Question 1What are the key differences in marketing to‘Bottom of the pyramid’ (low Income) customers?
Bottom of the Pyramid (BOP)• The BOP approach to earning profit has gained substantial interest in marketing literature in recent years (Pitta et al, 2008)• It has awoken managers to the possibility of a double bottom line where corporations have the opportunity to merge social goals, namely alleviating poverty, with profit (Prahalad and Hammond, 2002)• However, there are fundamental differences between the top and the bottom of the pyramid• Companies targeting this sector will have to understand how the BOP segment differs from other segments and customise the marketing approach• For marketers to successfully target this segment, they will have to use new techniques and ignore what they would normally accept as truths and accepted knowledge in marketing
Key Differences• Purchasing Power• Distribution Channels• Product Modification• Marketing Channels• Consumer Behaviour and Characteristics
Purchasing Power• BOP consumers are heavily constrained by a lack of income (Subrahmanyan and Gomez-Arias, 2008)• They suffer from low and volatile disposable incomes which limits their purchasing power severely• BOP consumers live mainly at a subsistence level which means that after they satisfy the basic human needs of fuel, food and clothing they have spent 80% of their income (Pitta et al, 2008)• Due to this distinct lack of purchasing power, affordability must be at the centre of the thought process in serving the BOP• BOP Consumers are very price sensitive due to their meagre incomes and therefore the appropriate pricing of a product is of paramount importance for the marketer
Purchasing Power• Believers of marketing to the BOP acknowledge that individually low income consumers have little purchasing power but feel that together they represent massive purchasing power (Pitta et al, 2008)• The pertinent question for marketers to the BOP remains how to harness this group purchasing power and at what price?• Karnani (2007) acknowledges that due to BOP consumers lack of purchasing power, there has to be a price-quality trade off• Marketers must decide to what level this trade-off takes place to produce a desirable product and still remain profitable
Distribution Channels• The critical barrier to doing business in BOP regions is distribution access, not a lack of buying power (Prahalad and Hammond, 2002)• Therefore, marketers need to revisit their distribution channels to approach the market effectively• Vachani and Smith (2008) outline the main factors behind the lack of market access to BOP consumers;• Poor Road, Communications and Electricity Infrastructure• Escalating fuel costs adding to the cost of transportation• Lack of adequate information to make informed buying decisions and illiteracy
Distribution Channels• BOP consumers have several behavioural traits and preferences which affect the choice of distribution channels;• Prefer small neighbourhood stores• Prefer to shop close to home• In essence, BOP consumers seem to prefer to shop in stores that are close in terms of geography and emotionally• The collectivist nature which exists in many BOP markets means that consumers are inclined to shop within their immediate area where they have built a relationship with shopkeepers• Local stores often provide microfinance which can be vital for BOP consumers
Consumer Characteristics andBehaviour• Mothers, whom are mostly homemakers, make the majority of the purchasing and family spending decisions for the household fulfilling their role as wife, mother and household manager (Pitta et al, 2008)• BOP consumers tend to spend a higher percentage of their income on consumer goods (50 to 75 percent) compared to wealthier segments (around 35 percent) (D’Andrea et al, 2004)• Shop Daily and spend small amounts• Reluctant to buy products in places located far from their home• Social values – Collectivist nature, Importance of community interaction, Try to cultivate social capital• Limited and Unstable Income
Product Modification• Subrahmanyan and Gomez-Arias (2008) acknowledge that marketers face the challenge of designing relevant and practical products for BOP consumers• This may mean the redesigning of existing products or completely new products which will ultimately depend on buyer preferences in the specific market• Since Affordability is one of the key elements in targeting BOP consumers, product modification may help in lowering the price and making the product more available (Pitta et al, 2008)• D’Andrea et al (2004) believe that BOP consumers prefer products in smaller sizes due to space and income constraints• Ultimately buyer preferences in any given BOP market may differ, giving rise for the need to modify products
Promotion Channels• Effective marketing channels differ from market to market. Some of the factors which characterise BOP markets include;• Lower literacy rates• More local forms of promotion – Street performances, Local forms of theatre etc• Lack of access to conventional media channels• The presence of these barriers must be examined in order to design an appropriate promotions strategy
Q2. Are low income customersa profitable target for Unileverin Brazil?
