Serving the Bottom-of-The-Pyramid: A Win-Win Game


By

Mr. Sunil Kumar
Asst. Professor
Aravali Institute of Management
Marwar Bhawan, Polo No.2, Paota, Jodhpur-342 006
 


Abstract

Globalization, India Shinning
…………. these words seem to loose their meaning when we see India has a higher proportion of its population living on less than $2 per day . India, according to new estimates, had 456 million  people living below the international poverty line of $1.25 per day. That is the sobering news coming out of the World Bank's latest estimates on global poverty. Four out of every ten Indians today live below poverty line. The poverty line in India gains a shade of respectability as it is set at Rs.1875 for a family of five per month. In reality, it takes Rs.375 to be above the poverty line in India. Every night, 300 million people go to bed hungry, a number far exceeding that of the combined population of Canada and the USA. We raised a hue and cry when  50 people died of plague because its effect was only on rich sector ,but no one raises even a whimper for 4,50,000 people who die of tuberculosis every year. These figures are sufficient enough to move the hearts of sensitive people and compel to rethink the illusionary growth rate of 8%.

What went wrong and Where …. is a million dollar question? Why is  that with our investment capacity, managerial know how, we are unable to move an inch for poverty alleviation?  Needless to say, we have to learn from our past successes and failure. The only solution seems to keep waiting for any external aid from outside agencies like World Bank, IMF and NGOs.

That too also seems to be not working when the graph of poor is still moving upward. Though the developmental agencies like World Bank, International Monetary funds, governmental support, NGOs no doubt are working tirelessly, yet the problem does not seem to eliminate from root. Naturally, we have to adopt zero base phenomena for poverty alleviation as we can't afford to remain indifferent for such a large population. This paper is an endeavor to provide the solution through the changing mindsets of business managers whose contribution can result into new initiatives. This paper works on an idea where poor don't require any more sympathy but even provides an opportunity for MNCs to grow. This provides an active engagement of private sector at BOP level i.e. the people at the bottom of the pyramid and a basis for a profitable win-win engagement

Introduction

Since a long time, we assume that this is the social responsibilities of government and corporate sector to take care of poor. Policy makers, academicians, economists, researchers and corporate managers all have been trapped in this misconception. Since after 67 years of independence we are still not able to give food to our kids. There is a good number of people who sleeps on foot path. When Indian economy is on fourth place in the world, when India is shinning on the global map, why is that with our technology, managerial know-how, and investment capacity, we are unable to make even a minor contribution to the problem of pervasive global poverty and disfranchisement? Need less to say this is not, a new problem

What is BOP

The term Bop was devised by C.K. Prahalad, Harvey C Freehauf, professor of business administration, University of Michigan Business School, in his book The Fortune At the Bottom- of Pyramid: Eradicating poverty through profits. According to him  , the various markets with their magnitude of business in developing countries are huge. At the top of the pyramid are the wealthy people with high spending capacities and habits. But the size of this segment is very small, i.e.  Only between 7.5 to 10 crore out of total 600 –plus crore population. Where as 400 crore populations live at the bottom of the pyramid earning less than Rs. 90 per day.

                                            Concept of Bottom –Of –The - Pyramid

Imprisonment of prejudices

Main pulling factor which draws a society back is that we could not accommodate the new logics which are required to bring a change at macro level. For example – policies of Indian Government for first 45 years were trapped under the suspicion. This was because of country's first interaction with East India Company and colonialism played a major part in creating this mindset. Private sector was deemed exploitative of the poor. This suspicion casted its shadow in form of wrong decisions like various sectors of economic activities were reserved for small scale industries. India's general suspicion of the private sector led to controls over its size and expansion. There was no credible voice. Following were the consequences of

1. The thinking was clearly divided among the public sector and private sector.

2. The focus of public policy was on distributive justice over wealth creation. Government gave first t priority in taxation also to maintain the equality of wealth.

3. Next prejudice is that rural are poor and urban are rich. However data does not support the statement .Therefore views of government were biased for rural people.

4. We still believe that it is equally difficult for a whole generation of BOP consumers to give up their dependence on governmental subsidies.

5. This view also seems to dominate the perception of MNCs for BOP markets.

Size and Potentiality of BOP Market in the World

Major potential BOP markets in the world like China, India Mexico , Russia , Brazil ,South Africa , Thailand , Turkey and Indonesia with a combined population of about 300 crores ,represents 70% of the world 's BOP population. China with a population of 120 crores and an average per capita GDP of US $ 1,000 amounts to a massive economy of US $ 1.2 tn. The Indian economy is equally attractive with an economy worth about US$3.0 tn.

Following table is the proof of the big size of BOP Markets.

Major  Bottom- Of the –Pyramid  Markets in The World

Country

Populations in millions

% of population with income under $2 per day

China

1,294

46.7

India

1,041

79.9

Indonesia

218

52.4

Pakistan

149

65.6

Bangladesh

143

82.8

Source: www.worldbank.org


Nature of the BOP Market

Rural People live in Villages

Due to large scattered ness of rural market BOP markets constitutes a large part of rural population. This segment is untapped by the corporate because it is hard to access these markets.

