Marketing to the Bottom of the Pyramid Essay Example for Free

Marketing to the Bottom of the Pyramid EssayProfessor C. K. Prahalads seminal publication, The incident at the Bottom of the Pyramid, suggests an enormous market at the bottom of the pyramid ( w entirelyop)a group of near 4 billion flock who subsist on less than $2 a day. By nigh estimates, these aspirational poor, who make up three-fourths of the worlds macrocosm, represent $14 trillion in buy power, more than Germany, the United Kingdom, Italy, France, and Japan put to approachher. Demographically, it is young and growing at 6 percent a year or more. Traditionally, the poor suck in not been considered an important market segment. The poor cant afford most products they will not accept new technologies and except for the most basic products, they pitch pocket-sized or no enforce for most products sold to higher income market segmentsthese are just close of the assumptions that have, until recently, caused most multinational firms to pay little or no attention to thos e at the bottom of the pyramid. typical market analysis is limited to urban areas, thereby ignoring rural villages where, in markets like India, the majority of the population lives. However, as major markets become more competitive and in some cases saturatedwith the resulting ever-thinning profit margins trade to the bottom of the pyramid may have real potential and be worthy of exploration.One research worker suggested that American and European businesses should go back and look at their own roots. Sears, Roebuck was created to serve the demoralise-income, sparsely settled rural market. Singer sewing machines fashioned a scheme to make consumption possible by allowing guests to pay $5 a month instead of $100 at once. The worlds largest ac connection today, Walmart, was created to serve the lower-income market. Here are a few examples of multinational company efforts to overcome the challenges in merchandise to the wham.Designing products for the dance is not about mak e cheapstuff but about qualification technologically advanced products affordable. For example, one company was inspired to invent the Freeplay, a windup self-powergenerating radio, when it learned that isolated, devoid people in South Africa were not getting information about AIDS because theyhad no electrical energy for radios and could not afford replacement batteries.BOP MARKETING REQUIRESADVANCED TECHNOLOGYThe BOP market has a need for advanced technology, but tobe usable, infrastructure support must often accompany thetechnology. For example, ITC, a $2.6 billion a year Indian conglomerate, decided to create a network of PC kiosks in villages. For years, ITC conducted its business with farmers through and through a maze of intermediaries, from brokers to traders. The company wanted farmers to be able to connect presently to information sources to check ITCs offer price for produce, as well as prices in the next village market, in the state capital, and on the Chicago commod ities exchange. With direct access to information, farmers got the best price for their product, hordes ofintermediaries were bypassed, and ITC gained a direct contact with the farmers, thus improving the efficiency of ITCs soy attic acquisition.To achieve this goal, it had to do more than more than just distribute PCs. It had to provide equipment for managing power outages, solar panels for extra electrical energy, and a satellite-based tele yell hookup, and it had to look at farmers to use the PCs. Without these steps, the PCs would never have worked. The complex solution serves ITC rattling well. straight morethan 10,000 villages and more than 1 one million million million farmers are covered by its system. ITC is able to pay more to farmers and at the same clipping cut its costs because it has dramatically reduced the inefficiencies in logistics.The vast market for cell phones among those at the BOP isnot for phones costing $200 or even $100 but for phones costing less tha n $50. such a phone cannot simply be a cut-down version of an existing handset. It must be very reliable and have lots of battery capacity, as it will be used by people who do not have reliable access to electricity. Motorola went thorough four redesigns to develop a inexpensive cell phone withbattery life as long as 500 hours for villagers without regular electricity and an extra-loud volume for use in noisy markets. Motorolas low-cost phone, a no-frills cell phone priced at $40, has a standby time of two weeks and conforms to topical anaesthetic languages and customs. The cell-phone manufacturer says it expects to sell 6 million cell phones in six months in markets including China, India, andTurkey.BOP MARKETING REQUIRESCREATIVE FINANCINGThere is overly demand for personalised computers but again, at very low prices. To meet the needs of this market, Advanced lesser Devices markets a $185 Personal Internet communicatora basic computer for developing countriesand a Taiwan c aller-out offers a similar device costing just $100.For most products, demand is contingent on the customerhaving sufficient purchasing power. Companies have to devise creative ways to assist those at the BOP to pay larger purchases. For example, Cemex, the worlds third-largest cement company, recognized an opportunity for profit by enablinglower-income Mexicans to launch their own homes. The companys Patrimonio hoy Programme, a combination builders club and financial support plan that targets homeowners who make less than $5 a day, markets building kits using its premiumgrade cement. It recruited 510 promoters to persuade new customers to overstretch to building additions to their homes. The customers paid Cemex $11.50 a week and received buildingmaterials every 10 weeks until the room was sunk (about70 weekscustomers were on their own for the actual building). Although poor, 99.6 percent of the 150,000 Patrimonio Hoy participants have paid their bills in full. Patrimonio Hoy attracted 42,000 new customers and is expected to turn a $1.5 million profit next year.8/27/10 214 PMCases 3 Assessing Global Market OpportunitiesOne customer, Diega Chavero, thought the scheme was a scamwhen she first heard of it, but after eight years of being unable to allay enough to expand the one-room home where her family of six lived, she