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Fortune at the bottom of pyramid
- 1. STRATEGIC MANAGEMENT Prepared by: RIDDHI B. DESAI (QA 3) HEMALI A. GANATRA (QA 5) RUQAIYA VASI (QA 17) FORTUNE AT THE BOTTOM OF THE PYRAMID
- 3. IS THERE REALLY A FORTUNE TO BE MADE AT THE BOTTOM OF THE PYRAMID..??
- 4. THE WORLD’S MOST EXCITING, FASTING GROWING NEW MARKET 4 billion people Living on less than 2 $ per day
- 5. Latent 4-5 billion Consumer NGO, CIVIL SOCIETY ORGANISATIONS PRIVATE SECTORS, INCLUDING MNC’S POLITICIANS, PUBLIC POLICY ESTABLISHMENTS AID AGENCIES
- 6. The poor has no money People in BOP cannot use advanced technology. Distribution to BOP market is very impossible. BOP MARKET IS not connected ASSUMPTIONS FACTS
- 7. ASSUMPTIONS FACTS Poor are too concerned with fulfilling their basic needs to “waste” money or non- essential goods. Goods – sold in developing markets are cheap and hence there is no room for a new competitor to come in and turn a profit.
- 8. CHALLENGES TO TARGET BOP BOP MARKET IS HIGHLY FRAGMENTEDCHANGING PRODUCTS AND BUSINESS MODELS4 P’s OF MARKETINGDEVELOP EFFICIENT CHANNELS OF COMMUNICATION AND DISTRIBUTION EDUCATE, TRAIN AND MAKE THEM SELF RELIANT4 A’s OF MARKETINGLATENT NEEDS OF BOP CONSUMERSCHANGING PRICING MODELS
- 9. POOR SHOULD NOT BE TREATED AS POOR BUT AS CONSUMERS AND PRODUCERS AS WELL. CREATION OF WIN –WIN SITUATION
- 11. Innovative Practices at the bottom of pyramid
- 12. Known problems and known solutions: what is the missing link? Problem • IDD • 200 million children worldwide • 25% iodized salt in India • Distribution • Education Solution • Adequate dose of iodized salt in food! • In affordable price The Annapurna salt story Advanced microencapsulation technology- K15 Direct education campaigns TV ads Distribution efforts
- 13. Affordability Unique demands Poor educational attainment $8,000 $30 Known problems and unique solutions Lower knee Prosthesis- $8,000 Need for Customised Prosthesis Jaipur foot
- 14. Examples ITC e-Choupal ICICI SHGs EID Parry Agriline Known problems and system wide reforms Existing system has focus on sub-systems Companies identified problems in existing system Complete transformation in existing system • Increased cost efficiency • More informed and efficient BOP consumer
- 15. Scaling innovation Limited reach Limited resources Commercialis ation Managerial skills E+Co Pioneer alternative energy producer Angle and seed fund investor Voxiva System Surveillance of emerging public health crises in Peru Monitor the outbreak of infectious diseases communicate relevant information to the central govt. authority
- 16. Case studies
- 17. ICICI bank at the Bottom of pyramid Strategic Goals To increase banking penetration in rural areas through innovative ways of defining distribution points To prepare and react for important rural market by introduction of microfinance To support the downtrodden as a good corporate Citizen
- 18. ICICI bank at the Bottom of pyramid The direct access, bank led model The indirect channel partnership models
- 19. The direct access bank led model of ICICI Purchase of Madura bank Creations of savings program and provisions of direct microloans Expand its corporate business Scaling of SHGs ( Self helping groups) SHGs Self Help Groups (SHGs) are a homogenous group of 10-20 individuals who come together for saving.Positive impact • Expands its customer base, gain access and increase profits • Confidence, communication, and decision-making in financial matters
- 20. Indirect Channels Partnership Model Social mobilization strength of NGOs and MFIs Financial strength of the bank MFIs Rural kiosks DHAN Foundation( microcredit, researching the idea of kiosks and looking at “rural information and communication technology (ICT) projects CASHPOR (Credit and Savings for the Hardcore Poor) and SHARE(to catalyze the MFI movement in India) ITC e-ChoupalEID Parry N- Logue PRADAN (expand their SHG lending and, in the process, learned about setting up women’s savings and credit groups
- 21. Conclusion ICICI has made profitable inroads into serving the BOP. “Banking with the poor has undergone a paradigm shift”. ICICI has increased the number of SHGs from 1,500 to more than 8,000 within the two years Fruitful partnerships with more than 10 major NGOs and MFIs who all have strong physical presence within the rural areas
