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Fortune at the bottom of the pyramid

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The most debated topic in strategic marketing since early 2000s

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Fortune at the bottom of the pyramid

  1. 1. The Fortune at the Bottom of the Pyramid Presented By- Gopal Kumar(13DM041) Sayan Chandra(13DM016)
  2. 2. Overview Definition ‘BOP’ Principles of BOP Prevailing Global Myth about ‘BOP’ Opportunities Risks & Challenges Ideal Business Model for BOP & Practices Conclusion
  3. 3. What is BOP? In economics, the bottom of the pyramid is the largest but poorest socio-economic group. Current usage pronounces >4 billion population across the world living on <$2 per day.
  4. 4. The World Economic Pyramid Annual Per Capita Income Tiers Population in Millions >$20,000 1 75-100 >$1,500-20,000 2 & 3 1,500-1,750 <$1500 4 4,000
  5. 5. Prevailing Global Myth: BOP  The poor are not our target consumers because with our current cost structures, we can not profitably compete for that market.  The poor cannot afford and have no use for products and services sold in developed markets  Only developed markets will appreciate and pay for the new technology. The poor can use the previous generation of technology  The bottom of the pyramid is not important to the long-term viability of our business. We can leave tier 4 to govt. & NGOs.  Managers are not excited by the business challenges that have a humanitarian dimension  Intellectual excitement is in developed markets. It is hard to find talent managers who want to work at the bottom of the pyramid
  6. 6. Principles of BOP Price Performance Innovation: Hybrid Scale of Operations Sustainable Develpopment:Eco-Friendly Identifying Functionality Process Innovation Deskilling of work
  7. 7. Principles of BOP cont.… Education of Customers Designing for hostile Infrastructure Interfaces Distribution: Accessing the Customer BOP markets allow us to challenge the conventional wisdom in delivery of product
  8. 8. Risks & Challenges Operating Environment  Exposure to new political and economic risks  Resources, capabilities and knowledge of the complexities and subtleties of sustainable development are required.  Consumers can’t afford differentiated products  Competing with local business can threaten the existing power structure. Economics Market size nuclear: estimates range from $0.3 trillion to $13 trillion Prahalad uses purchasing power parity and assumes 4 billion BOP spending $4/day Low Margin: High Fixed costs Distribution challenges High price sensitivity and per unit transaction costs
  9. 9. Opportunities BOP consumers suffer a poverty penalty Lack of access to competitively and efficiently-provided goods and services Higher prices for some goods and services (i.e. manufactured goods, credit) Poorer quality goods and services At the same time, BOP consumers  Are Brand-conscious  Have well connected communities(word of mouth)  Readily accept advanced technology  Collectively have purchasing power  Are always trying to upgrade from their existing condition
  10. 10. HUL(formerly known as HLL) & Nirma:Case Study  HLL has been a pioneer among MNCs exploring markets at the BOP for over 50 years  In the 1990s Nirma Ltd. began offering detergent products for poor consumers under a business system that included a new product formulation, wide distribution network, special packaging for daily purchasing and value pricing  In 1995 HLL’s new detergent called wheel was formulated to substantially reduce the ration of oil to water in the product, knowing that poors often wash their cloths in rivers or other public water systems  HLL also decentralized the production, marketing,& distribution of the product to leverage the abundant labour pool in rural India  Quickly creating sales channels through thousands of small outlets where people at the BOP shop  HLL also changed the cost structure of its detergent business so it could introduce wheel at a low price
  11. 11. 4 keys to unlock BOP markets to MNC products
  12. 12. Bangladesh Grameen Bank: Case Study  One of the first in the world to apply micro lending model in commercial bank  Grameen Bank pioneered lending service for the poor that has inspired thousands of micro lenders  Program has been designed to extend credit to lowest income customers also have challenges like-lack of collateral, high credit risk, contractual enforcement  Loan application process is applicants seeking loan must have their proposals thoroughly evaluated by 5 nonfamily members of the community  Bank’s sales & service people frequently visit the villages, getting to know the applicants who have loans and the projects they are suppose to invest  With 1170 branches, providing microcredit services in >40000 villages  As of 1996 Grameen Bank had achieved 95% repayment rate
  13. 13. Arvind Mills: Case Study Arvind mills, the world’s 5th largest denim manufacturer Indian Denim sales limited due to $ 40 to $60 a pair was unaffordable to masses Arvind mills introduced ready to make kit of jeans under the brand “Ruf & Tuf” at about $6 Kits were distributed through a network of thousands of local tailors, many in small rural towns & villages “Ruf & Tuf” Jeans are now largest selling jeans in India surpassing Levi’s
  14. 14. Khira District Milk Cooperative:Case Study  In 1946,Khira District Milk Cooperative set up its own processing plant under the leadership of Varghese Kurien,created brand AMUL.  In India milk originates in many small villages  Villagers may own 2 or 3 cows or buffaloes and bring their milk twice a day to the village collection centres  Refrigerated vans transport the milk to central processing plants, where it is pasteurized  The khira district cooperative provide veterinary care and cattle feed to farmers  As a result previously marginal village farmers are earning steady incomes and being transformed into active market participants  Earlier India had supply shortage of milk .Per capita availability of milk grew from 107g to 213 g in twenty years making India, world's largest milk producer.  National Dairy Development Board claims 10.7 million individual farmer members-owners, covers 96,000 village level societies, includes 170 milk producer unions, and operates in more than 285 districts, Milk Production has increased 4.7%/year since 1974
  15. 15. Conclusion: For those combating poverty • IF corporations can  without causing the very poor to divert income from pressing needs  sell products that make people more productive  that are produced in a way that create local jobs and increase local human capital  without driving out local industries  and reinvest locally instead of repatriating profits • THEN, they can be an important part of the solution to poverty, which is an excellent CSR
  16. 16. Conclusion: For MNCs Interested in venturing BOP Market • IF corporations can  create low price, quality products  that can be scaled across many BOP markets and achieve high volume  while creating means for the capital constrained poor to buy  and building relationships and infrastructure that allow them to reach poor consumers  and finally, follow the directives on the previous slide (at least enough to avoid becoming a publicized “bad” example) • THEN, they can serve BOP markets profitably.
  17. 17. Thank You

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