Assessing the target market in Brazil...Population: 170million- 48million live in the NortheastIncome Per Capita: $6,600 (Southeast) $2,250 (Northeast)• 40% of population are illiterate• 53% of Northeast falls into social classes E+ or E-• Only 28% in Recife own a washing machine
Possible problems with introducing aprofitable low income detergent…• Lack of disposable income in Northeast• Risk to existing products• Challenge of sustaining Omo’s price and market share
Reasons why a low income detergentcould be profitable.....• Brazilians would love to buy Omo but tight budgets means they can only afford cheaper local brands• Clothes are washed more frequently in the Northeast- 5 times a week• Success of Nirma in India
Overall issues when deciding to introduce alow income detergent that could...Affect possible profitability...• Lack of knowledge on low income consumers• Level of existing competition• No experience of a marketing strategy that would work for this segmentAffect Unilever...• Reputation damage• Stock market repercussions• P&G introducing low income detergent and gaining market share if it is successful
Prahalad and Hammond acknowledgethe untapped potential of the poor• 65% of the world’s population earns less than $2,000 each per year- that’s 4 billion people• Assumption-poorer people have little to spend so what they do spend goes basics like food and shelter• Individual buying power may be low but the aggregate buying power of the poor is high (C.K Prahalad and Allen Hammond 2002)
Yes low income customers would be aprofitable target for Unilever• Rewards for introducing a low income detergent: growth, profits, and contributions to mankindNew Challenge:Low Cost + Good Quality + Sustainability + ProfitabilityHow is this achieved? Decentralisation• Production• Marketing• Distribution (C.K Prahalad and Allen Hammond 2002)
Cost, Profits and Margins Cost Structure • Low price point • Traditional pursuit of high margins not an option Profits are driven by • Volume • Capital efficiency Margins • Margins low but unit sales high • Focus on innovation and economic profit, opportunities lost if focus is gross margins (C.K Prahalad and Allen Hammond 2002)
Corporate Strategic Strategy to bring together.... Best of Technology Best of Technology Global Resource Base to Global Resource Base to Address Local Market Address Local Market Conditions Conditions Cheap and low quality products are NOT the goal and will not equal profits! (C.K Prahalad and Allen Hammond 2002)
In order to make a profit Unilever needto improve channels of success by....• Creating Buying Power• Shape Aspirations• Improve Access• Tailor Local Solutions
In contrast Karnani believes…• Buying power of low income customers in over estimated• Prices are set too high for these peopleOnly three ways to reduce prices… • Reduce profits • Reduce costs without compromising quality • Reduce costs by reducing quality (Karnani, A. 2007)
In Conclusion…. A cautious approach should be taken by Unilever but there is potential for low income customers to be a profitable targetCritical elements to ensure success• Assessing local market conditions• Access to detergent• Getting the Marketing Strategy right• Pricing Overall the price-quality trade off in a way that the low income customers view to be acceptable is the key
Q.3. Would a low incomeproduct cannibalize sales fromUnilever’s other detergentbrands?
Key Considerations when introducinga new product
Cannibalisation Definitions: “the process by which a new product gains sales by diverting them from an existing product” Or “the extent to which one product’s customers are at the expense of other products offered by the same firm.” There is no point in introducing a new product if the main effect is to pull customers away from an existing product. Therefore we must analyse Unilever’s existing products and estimate whether or not the introduction of a new low-income product will affect them.
Omo Would the introduction of a low income product reduce Omo’s sales?• Omo is positioned in a different segment, and is communicated as a much more luxury brand• Omo’s target market is the more wealthy, and also an occasional purchase from poorer people• The wealthy people do not want to be seen buying a low-income brand and therefore won’t migrate to the new low-income product• In market research performed by Unilever, the most important attribute of detergent was the perceived power of it. – Omo is nearly 30% ahead of its nearest rival in this aspect.• Omo has - 100% brand knowledge, 95% market penetration, and 70% top-of-mind awareness.• It is also the cash cow of Unilever’s detergents portfolio in Brazil Overall, we think the introduction would not have an effect on the sales and profit margins of Omo.
Minerva Would the introduction of a low income product reduce Minerva’s sales? Overall, we think the profit margins lost on Minerva, due to people buying anew low-income product, will not be significant and that Unilever can make substantialprofits from both products.
Campeiro Would the introduction of a low income product reduce Campeiro’s sales? Overall, given the poor people of the North-east are not priced out of range and that the marketing mix is suited to them, we think the new low-income product could steal a lot of Campeiro’s profits and make it difficult for Unilever to sustain profitability for both.
Unilever’s Decision? With these arguments in place, the important question is...what will the cannibalisation rate be? i.e. will Unilever gain or lose profits with the introduction of a low-income product? We think that with the introduction of a new low-income product, Unilever will be able to; • raise their market share in the detergent industry, • grow their profit margins even further, and • therefore continue being the market leader. But to find a more accurate estimation of this, Unilever would have to propose a marketing mix strategy that would suit both the company and the consumers!
Q4. Propose a marketing mix forlaunching a Unilever detergent for thelow-income market.
Northeast Market • 48 million people living in the Northeast of Brazil. • 40% of population are illiterate. • Northeast have a distinct culture and history, mixed Africans and European origins. • In the Northeast only 28% of households own a washing machine. • 73% of women think that bleach is necessary to remove fat stains. • NE scrub clothes using bars of laundry soap. Then add bleach and add only a small amount of detergent powder at the end to smell nice. • Clothes are washed more frequently in the NE. • NE view washing clothes as one of the more pleasurable activities of their week.
