Bottom of the Pyramid - Barriers, Risks, Solutions

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Bottom of the Pyramid - Barriers, Risks, Solutions Bottom of the Pyramid - Barriers, Risks, Solutions Presentation Transcript

  • BARRIERS, RISKS AND SOLUTIONS FOR THE BOTTOM OF THE PYRAMID Prof. Sameer Mathur, Ph.D.
  • Sameer Mathur BuddingMarkets.com Marketing Professor 2009 – 2013 Ph.D. and M.S. (Marketing) 2003 – 2009 Marketing Professor 2013 – Indian Institute of Management, Lucknow
  • Agenda BOP Markets for MNCs Barriers to BOP Business Success Factors to Consider BOP Challenges and Risks
  • • 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 – Micro mortgage companies in India by inexperienced entrepreneurs with little housing-sector knowledge BOP Markets for MNCs
  • Uncertain cash flow Gauging Demand Sales and Distribution challenges Disaggregated providers Undeveloped business ecosystems Barriers to BOP Business Success
  • • 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. Uncertain Cash Flow
  • • 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. Solutions
  • • 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. Gauging Demand
  • • 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. Solution
  • • 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. Sales and Distribution Challenges
  • • 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. Solution
  • • 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. Disaggregated Providers
  • • 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. Underdeveloped Business Ecosystems
  • • 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 Solution
  • • Companies depending on generating high margins at each stage of the value chain will not succeed 1. Must be able to manage numerous low-margin, low-value transactions • Companies requiring proper trading paperwork and certification of suppliers may be uneasy in BOP markets 2. Must be comfortable working with informal markets Factors to Consider
  • • Companies must control such costs to ensure profitability and low product costs 3. Legacy and overhead costs • BOP markets require time, patient sources of capital and dedicated teams and leaders for healthy returns to be generated 4. Requires a long-range mind-set Factors to Consider
  • 1. Image  Must demonstrate that commercial returns help to further community development sustainably rather than come at the expense of the poor. 2. 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
  • 3. Cannibalization  New low-cost product may cut into sales of mid-range products – one solution is selling through different channels. 4. 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. BOP Challenges and Risks
  • Uncertain cash flow Gauging Demand Sales and Distribution challenges Disaggregated providers Undeveloped business ecosystems Summary – BOP Barriers
  • Summary BOP Markets for MNCs Barriers to BOP Business Success Factors to Consider BOP Challenges and Risks
  • Recommended Reading
  • Over 600,000 views from more than 100 countries http://www.BuddingMarkets.com/ Sameer Mathur BuddingMarkets .com http://www.facebook.com/BuddingMarkets/