12. Developing a unique approach to BOP markets and learning from the experience Fine-tuning the traditional approach
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Notas do Editor
During the past sixteen years the world has witnessed some of the most amazing global changes in world history. These include the demolition of the Berlin Wall, the unwinding of apartheid in South Africa, the rapid process of globalization, the advent of the knowledge worker, the advancement of information communication technology and the events since 9/11. In short, we currently live in the post-Berlin, the post-apartheid and the post-9/11 world. All these and other changes have had a tremendous effect on business strategy formulation and the way we think about the role of different institutions in world development.
If we stop thinking of the poor as victims or as a burden & start recognizing them as resilient & creative entrepreneurs & value conscious consumers , a whole new world of opportunity will open up . They all can be the engine of the next round of global trade & prosperity . It can be a source of innovation . The market for goods and services at the bottom of the pyramid is enormous and under utilized. Market development at the BOP will create millions of new entrepreneurs at the grass roots level . Any company could make a bigger profit by focusing on the market share consisting of people who earn less than $2 per day . One of the example quoted is Dharavi , an area in Mumbai whose claim to fame is that it is the largest single slum area in Asia. Its dwellers, not being property owners, do not spend a lot of money improving their living quarters. But they do spend money on luxury items-85 percent of households in this village own a television set, 75 percent own a pressure cooker and blender, 56 percent a gas stove, and 21 percent have telephones.
1)University of Michigan Business School professor C.K. Prahalad challenges business's common beliefs about the world's impoverished and introduces readers to the Bottom of the Pyramid (BOP), an untapped market of more than four billion people, many of whom are seen as “poor” in the public eye. This is the market companies should be paying attention to, he says, even more so than the few rarified consumers at the high-profit pinnacle, or even the growing middle markets. 2) According to the author, we need to find new and innovative approaches to rise to the challenge of this fast growing population. One of the assumptions that he makes is that the poor need to seen as a market, but one different from the conventional perception of a market. This assumption has some immediate consequences - all of the traditional business concepts are applicable but each and every one of those concepts needs to be applied from a distinct perspective. What results is a practical example of the application of innovative thinking and innovation to an intractable problem – How to cater to the more than 4-billion humans who do not form part of the target market of the organizations that are driven by conventional assumptions about products, services, value and needs.
The distribution of wealth & the capacity to generate incomes in the world can be captured in the form of an economic Pyramid . At the top of the Pyramid are the wealthy people who have numerous opportunities for generating high levels of Income . Their population is 75 -100 million & their PPP is >$20,000 & they come in Tier 1 . After that there are middle class persons who have the opportunities to generate income but less than that of Tier 1 people. They come in Tier 2-3. Their total population is 1500 – 1750 Million & their PPP is $1,500 - $ 20,000 . After that those come who are poor and are in tier 4 & 5.They consist of a major part of the total population . They must be targeted as they are untapped & can create a large amount of opportunities .
All of us are prisoners of our own ideology , thinking and perception in this by logic we mean what we think aur what we percieve , after independence of india in 1947 from britan indian government mainly focuses on public sector but due to lack of services gov. was not able to serve the BOP because of this private sector expand ignoring poor people and tageting the high end market. 2> take the eg of our politicians and bureacrates they think at that time rural popp. Was poor and urban popp. Was rich but the data does not support this distinction poverty knows no boundries in developing world more than 1/3 poppulation of urban people lives in slums. 3> Big MNcs also suffers from a deeply etched dominant logic of their own which resist their ability to see a vibrant market in the BOP for eg they think the poor are not their target customers and they cannot afford our products and as a result a whole new market as BOP can not be reached/ served.