- 22. Mankind at the bottom of pyramid Pfizer, Abbott, Roche, GSK (Top level) Zydus Cadila, Alkem, Aristo (Mid level) Mankind ( Bottom)
- 23. Strategy used by mankind at BOP Mankind bombarded the market with low- priced drugs (up to 50 percent cheaper) Initial years, the company worked on increasing its share in the prescription business. Mankind entered the OTC segment with products like Manforce, Unwanted 72 Increased presence in the chronic therapy segment to increase its share from 0.5 % to15% which is the average industry growth Cancer drugs will be sold at 40-60 percent cheaper than its competitors. Plunging in export mainly to African countries, where again Mankind will again target smaller towns and cities in these markets.
- 24. Strategy used by mankind at BOP How do they keep their prices low? Misconception ( quality being compromised) Mankind don’t have highly-paid managers and their margins are lower than industry average.” Margins are low as 16% as compared to industry average of 18%
- 25. Conclusion Mankind is the fastest growing pharmaceutical company with a growth rate of 26.8% in IPM Mankind started with a team of 400 medical representative and has expanded upto 2000 Aims at being in the top 3-5 position in next five years
Editor's Notes
- The Fortune at the Bottom of the Pyramid gives us hope and strategies for eradicating poverty through profits that benefit all. Poverty reduction can result from co-creating a market around the needs of the poor but community should be at the centre of any innovation. Companies can adopt different approaches according the gap/ problem they spot in that BOP and what they can address. We will see different examples and try to correlate with the concepts as to what can be the strategies of fortune at the bottom of pyramid.
- The most interesting and, at the same time, the most disturbing aspect of the BOP market is that the problems are known; so are the solutions. Often, the missing link is the need for investments in the education of customers, technology to develop that solution into an affordable product, and the distribution channels to make it widely available. Iodine defi disorder is pendemic all over the world with 200 million children globally and 70 million patients in india. It is well-known that iodine in common salt is the easiest way to get the required daily dose. It is also well-known that only 20 percent of the salt in India is iodized, and even iodized salt loses its iodine content during the harsh conditions of storage, transportation, and Indian cooking. The solution that is needed is clear: Get enough iodine in salt so that children will get an adequate dose with their food in spite of the losses in storage and cooking. The Annapurna Salt story from Hindustan Lever Ltd. (HLL) illustrates the process by which a large firm with a global reach can create the connection between a known problem and a known solution. So this very famous story shows how they reached to BOP effectively and replaced almost all other brands with annapurna iodised salt. invent an advanced technology solution called microencapsulation to retain iodine. Because of microencapsulation, HLL can guarantee that the iodine will not be dissipated during storage or cooking, but will be released only after the food is ingested. HLL called this K15 (Potassium, 15 parts per million). However, technology is only one part of the solution. HLL had to educate BOP consumers on why K15 was better than regular salt as well as iodized salt in which iodine is not encapsulated. HLL took multiple approaches to education. The company used regular information oriented advertisements on national TV. More important, to reach the villages where TV coverage is limited, it created a direct education and distribution effort involving local village women. Selected village leaders were appointed Shakti Ammas (empowered women) who acted as educators of the local village on nutrition as well as distributors of the product. These women distributed all HLL products, not just salt. As a result, HLL found an innovative way to educate the rural BOP consumers and gain access to a new distribution system.
