply untraditional strategies used to integrate the world’s poor into the international economy, have a keen ability to drive innovation in unconventional ways across a range of sectors and are blessed with abundant untapped brainpower. As a result, this confluence of factors is reshaping the current global economic order.

Indeed, companies in the West and even more so those in emerging markets are starting to comprehend the potential that the lower end of the economic pyramid represents in terms of consumers and wealth generation. As Wooldridge’s report (from the Economist) highlights from , multinational corporations predict, “over 70 percent of the world’s growth will come from emerging markets. Businesses in emerging markets have been particularly adept at benefitting from this potential for growth, as they seem to have a firmer grasp of the needs of local people in these markets and the environments in which they live and work. Consumers in local emerging markets are more interested in durable, reliable goods than name brands, and firms have been providing just such products — an approach termed ‘reverse innovation,’ says the report. 

Also, realizing that lower-income segments not only desire better consumer goods, but have money with which to buy them, these companies are striving to include the poor into their distribution and supply chains, which means creating local jobs. While the incomes of this segment of emerging markets are less stable and their purchasing power a fraction of their counterparts in the West, through economies of scale, companies that are cognizant of this dynamic are able to tap into this major consumer market, and benefit handsomely. Western firms have nevertheless been quick to take notice of their counterparts’ successes and thus have reacted swiftly. As the report claims, companies in emerging markets are beginning to, not just challenge the status quo, but also build replicable business models.

In a sense, as the report argues, the West, which brought capitalism to emerging countries, now finds itself learning from its own students. The report provides several case studies that demonstrate how the poor are being brought into the world economy and how this is creating wealth for both low-income consumers and the private sector in emerging markets. It also addresses the obstacles of doing business in these upcoming economies such as corruption, inefficient services, poor distribution systems, pollution and piracy of consumer products, to name a few. 

1. Businesses not capitalizing on the country’s potential. we to enter the club of emerging markets, its leaders need to “shed their conventional approach to doing business, embrace the bottom of the pyramid, and invest in R& D inside of the country.” Piece from Report by  Christopher Le Coq

Graph highlighting the percentage change in R&D spending, say over the last decade, by the emerging economies vis-a-vis the emerged ones would have been more insightful. - 

 from wiki, a compilation of R&D expenditure as percentage of GDP:

Sweden (3.82%)
Finland (3.45%)
Japan (3.33%)
USA (2.62%)
China (1.43%)
India (0.8

For BOP Brand doesnt matter So produce any product in bulk and sell it at very

very affordable rates. Take example of China toys They capture 80% Indian market share without any recognizable brand. And India really needs them Some of the companies are addressing that segment like Parle Biscuits, Shampoo Sachet, D Mart, Rupa (For Books). There is huge scope for affordable Housing, soaps, computer, shoes. What my point is its possible to give good quality products at affordable pricing and for that mass production is the only way.

Its important to note that the BoP customers are much more value oriented than customers at the other segment. to reach them, its important to be product centric, develop a wide distribution network, and the most important part is to give them the value for their money, that THEY expect, not what WE perceive.

To reach the bottom of the pyramid, a two pronged approach is needed which essentially is a capacity building approach.

The immediate results may be visible by providing employment or  livelihood sustenance alone, this is the kind of approach that the government is following - NREGA. However, such approaches are not sustainable, because the rural masses do not have skills or knowledge to earn and raise their livelihood to full term(i.e. when the dole or the scheme is withdrawn would face a lot of hardship).

An alternate mechanism revolves around building capacities through developing infrastructure, enabling Biz environment (banking/finance/Insurance), developing skills and knowledge base at the rural level, Developing marketing linkages by innovation in solving day to day issues of WATER, Shelter, Food, Health and clothing is important.

See some innovation happening by rural entrepreneurs and Mobiles using such approach at my blog http://www.smeworldonline.com

the bottom of pyramid is highly price driven they are second layer of consumers that are price sensitive .to attract them ,a brand should directs its efforts towards creating favourable perception about the value proposition so that they could be induced into trials /or sometimes regular buyers.some buyer simply don't come to store because they perceive  it to be costly when sometime they have apt value to offer .and sachetisation have provided the required push .

As the rural mass rely more on personal references, network marketing will be a good strategy to penetrate the rural market. Other advantage also being the logistic advantage of network marketing.

By designing different brands at different consumer level we can tap different market levels.

Focusing on WHAT to market to this segment which will create value for this segment will create spirlling demand, which will take care of the HOW by itself. One needs to think about marketing tools (here knowledge is also a tool) which will create more income for this segment, which in turn will give them more disposable income and more purchasing beyond the basic survival requirement.

Pundits can possibly extend this line of thought to things more tangible.....

the countries of the world consider each birth as one more mouth to feed but they do not take into accounts that there are two more hands to work and earn.  Population rise is to be considered in the positive manner, countries should work out ways and means to employ/utilise two hands to work and the additional brain to improve the development of the country and the world.

Thought it might sound weird, but i believe that to tap bop market, we should first target products which can meet their short term goals at cheaper costs (looks unlikely that bop market would invest in long term products much), and then convert those short term products into long term products gradually meeting the cost price as well with a margin. This will ensure that bop market is able to utilise these products which are normally costly citing they will be useful forever types...also, manufacturers will be able to increase the market size and be profitable...

just for an example (not sure how good an idea it could be). In case of a mobile phone, inctead of selling phones at Rs 2-3K which will work for 2-3 years, make phones in the range of 300-500 which probably might lats an year and after an year, offer to replace it with a better quality phone at a nominal charge...just a thought...not sure whether the example is for the right product or not...can be tried with other relevant products...

Thanks

Ankur

Take a good look at BBC's website http://theworldchallenge.co.uk/

The key to transforming the BOP is to treat the people simultaneously as consumers and micro-producers. Many organizations are reaching out to this segment through the three A's of rural markets - accessibility, affordabilty and availability. However, the attempt thus far has been to extend the reach of existing products (Eg: detergents) to the rural markets through a different mode of packaging (sachets). This is not enough. Disruptive Innovation (Clayton Christensen) requires the vast segment to be provided with a value proposition that makes sense to them. This may be in the form of providing the same functionality at a lower price or a better functionality (Eg: durability or reliability) at the same price. This in itself will not transform the BOP since nothing is being done to increase their purchasing power. The latter will happen only when the BOP is facilitated into becoming a collection of micro-producers. A large number of artifacts and handicrafts can be found in our cultural heritage and micro-producers may be encouraged to take up some forgotten traditions. More to the point, the white revolution needs to be replicated in other areas that form our agricultural backbone. The real challenge is to increase agricultural productivity. Micro-finance on the lines of the spectacular achievements of Grammena Bank in Bangladesh and some state-level initiatives in India need to be implemented throughout the country. The loan recovery rate in micro-finance is much better than in conventional sectors - manufacturing or service. By turning those at the BOP into micro-producers, and providing them with easy access to distribution channels, we can create a virtuous cycle of increased prosperity that would improve the quality of life to those who have been left out of the process of development. The BOP represents a huge opportunity to demonstrate that we care. The alternative is social inequities that are the seeds of revolutions, if we care to learn from history.