1)The dominant assumption is that the poor have no puchasing power and therefore do not represent a viable market which is absloutely proven wrong . Poor in Bangladesh spend as much as 7% of their income on connectivity. 2)The dominant assumption is that distrabution acces to BOP market is very difficult and therefore represents a major impediment for the participation of large firms and mnc`c which is not correct .HLL created direct distribution network in hard to reach locales i.e. markets without distribution coverage thru traditional distributors & dealers 3)The dominant assumptions are poor are not brand concious on the contrary the poor are very brand concious and are also very value concious by necesity .Experience of CASAS BAHIA in Brazil & Eleckra in Mexico, two of the largest retailers of consumer durables suggests that the BOP markets are very brand conscious. 4)Contrary to the poppular view BOP consumers are getting connected and networked . They are rapidlt exploiting the benefits of information networks. Use of Grameen phone in Bangladesh & Telefonica in Brazil by the large no. of poors 5)Most of us thinks that poor people are not able to accept the new or advane technology . But on the contrary they are accepting it rapidly .ITC e-choupal & the case of Kerala fisherman who sell their catch to higher bidders by using their cell phones to contact multiple possible landing sites along the Kerala coast.
Market development means converting the poor into consumers which invloves both the private sector and the consumer. 1> in order to convert the poor we have to create the capicity to consume cash-poor and with low level of income the BOP consumer has to be accessed diferently. Traditional approach like giving for free will not work out for the BOP markets single serve paking is a revolution because as poor have the tendency to buy when they have to consume small scheche are best to meet their needs eg ; shampoo Creating capicity based on three As : Affordibility : single sereve paking without sacrificing quality. Acces : stores selling products open after working hours , stores that closes before 5p.m are not of their concern as their shopping begins after 7p.m Availibility :proper availibilty of the products should be their as poor don’t have money so they cant defer their buying. 2> involvement of private sector at the BOP can provide opportunities for the development of new products and services like : AMUL a dairy cooperative in india has introduced a good quality icecream at less than Rs10 this is not only a source of enjoyment but provides nutrituion to the poor , Bolivian a financial service company has introduced smart ATM`s specially for BOP market which recognise finger prints and speak in three local languages this innovation alows even illlitrate BOP consumers to access on 24 hr basis high quality financial service , Casas Bahia introduced a good quality line of furniture for BOP markets which is source of pride and satisfaction to company and its consumers. 3>when BOP market gets more than access to products and services they acquire dignity of attention and choices from the private sector like now farmers have gt their own dignity with the help of e-chaopuals like privously they have to sell their produce in local mandis to local merchants at their prices as they don`t have any choice but now they have access to the web and they can where , when and at what prices they want to sell their produce , talking about choice the single serve revolution has created a revolutionary level of choice for the consumers at the BOP. As the switching cost for the consumer is negligible one can go for another brand next if not satisfoed with the present one. Firms must continously innovate their products to keep custmoers intrested in their brands. 4>Both sides large firms and BOP costumers have traditionaly not trusted each other however private sector firms approaching BOP must focus on building the trust the best eg of trust between these two are BIMBO a provider of fresh bread and other bakery products to BOP customers in mexico, the truck drivers of this co. are so trusted that they are allowed by the slum people to open their shops stock them with bread and collect cash from the cash boxes without supervision. Another eg is ICICI bank in india out of its 2000000 lakh customers defalut rate is less than 1 % same with Grameen Bank in bangladesh out of their 2500000 customer default rate is less than 1.5%.
The BOP as a market will challenge the dominant logic of MNC`s the basic economics of BOP are based on the thing mentioned on the slide which is different from the large unit , high margin , high volume and reasonable return. Most of the managers asked how one can earn profit out of 0.01$ in retail but in country`s like china or brazil such prices products are the best suitable in the form of single serve , products developed for the BOP market should be user friendle like if one company is manufecturing mobile it can not produce the same mobile for BOP markets as people in the BOP market are illitrate and they can not understand its funtioning through manual , but they are ale to see and hear so video enabled cell phones are more appropriate for this market.