- The problems at the BOP are not new. However, they represent a new challenge. They demand innovations in how these traditional problems are addressed. For example, the solutions must be affordable. That means dramatic cost reductions from the solutions available to the top of the pyramid consumers in developed countries. Second, BOP consumers have unique demands based on the circumstances of their lives—poor infrastructure, lack of trained manpower, and lack of access to raw materials. Further, the poor educational attainment of BOP customers can also limit the solutions that are suitable for them, as we illustrate next. The loss of a limb is not a new problem. This has often been a result of wars, accidents, and disease. Fitting a prosthesis—below or above the knee—has been a standard part of medical care. Significant progress has been made in the West on prosthetics, but a typical lower knee prosthesis can cost up to $8,000 in the United States. This is prohibitive for a BOP customer. Further, poor farmers and workers in India have unique functional requirements. Most of them need to squaton the floor and sit cross-legged. They have to walk on uneven ground and often walk barefoot. These are not among the requirements of a patient in the West. The BOP consumers in India also have to be concerned about how long it takes to get a customized prosthesis. They cannot afford multiple days for multiple fittings; it must be done in one day. Further, skill levels being what they are in India, the entire process of providing customized prostheses must be “deskilled.” As a result, the BOP consumer in India needs, compared to a consumer in the United States, a prosthesis with higher levels of functionality, at a fraction of the cost and fitted in a very short time. It is this task that Jaipur Foot addresses. Jaipur Foot is the world’s largest prosthesis provider, with more than 16,000 prosthetic fittings per year. The charity BMVSS (Bhagwan Mahaveer Viklang Sahayata Samiti) serves more than 60,000 by providing calipers, appliances, and other aids. The functionality of the Jaipur foot, measured against what is available in the United States along more than 20 dimensions, is equal or better. However, the Jaipur Foot costs less than $30 compared to $8,000 for a comparable prosthesis in the United States. In fact, the Jaipur Foot is given free to all. Jaipur Foot is now in 16 countries Developed in 1968, the Jaipur Foot is a predominantly hand-made artificial foot and lower limb prosthesis. It has revolutionized life for tens of thousands of amputees around the world. This foot was originally designed to meet the needs of a developing country lifestyle such as squatting, walking (barefoot), and sitting (cross-legged). Primarily fabricated and fitted by Bhagwan Mahaveer Viklang Sahayata Samiti (BMVSS), a nongovernmental, nonreligious, and nonprofit organization
- Many of the problems at the BOP require systemwide reform not piecemeal solutions. Government departments and firms tend to focus on subsystems with which they are familiar or have control over. In this section we examine several examples of firms approaching systemwide reform. The movement of grain from the farm to the table in India, with its subsistence farmers, an archaic system of logistics and trading renders the agricultural processing system very inefficient. Farmers take their produce to a mandi, a government-sanctioned auction market. The traders in the mandi are the intermediaries who buy the grain, aggregate it, and sell it to processors both large and small. The system of movement of grain from the individual farm to the processing plants is complex and also different for different grains. The ITC eChoupal case story describes the traditional system for soybeans as well as the changes made to the system by ITC. ITC, the food processing firm, decided to change the system by going directly to the villages, providing the village with a PC and training the lead farmer (sanchalak) to operate the PC. The farmers are able to check the prices at various mandis (as opposed to the one closest to their village or the one to which they happen to go), and decide when and how much to sell. They are able to realize better prices for their crop. Further, they are now able to dialogue with the company and ask for advice on better seeds, fertilizers, and pesticides. They get paid promptly and their grain is weighed accurately. From the company point of view, they now have a direct link to the farmers (producers), are able to dramatically reduce the costs of aggregation of soybean crops from multiple farmers and villages, and are ensured of good supply. The efficiencies of the system reduce the total cost per ton by as much as 8 percent. The farmer gets a better price, and the company gets a better supply at lower costs. Now that ITC e-Choupal has built a network, the network can accommodate other providers of farm inputs, such as financing, crop and rain insurance, better seeds, and farm equipment, to flow through the same system. The farmers are able to use the Internet connections to evaluate their positions. One farmer started to check the prices of soybeans on the Chicago Board of Trade and based his pricing on that information. Farmers learned to connect to the rest of the world seamlessly. The entire process of agricultural inputs, origination, trading, aggregation, logistics, and processing had to be streamlined. EID Agriline is also a case of the same process, in this case, oriented toward sugar cane. The two examples—ITC e-Choupal in the northern part of India in soybeans and EID Parry Agriline in the southern part of India in sugar cane— are both efforts in changing the total crop-specific agricultural system. In all these cases—ITC e-Choupal, EID Parry Agriline, and ICICI’s rural initiative—the goal is to understand the existing system and create an alternative system that is more cost-efficient. More important, these systems provide the BOP consumers the tools for them to be better informed and thus able to better negotiate. The new system allows for dialogue among the communities of peers—SHGs and sanchalaks from multiple villages. This also allows the communities and the individuals to decide the level of risk they are willing to take on.
