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New customers: ‘base of the pyramid’ in context

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4 billion people, entering the consumer economy present an opportunity for brands that strive to ‘do well by doing good’.

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New customers: ‘base of the pyramid’ in context

  1. 1. Finding LeaderOpinionfaster growth: new customersA shifting base: the BoP in context Share this Opinion Leader
  2. 2. A shifting base: the BoP in contextThe Base of the Pyramid (BoP) is on themove – and the hope and optimismof those living there is creating anunprecedented opportunity for growthin emerging markets. Share this Opinion Leader 2
  3. 3. A shifting base: the BoP in contextA shifting base: the BoP in context and challenges of doing well by doing good. In manyFew people have transformed attitudes to the global cases this requires questioning developed world 4 billionpoor to the extent that the late C.K. Prahalad did in his thinking when it comes to making a profit. Innovativepath-breaking 2004 work, The Fortune at the Bottom thinking on business models can be as essential forof the Pyramid. Only a few years earlier, those living doing business with the BoP as innovative productin poverty were still considered the rich man’s burden, development and branding. The BoP’s population numbers 4 billiontheir economic role restricted to needy recipients 40%of charity. Prahalad helped us to see them as the Size matters – and so does distributionfuture: dynamic individuals who together form a vast, Its sheer scale puts the BoP centre-stage in anyuntapped potential market. discussion of emerging market opportunities. The BoP’s population numbers 4 billion, its combined purchasingIn a sense though, Prahalad’s book is only the beginning power of $5 trillion is more than 2.5 times the GDP of Live in Indiaof the work that needs to be done in understanding the UK, and its geographical distribution is concentrated 75%the Base of the Pyramid (BoP). This work is constant, on those regions promising to drive global growthbecause the BoP itself is ever-changing. Companies over the next decade. Of those inhabiting the BoPthat want to do business in this area must invest in worldwide, 40 percent live in India with a further 23understanding the BoP’s great variety of potential percent in China, 16 percent in Africa and 10 percent in of India’s population are members of the BoPinnovators, entrepreneurs, producers and consumers Latin America. In India, 75 percent of the population are– and they must be prepared to face the setbacks members of the BoP. Share this Opinion Leader 3
  4. 4. A shifting base: the BoP in contextSeeing the BoP as individuals TNS segments the BoP into three categories ofIt remains a tragedy that 4 billion of the world’s potential consumer: ‘Strugglers’ surviving on less 1995population survives on less than $8 per day. However, than $1 per day, ‘Fighters’ living on between $1it is important to recognise that this definition of the and $2 per day and ‘Strivers’ with purchasing powerBoP covers a large range of very different scenarios, of between $2 and $8 per day. Encouragingly, 73%aspirations and opportunities. An understanding of ‘Fighters’ and ‘Strivers’ together represent morethe BoP population’s varied situations is essential for than 70 percent of the BoP according to Worldcompanies looking to target its growth opportunities Bank statistics. This is an emerging consumer class,effectively. ready to join the market economy, and its ranks 2007 are swelling. Striver $2 - 8 per day 11% In 1995, consumers earning less Fighter $1 - 2 per day than $2 per day represented 73 percent of the population Struggler Less than $1 per day of rural China; by 2007, they represented only 11 percent. Share this Opinion Leader 4
  5. 5. A shifting base: the BoP in contextHustlers or entrepreneurs? must have the dedication to help their consumers disposable income that any brand purchase represents.Those waiting to emerge from the BoP have the overcome the daily challenges and barriers that A successful proposition for the BoP must combinecharacteristics of a middle-class-in-waiting: educated, they face. affordability with robust functionality, delivery againstearning a semi-regular income and starting to own priority needs and credible perceptions of quality.consumer goods. They look forward to the future Reinventing the brand wheel Increasingly, trusted brands are also asked to providewith hope and optimism. They can see their own BoP consumers show a strong preference for buying guidance and emotional affirmation in the midst ofpotential and they are confident in their ability to fulfil brands over commodities – but they demand a great the tensions arising from social and economic change.it. And they have great motivation and self-respect. deal from those brands in return. This isn’t surprising The brands that embrace this multi-dimensional roleMany would describe themselves as hustlers – but we when you consider the significant proportion of will be the ones to succeed.recognise their ‘hustling’ for what it is – energetic anddedicated entrepreneurialism.These top tiers of the BoP represent an immenseconcentration of ‘unmet needs’, the type of Brand credibility and strategy cannot be imported fromopportunities that companies in developed marketsinvest significant time and money to uncover. In thisrespect the BoP can appear like a gold mine for global other markets.brands. But prospectors beware.They must be prepared to overcome initial setbacks –and they must be ready to relearn how to do business,and build brands. To meet BoP needs effectively they Share this Opinion Leader 5
  6. 6. A shifting base: the BoP in contextInternational brands have far less resonance amongst of joining the market economy have clear aspirations to realising the promise of growth and success inthe BoP than they do amongst the existing middle-class. and great confidence in their ability to achieve them. emerging markets – and the importance that theyDeveloped world notions of rebelliousness, ego and And although meeting their needs is challenging, the attach to brand relationships gives first movers a major,counter-culturalism (the mainstay of many brands across rewards for doing so are immense. The BoP is essential long-term advantage in tapping their potential.different categories) have no place in an environmentwhere a sense of isolation and exclusion is somethingto be feared. And brands accustomed to targetingindividual desires must adapt strategies to collectivedecision-making, in which husbands and fathers oftenwield a veto over their family’s purchases.Crafting a successful proposition may require acompany to reinvent more than its brand identity.Successful BoP strategies often embody a shift inbusiness model as well: from focusing on margin tofocusing on volume. Such changes can play a vitalrole in delivering the affordability that the BoP requireswithout undermining the credibility that it demands.Doing well by doing goodFor those prepared to embrace the challenges ofbuilding brand propositions from the ground up, theBoP today represents a greater opportunity than atany point in history. Although it remains financiallyimpoverished, its population is not emotionally orimaginatively so. Those BoP consumers on the point Share this Opinion Leader 6
  7. 7. A shifting base: the BoP in contextAbout Opinion LeadersOpinion Leaders is part of a regular series of articles from TNS consultants, based on their expertise gatheredthrough working on client assignments in over 80 markets globally, with additional insights gained throughTNS proprietary studies such as Digital Life, Mobile Life and the Commitment Economy.About TNS About the author Poonam Kumar is Regional Director in TNS’s Brand &TNS advises clients on specific growth strategies around new market entry, innovation, brand switching and Communication practice bringing more than 20 yearsstakeholder management, based on long-established expertise and market-leading solutions. With a presence experience in brand development, brand strategyin over 80 countries, TNS has more conversations with the world’s consumers than anyone else and understands planning, ethnography and consumer insight to herindividual human behaviours and attitudes across every cultural, economic and political region of the world. role. Poonam has specific expertise on marketing toTNS is part of Kantar, one of the world’s largest insight, information and consultancy groups. the Base of the Pyramid, and on motivational research and market segmentation and is a regular presenter on BoP consumers at ESOMAR and other industry events.Please visit www.tnsglobal.com for more information. Poonam holds a degree in Electrical Engineering from a premier Institute (IIT Chennai) and a post graduateGet in touch degree in Management from a top management schoolIf you would like to talk to us about anything you have read in this report, please get in touch via in India (IIM Calcutta).enquiries@tnsglobal.com or via Twitter @tns_global Share this Opinion Leader 7

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