1> serving BOP makets is not just about lower prices , it is about creating a new price performance envelope. Quantam jumps in price performance are required to carter to BOP markets. 2>BOP markets problems can not be solved with old technologies it need most advanced and emeging technologies that are blended with old technologies and rapidly evolving infrastructure. 3>As BOP markets are large solutions that are developed must be scalable and transportable form countries , culture and languages.solutions must be designed for ease of adaptaion in BOP markets 4>products that are developed for BOP markets should be eco friendly like it should aim at conserving resources:eliminate , reduce and recycle. 5>before developing a product for BOP there should be a deep understanding of this market for eg a wahsing powder that works in controlled conditon of washing machine can not work in outdoor moving stream. 6>there should be process innovation as product innovation a traditional process to reach cutomers with certain assumptions will not work with bop markets they need to educate them the BOP people . 7>most BOP markets are poor in skills the design of product must take into account the skill level , poor infrastructure and difficulty of access. 8>educating the customers is the key. As BOP markets is in the media dark zones that means no access to tv or radio , new and creative approaches are required like product dermontration in villages. 9>products should be developed to accommodate the low quality of infrastucture such as electricity ( fluctuations , blackouts) 10>products developed for BOP markets should be as per their culture , language and skill. 11>innovations must reach to BOP markets so they should design methods to reach the poor at low cost. 12>for example challenging the grid based supply of electricity as the only available source for providing good quality , inexpensive enerygy is possible and necessary in isolated BOP markets.
Some BOP markets are very large and attractive Local innovations can be leveraged across other BOP markets Some innovations from the BOP markets will find applications in developed markets Lessons from the BOP markets can influence the management practices of global firms
There are two ways in which large firms tend to engage the BOP markets. The tradiotional approach tha MNC`s start from the top of the pyramid and then goes to bottom , this practise is fine tuning of current products , services and management practices. There is a evidence that this approach is a faliure. MNC`s have start from the deep understanding of the nature and requriments of the BOP , this approac will not only allow large firms to succed in local markets but will also provide knowledge base to challenge the way they manage the deveoped markets. BOP can be a source of innovation for only products and process but business models as well.
There are two types types of curves that measure the diffusion of innovation in product nad services like the traditional s curve and the new I curve . Product and services that lasted for almost 15 years in developed markets are collapsed to just three or five years in mant BOP markets. According to M.S banga real challenge is to cope up with I curve . There is good news and a bad news like a cell phone today is a watch , telephone , camera , a computer. Then one need a traditional watch if one had a cell phone . The I curve rapidly propel some innovaiton and can equally destroy some traditonal markets.
In India through a research is done by encapsulation of iodine salt to preserve the iodine in the harsh conditions of transportations , storage and cooking in india has found market opportunities in africa andtanzania, iodine deficeiency disorder is common accros developing world the sloution found in india is transported to other similar markets. 2>HLL launched wheel for BOP markets in india which is huge success and it is one of the largest brand in HLL portfolio , by seeing the success in india unilever launched a similar product for BOP called Ala in brazil which was a runaway success. 3>grameen bank started microfinancing in bangladesh , loans strating from less 20 $ in this they were totally focused on BOP customers , presently there are more than 17000 microfinance operations that are variants of grameen concepts around the world including usa. 4>Arvind eye care in similar vein is training doctors to establish a low cost , world class delivery sysytem for eye care in south africa , combodia and vietnam.
Big MNC`s have to learn a lot of lessons from the BOP markets. 1> the judicious use of capital is critical element of success in BOP markets. For eg in case of aravind eye care in south africa it has most modern equipment available in any facility of the world but there costs are dramatically braught down by their ability to use equipment they specialise in eye care so all the doctors nurses perform average 50 surgery everyday out of which 40 % patients pay but then also no debt as the productivity and volume at aravind is the basis of their profitiblity.` 2>BOP markets are great source for experimentation on sustinable development as resources like water , energy , transportation are scarece and limited MNC`s develop new products and services , like now in other parts of the world more fuel efficient two wheelers are produced. 3>BOP markets is great source of innovation as sort of products are to be develped as per their interface , culture and language as in the case of Electra in mexico developing Smart ATM`s with audio and video interface.
The need of building an ecosystem for wealth creation for the development of BOP is obvious frm the previous slides. Ecosystem should be such that it supports BPO markets frm all aspects . There have been few attempts to focus on the relationships between various private sector and social institutional players that can lead to a rapid development of the markets a the BOP. The private sector in the BOP context includes social organisations of different kinds that interact to create markets and develop appropriate products and services and deliver value. A Proper business system the heart of the ecosysytem for wealth creation.
