Ethical discussion about Casas Bahia operations in Brazil. Group Project for Business & Society class Full-Time MBA - UCD Michael Smurfit Graduate Business School

1. THE FORTUNE AT THE
BOTTOM OF THE PYRAMID
IS IT FOR GOOD?
The Case of Casas Bahia

2. “ If we stop thinking of the
poor as victims or as a
burden and start
RECOGNIZING THEM AS
RESILIENT AND CREATIVE
ENTREPRENEURS AND
VALUE-CONSCIOUS
CONSUMERS, a whole new
world of opportunity will
open up”
C.K.Prahalad (2006)

4. FIRST, A QUICK LOOK AT
BRAZIL’S ECONOMY...
1994
INFLATION
INFLATION

5. BRAZIL’S CREDIT-DRIVEN
GROWTH MODEL
More people
to consume
$$$$ 13% 15,5%
8 years
$$$
44%
52%
$$ 12,5%
14%
$ 30,5% 18,5%
Source: FGV (2011)

6. IN THIS NEW SCENARIO...

7. CASAS BAHIA
Founded in 1957 Largest retail chain Speacializing in
by Samuel Klein, a in Brazil home appliances
Polish man who 500 stores and furniture
escaped from a
Nazi concentration
camp

8. MICHAEL KLEIN
CFO, CASAS BAHIA
“
When my father arrived in Brazil, he realized the average
population was not wealthy. Thousands of people were
migrating from the northeast region to work in São Paulo.
That is why our name is Casas Bahia (Bahia is the largest
state in the northeast region). This population needed all
kinds of basic goods, such as linens, towels, and sheets. My
father’s vision was to fulfill the needs of the poor
population. But how could they pay for it? The answer was
simple: financing.

9. THE INNOVATION
The poor represent a market,
a BIG, LUCRATIVE, AND
SUSTAINABLE one with the
right financial approach in
countries where even Sears
and Wal-Mart have failed

10. THE WAY IT USED TO BE...

11. THE WAY THEY DID...

12. HOW MUCH DO YOU WANT TO PAY?

13. “It is all about fulfilling the
CUSTOMER DREAM. My sales agent
has to be very well dressed, shaved
and always smiling. If he has a
personal problem, he cannot come
to work. I will never allow him to
TRANSMIT TO MY CUSTOMER
ANYTHING BUT PERFECTION”
(Michael Klein, CFO)

14. CONSUMERS CANNOT
AFFORT TO PAY THE
ENTIRE PRICE IN ONE
THE FLOW
PAYMENT
$
A POSITIVE SCORE IS
SUBMITTED AND THE
CONSUMER RECEIVES A CREDIT
LIMIT BASED ON INCOME,
OCCUPATION AND EXPENSES
$$$
AS THE CUSTOMER REGULARY
PAYS THE INSTALLMENTS, THIS
CREDIT LIMIT IS INCREASED,
PROVIDING NEW INCENTIVES
FOR THE CONSUMER TO
PURCHASE REPEATLY

15. HOW DOES IT WORK?

16. SO, EVERY MONTH...
AVERAGE MONTHLY
INTEREST RATE:
4,13%
MONTHLY PAYMENT $$

17. SO, EVERY MONTH...
CONSUMER NEEDS TO WALK THOUGH THE
STORE TO PAY THE INSTALLMENTS...
AND SALES PEOPLE ARE TRAINED TO WORK
WITH CUSTOMERS TO PURCHASE WITHIN
THEIR BUDGETS

18. SURPRISINGLY...
THE DEFAULT RATES ARE LOWER THAN THE MARKET
AVERAGE, TOO, AND THE CUSTOMERS’ LOYALTY IS
INTENSE
“ The poorer the customer, the more
punctual his payment. The poor know
they need to guard their reputations or
they jeopardize buying on credit”
“Some people live to eat and pay my
bills. My talent is trusting the poor and
giving the poor good service. Many poor
have a better character than the rich. I
was poor once
”
Samuel Klein

19. A STORY...
YOLANDA MOISES, 49-YEAR-OLD MAID
Outfitted her home with a refrigerator, stove, VCR, stereo system, bed and
closet from Casas Bahia over the past two years, but she didn't know how
much interest she was paying
“ ”
THE VENDOR TOLD ME IT WAS VERY SMALL. IT DIDN'T MATTER,
CASAS BAHIA WAS THE ONLY STORE THAT WOULD GIVE HER
CREDIT
Installments worked out to more than half of her $190 monthly salary. She
says she didn't deprive her four children of any basic needs, but for months
she wouldn't allow herself the luxury of replacing her disintegrating sandals.
“ I PREFERRED TO DRAG MY FEET IN
SANDALS WITH BROKEN STRAPS THAN
DELAY MY INSTALLMENT PAYMENT

20. AS A RESULT
FOR THE CREDIT GIVEN…

21. SO...

22. Make customers want to buy Sell customers things
things they don’t actually they really need, such
need, such as ldc tvs, as they as ovens and
could spend this money on refrigerators, but never
better education or food had chance to buy
HOW FAR CAN IT GO?
Remember: these people had never had the chance to buy this
kind of products ever in the lives

23. ETHICAL ISSUES
Can companies use the dream
appeal to sell their products over
consumers’ debt?
Is it correct to give credit to people
who don’t know how to manage
money properly?
How to differentiate a real consume
need from superfluous? Do people
really need what they buy?

24. THANK YOU!
DEBORA MATTIODA
MARIANA DAVID