Attributes Wanted in a Detergent • Low income consumers of NE evaluate detergents on 6 attributes along with price – Perceived power of detergent (ability to clean & whiten clothes with a small amount of detergent), which is often judged by amount of foam produced. – Smell of detergent. – Ability of remove stains without the need for laundry soap and bleach. – Ease of which powder dissolves in the water and leaves no residue on the fabric. – Packaging: must be able to recognise brand and open easy. – Impact on colours least important.
Brand Strategy• Develop a new formula priced half-way between Minerva and Campeiro.• Designed specifically for the Northeast culture of hand washing.
Product• New formula, for hand washing. Using detergent instead of laundry soap.• Combining attributes of laundry soap and detergent but at a lower price than Minerva.• Containing important attributes for low-income people. – Ability to clean and whiten clothes using a small amount of detergent. – Pleasant smell with softening powder and gentleness to fabric and hands – Good stain remover without the need for laundry soap or bleach.
Product• Does not contain specific enzymes and builders which improve whitening power of detergent when used in washing machine – this will keep prices down.• Focus on making best hand wash detergent as that is how majority of NE wash their clothes.• Detergent designed for hand washing is also cheaper to produce.
Price• Pricing is key for success of new brand. Priced too high the product would be out of reach for the target market. Priced too low could increase cannibalization of existing Unilever brands.• Pricing below Campeiro could be damaging. People may not buy as perceived quality would be too low and not give people the attributes they desire.• Pricing half way between Minerva and Campeiro is the best option.
How to cut costs?• By producing a detergent product that is specifically designed for hand washing will reduce price.• Eliminating specific enzymes and builders that Unilever use for their premium brands designed for detergents used in washing machines will help reduce costs.• Keep packaging simple and cheap will help keep costs down.• Use plastic packaging instead of cardboard.• By reducing above-the-line advertising.
Packaging• Selecting the right packaging for a low income society is vital for the success of product• Packaging should be bright in colour, distinctive, simple and easy to recognise.• Must be easy to open and keep detergent safe from humidity.• Package in medium size boxes, not too large so as to be out of weekly budget range of the poorest customers. But big enough to supply 2 weeks worth of detergent.• Containers made out of plastic as it is cheaper to produce. But still resemble the cardboard
Promotion • Key message to be: Affordable quality • Have a 50:50 split for above-the-line and below- the-line advertising. • Above-the-line advertising, all budget go to television ad campaign. 70% have TV’s. • Below-the-line campaign focusing on point of purchase marketing, demonstrations, brand ambassador for the detergent, sponsorship of events (street events). Find innovative ways to get product noticed. • Product and brand have uniformity.
Place• Distribution is key in the success of a product launch to low income people.• Product need to be placed in small local shops, as low income shoppers dont shop in large supermarkets.• Hire specialized distributors who would get exclusive rights to sell all detergent in certain areas that otherwise would be very hard to reach.• Unilever seem to have overcome the distribution barrier with their previous products and should continue with the same distribution strategy as has proven successful before.
Conclusion• New product needs to be affordable but have quality.• Promotion to be aimed at low income people but not offend them. Half on TV, and half on sponsorship of street events etc.• Packaging – plastic as cheaper to produce but not lose the box look.• Place – continue with same distribution channels as well as looking into high specialized distributors to reach harder to get to places.• Price – priced in-between Minerva and Campeiro
References• Vachani, Sushil and Smith, N. Craig (2008) ‘Socially responsible Distribution: Distribution strategies for reaching the bottom of the pyramid’, California Management Review, Vol. 50, Issue 2, pp 52-84• Karnani, Aneel (2007), ‘The mirage of marketing to the bottom of the pyramid: How the private sector can help alleviate poverty’, California Management Review, Vol.49, No. 4, pp 90-111• Subrahmanyan, Saroja and Gomez-Arias, J Tomas (2008), ‘Integrated Approach to understanding consumer behaviour at bottom of the pyramid’, Journal of Consumer Marketing, Vol. 25, Issue 7, pp 402-412• Pitta, Denis A, Guesalaga, Rodrigo and Marshall, Pablo (2008), ‘The quest for the fortune at the bottom of the pyramid: potential and challenges’, Journal of Consumer Marketing, Vol. 25, Issue 7, pp 393-401• Prahalad, C.K. and Hammond, A (2002), ‘Serving the world’s poor profitably’, Harvard Business Review, Vol. 80, No.9, pp 48-57
References• Karnani, A. (2007), ‘The mirage of marketing to the bottom of the pyramid: how the private sector can help alleviate poverty’, California Management Review, Summer, Vol. 49, No. 4, pp 90-111• D’Andrea, G., Stengel, E.A. and Goebel-Krstelj, A. (2004), ‘Six truths about emerging-market economies ‘, Strategy and Business, Vol. 34, pp 2-12• Prahalad, C.K., Hart, Stuart,L. (2002) ‘The fortune at the bottom of the pyramid’ stratggy+business issue 26