The evelvement us economy In the late 19 or 20 centuries might not be a godd basis for presscriptions on how brazil or south africa should evolve , the compititve conditions , the availibility of new technologies , the nature of resources endowments and educational infrastructure are vastly different. 2> to understand the private sector ecosystem let take a FMCG company that`s HUL. The latgest gmcg firm in india is HUL and is 2.3 billion $ company with a wide portfolio of persnal care and food products. Ecosysytem consist of 6 components : 1>operates 80 manufecturing facilities 2>a dedicatede supplier base of 50000 to 60000 peple 3>exclusive stockist 7250 who distrabutes products nationwide 4>wholesellers 12000 and retailers 3500000 5> Shakti a direct distrabution sysytem in rural areas 6>An advisory realtionship with indian government to help tribal areas. For developing countries a nodal ecosystem is required like HUL that is global standards with local needs.
Disruptive innovations could enable a larger population of less-skilled, ordinary people to do things in a more convenient, lower-cost setting, which traditionally could only be done by specialists. Disruption has been one of the fundamental causal mechanisms through which our lives have improved. • Personal Computers • Mobile Phones Almost always, disruptive innovations such as these have been ignored or opposed by the leading institutions in their industries. [They also missed capturing the BOP opportunity with DI!]
3>• In mid 90s, modified the NTT-DoCoMo’s PHS wireless system to create PAS/Little-Smart to provide a limited citywide mobile phone in China. • Introduced in 1999, its much lower cost-of-use attracted customers who could not afford GSM mobile phone services, much to the surprise of market watchers. • In 2004, PAS subscribers hit 65 million, creating 2004 revenues of more than US$2 billion and over US$1 billion for UTStarcom and ZTE (which entered the market in 2001), respectively. [ Succeeded in reaching the BOP market in China ] 1>• In 1992, developed a new microwave oven for the tiny Chinese kitchens ( instead of using its low-cost labour to build a low-end product for export to the developed countries ). • After winning the Chinese low-end market, moved upmarket to serve both local and global markets. • In 2005, holds 75% of Chinese market and nearly 50% of global market in microwave ovens. (> 500 patents) • Since 2000, has started to repeat the same strategy by developing air-conditioners for tiny Chinese homes. Within 4 years, became No. 2 Chinese air-conditioner exporter. 2>• Brought wireless telecom service to Bangladesh. • It loaned US$175 each to women who became known as “ wireless women of Grameen”. The loan covered the mobile phone’s cost, training, and a small solar recharging unit. The women then sold phone usage on a per-call basis at an affordable price to other villagers. • The service allowed farmers to get vital information such as crop prices without traveling great distance. They could place orders with distributors…. • Created a very profitable US$100M/year business for Grameen and the future up-market potential could be tapped for many years to come !
Need to remember that one should not impose a first-world business organisation to one addressing the BOP opportunity (e.g. it needs patience, needs to start small, needs to innovate in cost structure to enable profits to be earned at low price points, needs to be build new processes and capabilities, etc) • Unique opportunities for creating products/services in BOP — e.g. cell phones could be used as electronic wallets linked to mobile accounts for Filipinos who do not have a bank account or credit card.
A skeptic might question the rationality of Prahalad’s vision and goals. The truth is, as the author readily admits, that we have “a long way to go before the social transformation of inequalities around the world will be accomplished”. But being a long way from reaching that goal should not be a deterrent in working towards it. Indeed, if what is happening in the hi-tech industry is anything to go by, companies have no way but to find unique ways of servicing the BOP if they are to compensate for the trend of slowing growth in over-consumed developed markets. Globally, this is a movement in the making that will affect each and every human being in the broad sense. The book’s content is a challenge to the way in which we approach the world. And the responses to the challenges are illustrated by powerful and convincing examples. It is only a very obdurate mind that will not receive an dose of ground-breaking thinking and zeal for the opportunities that can be created by adopting an altered and innovative approach with respect to one’s business activities concerning the bottom or for that matter even the top of the pyramid. After all, Which entrepreneur wouldn’t want to “save the world”, get famous and make some money while he is at it?
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