Bottom of the Pyramid - Barriers, Risks, Solutions

BARRIERS, RISKS AND SOLUTIONS
F O R T H E B O T T O M O F T H E P Y R A M I D
Sameer Mathur, PhD (http://smathur.com)

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Disclaimer: These teaching materials have been compiled from multiple, non-creditedsources for non-profit, academic use. Copyright is retained by the original content creators.
SameerMathur, Ph.D.
Assistant Professor (Marketing)
Web: www.smathur.com
Email:sameer.mathur@mcgill.ca
Twitter: @ProfessorMathur
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BOP Markets for MNCs
Some success in industries like telecommunications, FMCGs and pharmaceuticals
Many other firms face difficulties in reducing costs and prices to serve BOP consumers
Eg: Procter & Gamble’s PUR water purification for BOP markets was not profitable enough and had to be moved under the company’s philanthropic arm

BOP Markets for MNCs
The BOP market is not useful for all companies, products and supply chains, irrespective of their motivation
Many innovations come from organisations outside the mainstream in their industries
Examples:
Microfinance by NGOs
Mobile money by Telecom providers
Micromortgage companies in India by inexperienced entrepreneurs with little housing-sector knowledge

Barriers to BOP business success

Uncertain cash flow
Consumer cash flow is a major issue
BOP consumers are not only poor but also live in a state of uncertainty
Immediate payments for many products is not feasible
Eg: Many small farmers in Kenya do not buy fertilizers as they cannot afford the 50kg bags it comes in

Solutions
Reducing up-front payments by using credit
Accepting payments in instalments
Pay-per-use strategies Eg: Private primary education in Ghana, irrigation pumps in India, clean drinking water in the Philippines
Re-packaging products in small amounts / sizes

Gauging Demand
Common MNC mistake: No point in marketing products consumers don’t want (confusing need with demand)  Most consumers would buy a cell phone over a solar powered lantern or a low-energy stove
If the demand has to be generated through marketing then this increases prices and costs which is not BOP viable

Solution
Focus on areas where an existing demand can be satisfied with low-cost and high-quality products
Eg: Safaricom’s M-Pesa Offers money transfers by mobile phone in Africa at 33% of the cost of other organisations like Western Union

Sales and Distribution challenges
Although numerous, BOP consumers are largely rural and highly scattered
Difficult to manage face to face and cash-based interactions
Challenge is beyond initial sale – high cost of meeting repairs and warranty replacements in far off locations

Solution
Building a dedicated channel to serve the market and teaming up with partners which have extensive reach in the market
Eg: Hindustan Lever’s Pureit water filters are marketed through a partnership with microfinance institutions

Disaggregated providers
Small suppliers have rare access to high-quality inputs, they lack inputs, training and financial credit and have an unreliable output
Solution : Company assistance through training, pre-determined contracts and provision of inputs

Undeveloped business ecosystems
BOP lacks business ecosystems required for products and services
Eg: A rural entrepreneur who buys a cow may face difficulties in finding cheap and easily available vetinerary services

Solution
Innovative companies may address holes in the eco-system by supplementing value chains end-to-end
Eg: Amul, that buys milk from 3 million farmers, also arranged for artificial insemination services for its small producers

Factors to consider

BOP challenges and risks
Image  Must demonstrate that commercial returns help to further community development sustainably rather than come at the expense of the poor
Brand  Low-end versions of a brand may reduce its attractiveness to customers – one solution is creating a distinct name for a BOP product

BOP challenges and risks
Cannibalization  New low-cost product may cut into sales of mid-range products – one solution is selling through different channels
Underestimating the competition  Numerous competitors in the informal economy – local competitors can be involved through employment, roles in the value chain or sourcing from them

Summary – BoP Barriers

Factors to consider

Background Reading
Is the Bottom of the Pyramid Really for You?
By AshishKaramchandani, Mike Kubzansky, and NishantLalwani
HBR, March 2011
http://hbr.org/2011/03/the-globe-is-the-bottom-of-the-pyramid-really-for-you/ar/1

These slides were featured on SlideShare.netin August 2011

FREE TEACHING
RESOURCES
ON MARKETING
MANAGEMENTATWWW.SMATHUR.COM
OVER 130,000 VIEWS
FROM 96DIFFERENT COUNTRIES
These presentations are part of Sameer Mathur's teaching portfolio.
They are free to view or download for non-profit, academic use.
Disclaimer: These teaching materials have been compiled from multiple, non-creditedsources for non-profit, academic use. Copyright is retained by the original content creators.
SameerMathur, Ph.D.
Assistant Professor (Marketing)
Web: www.smathur.com
Email:sameer.mathur@mcgill.ca
Twitter: @ProfessorMathur
Facebook:Click Here

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Bottom of the Pyramid - Barriers, Risks, Solutions

by Sameer Mathur on Aug 27, 2011

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