was willing to try anything. Four years later, she has five bedrooms. Now I have a palace.An another(prenominal) deterrent to the development of small enterprises at the BOP is uncommitted sources of adequate financing for microdistributors and budding entrepreneurs. For years, those at the bottom of the pyramid needing loans in India had to depend on local moneylenders, at interest rates up to 500 percent a year. ICICI Bank, the second-largest banking institution in India, adage these people as a potential market and critical to its future. To convert them into customers in a cost-effective way, ICICI turned to village self-help groups.I CICI Bank met with microfinance-aid groups working withthe poor and decided to give them capital to start making small loans to the poorat rates that run from 10 percent to 30 percent. This sounds usurious, but it is lower than the 10 percent daily rate that some Indian loan sharks charge. Each group was calm of 20 women who were taught about saving, borrowing, investing, and so on. Each woman contributes to a joint savings account with the other members, and based on the self-help groups track record of savings, the bank then lends money to the group, which in turn lends money to its individual members. ICICI has developed 10,000 of these groups reaching 200,000 women. ICICIs money has helped 1 million households get loans that average $120 to $140. The banks executive directory says the venture has been very profitable. ICICI is working with local communities and NGOs to expand its reach.BOP MARKETING REQUIRESEFFECTIVE DISTRIBUTIONWhen Unilever saw that dozens of agencies were le nding microcredit loansfunds to poor women all over India, it thought that these would-be microentrepreneurs necessary businesses to run. Unilever realized it could not sell to the bottom of the pyramid unless it put low-cost ways to distribute its product, so it created a network of hundreds of thousands of Shakti Amma (empowered mothers) who sell Levers products in their villages through an Indian version of Tupperware parties.Start-up loans enabled the women to buy stocks of goods to sell to local villagers. In one case, a woman who received a small loan was able to repay her start-up loan and has not needed to take another one. She now sells regularly to about 50 homes and even serves as a miniwholesaler, stocking precise shops in outlying villages a short bus ride from her own. She sells about 10,000 rupees ($230) of goods each month, keeps about $26 profit, and ploughs the rest back into new stock. While the $26 a month she earns is less than the average $40 monthly income in the area, she now has income, whereas before she had nothing.Today about 1,300 poor women are selling Unilevers products in 50,000 villages in 12 states in India and account for about 15 percent of the companys rural sales in those states. Overall, rural markets account for about 30 percent of the companys revenue.In another example, Nguyen Van Hon operates a floating sundries distributorship along the Ke Sat River in Vietnams Mekong Deltaa maze of rivers and canals dotted with villages. His boat is make full with boxes containing small bars of Lifebuoy soap andsingle-use sachets of Sunsilk shampoo and Omo laundry detergent, which he sells to riverside shopkeepers for as little as 2.5 cents each. At his first stop he makes deliveries to a half(a) dozen small shops.He sells hundred of thousands of soap and shampoo packets a month, enough to earn about $125five times his previous monthly salary as a junior communist party official. Its a hard life, but its getting let on. Now, he has enough to pay his female childs schools fees and soon . . . will have saved enough to buya bigger boat, so I can sell to more villages. Because of aggressive efforts to reach remote parts of the country through an extensive network of more than 100,000 independent salesrepresentatives such as Hon, the Vietnam subsidiary of Unilever realized a 23 percent increase in sales last year to more than $300 million.BOP MARKETING REQUIRESAFFORDABLE PACKAGINGAs one observer noted, the poor cannot be Walmartized. Consumers in affluent nations use money to stockpile thingmabob. We go to Sams Club, Costco, Kmart, and so on, to get bargain prices and the convenience of buying shampoos and paper towels by the case. Selling to the poor requires just the opposite approach. They do not have the cash to stockpile convenience, and they do not mind frequent trips to the village store. Products have to be make available locally and in affordable units fully 60 percent of the value of all shampoo sold in India is in single-serve packets.Nestl is targeting China with a blitz of 29 new ice weftbrands, many selling for as little as 12 cents with take-home and multipack products ranging from 72 cents to $2.30. It also features products curiously designed for local tastes and preferences of Chinese consumers, such as Nestl Snow Moji, a rice pastry filled with vanilla ice cream that resembles dim sum, and other ice cream flavors like red bean and green tea. The ice cream products are distributed through a group of small independent saleswomen, which the company aims to expand to 4,000 womenby next year. The project is expected to account for as much as 24 percent of the companys total rural sales within the next few years.BOP MARKETING CREATESHEALTH BENEFITSAlbeit a promotion to sell products, marketing to BOP does help improve personal hygiene. The World Health Organization (WHO) estimates that diarrhea-related diseases kill 1.8 million people a year and noted thatbetter hand- washing habitsusing soapis one way to prevent their spread. In response to WHO urging, Hindustan Lever Company introduced a campaign called Swasthya Chetna or Glowing Health, which argues that even cleanlooking hands may carry dangerous germs, so use more soap. It began a concentrated effort to take this message into the tens of thousands of villages where the rural poor reside, often with little access to media.Lifebuoy teams visit each village several times, using a Glo Germ kit to designate schoolchildren that soap-washed hands are cleaner. This program has reached around 80 million rural folk, and sales of Lifebuoy in small affordable sizes have risen sharply. The small bar has become the brands top seller.