- Civil society organizations and startups account for a disproportionate number of experiments to improve the lot of the BOP consumers. However, their reach is limited. Their orientation is local and they do not have the resources or the managerial skills for scaling up, much less taking it global. One of the pressing problems at the BOP is access to clean, good-quality energy. The poor spend a disproportionate amount of their income on expensive and inefficient sources of energy—batteries, oil, and candles. Grid-based electricity does not reach most of them. E+Co is a pioneer in developing alternative energy sources, such as solar and wind, and experimenting with them in remote parts of the world, be it in Latin America, Africa, India, and other such places. They have active projects in countries as varied as Nicaragua to India. They have acted as an “angel and seed fund” group enabling local entrepreneurs to build viable commercial businesses and, at the same time, bring good-quality energy to the isolated populations. The portfolio of projects has all the desirable ingredients: private sector initiatives, commercial viability, success in harnessing renewable sources of energy, and aid for BOP consumers in isolated regions of the world. Given this track record, however, E+Co finds it hard to raise money for scaling up the effort. A similar but less difficult situation exists for Voxiva, a startup that is a pioneer in the surveillance of emerging public health crises. Voxiva started by developing a system that allows for public health workers in remote regions of Peru to monitor the outbreak of infectious diseases and communicate relevant information to the central public health administrators in the capital of Lima. The system accommodates a wide variety of devices—regular telephones, wireless, and PCs—to communicate. The system takes the structured information and converts it into a database that can be readily viewed by authorities. This is a real-time, low-cost, effective surveillance system. Voxiva successfully demonstrated it in Peru. Voxiva also had to raise funds to expand. The company found that the competencies it had developed in converting inputs from a variety of devices, particularly voice messages, into a real-time monitoring system, might have applications in other parts of the world and in other sectors as well. The Voxiva system found applications in the U.S. Department of Defense as it inoculated soldiers for smallpox (a dispersed population with few skills in medical diagnosis). The soldiers could just call in their condition and the central monitoring stations could identify infections. The blood supply in the United States was the next target of opportunity. The situation in Iraq and the threat of SARS in Southeast Asia gave Voxiva a way to leverage its innovations in developed and other developing countries. With this track record, Voxiva was able to raise the modest but adequate capital it needed for expansion. E+Co and Voxiva illustrate how startups can demonstrate the development of fundamentally new solutions to age-old problems, be it access to energy in isolated rural populations or providing public health access to and warning of latent outbreaks of disease in remote areas. Both bring new skills and technology and elegant, cost-effective solutions. The solutions of Voxiva also have applications in developed markets, such as the United States. These startups need access to funding to scale up. Funding sources, including private equity, are hesitant to back ventures that go against the grain. Non-grid-based electricity or a surveillance system that is not PC-based (but PC-compatible) find it that much harder to attract investments. If access to funding is not solved, ventures such as E+Co and Voxiva will have to seek adoption of these initiatives by multinational corporations that have the scale and resources required.