Urban poor live in slums:

BOP Markets includes not only those who live in cities and towns but also those who live in slums. Hence, the slum population should also be considered as the BOP markets. Due to increasing trend of urbanization, people move towards the towns in search of employment opportunities and for better living conditions.

Poor people also have money

The dominant assumption is that the poor do not have money to spend and therefore are not a viable market. But poor people  pay extra charges for the services for which rich pay reasonable prices. For example – the poor in Dharavi pay .600 to 1000 % interest for credit from money lenders. A bank can earn more with access to this market by offering its services at 25%

Table: The Poor and High Cost economic System

Item

Dharavi

Warden road

Poverty Premium

Credit
Annual interest

600-1000%

12-18%

53.0

Municipal Grade

$1.12

$0.03

37.0

Diarrhea Medication

$ 20.00

$2.00

10.0

Rice per kg.

$0.28

$0.24

1.2


Source: From Serving the World's poor profitability by CK Prahalad and Allen Halmmond, Sept.2002

These cost disparities between BOP markets are the result of inefficiencies in access to distribution and role of local monopoly. A mahajan at the village is more accessasble than a bank. A bank creates a psychological barrier in the minds of poor as they perceive at as an area of educated persons dominated by formalities of documents.

BOP Markets are not easily accessible

Access to distribution in rural market continues to be problematic due to unavailability of media ,poor are denied  access not only products and services but also to knowledge- about –what is available  and how to use it? This is an area which requires the initiative and innovativeness from corporates to serve them in such a way that the cost of reach per consumer can be brought down. Such experiments –Project Shakti at HLL in   India. HLL selected women entrepreneurs called shakti Amma, who have unique knowledge of village requirement. They created a direct destination network through them and these women earn Rs.3000 – to Rs. 7000/- per month. This approach is not new – AVON, AMUL also adopted the similar approaches.

BOP Markets are brand Conscious

MNC's are of opinion that poor are not brand conscious, on the contrary, poor are very brand conscious. The only point is that they are value buyers. They expect good quality at the price they can afford.

BOP Consumers are also flexible and adopt new technologies readily

Spread of mobile services in India and ITC's e- chopal is the best example of the adaptability of poor. The e-chopal network allowed farmers access to information that allowed them to make decisions about how much to sell and when thus improving their margins. So BOP consists are more willing to adapt new technology.

Some Innovative Practices adopted by companies

Cemex: The Mexican company is the largest cement manufacturer second largest company in the USA and third largest in the world. Cemex leads the paradigm shift of companies profitably providing housing for the poor ,the tier 4 population , instead of government and NGOs . The Cemex team identified the three key areas of improvement:

1. identify innovative ways to provide access to credit for the poor.

2. Improve the brand perception of Cemex as socially responsive company to earn trust among the poor people.

3. Change and improve the distribution methods and construction practices to make it cost effective for CEMEX, its distributors and low income customers.

The Annapurna Salt Story:

Hindustan's Lever Ltd. (HLL) technological innovation, Annapurna salt with stable iodine, demonstrates how one nonprofit and profit organization can bridge the gap between. Annapurna salt is being marketed by in two phases:

1. The first message is for poor class i.e. to spread the awareness that iodized salt prevents IDD and goiters.

2.For upper market Annapurna Salt continues to emphasize that Annapruna's Iodine is different and it does not lost.

ITC  e – Choupal :

ITC adopted an innovation by establishing e- choupals linked with internet is an exceptional example of providing connectivity to the farmers with global markets. This network is called Sanchalak  . This allows a virtual integration of the supply chain and significant efficiencies in the traditional system. Social impact of e- Choupal is visible in form of improved agriculture, better life style and brighter futures. However ITC also gained in terms of

1 Reducing the commission paid to agents by 2.5% to 35 and this was paid to Sanchalak and that too was 0.5%.

2. Direct reimbursement of transport costs to the farmer is estimated to be half of what ITC used to pay the commission agents for transport to their factory.

3. Removal of intermediary manipulation of quality

The Arvind eye Care System: The largest eye care facility in the world performs more than 200,000 state of the art cataract surgeries per year. Their price is $50 to $300 per surgery including the hospital stay. However, over 60% of Arvind's patients get the surgeries for free with no out of pocket payments by patients, insurance companies, government and so on. It became possible only by focusing on innovation in the organization of workflow – from patients identification to postoperative care.

ICICI Bank , also in India is applying technology and a comprehensive approach to the full range of its client base – particularly in rural markets and to small and medium enterprises and micro entrepreneurs.

Amul: Amul is considered to be a movement more than a diary cooperative in India, has introduced quality ice-cream at much affordable rate(less than Rs. 6/-) . Amul offers this milk –made product not only as a delicious icecream but that also in reasonable rates.

So What is required for the development of BOP

1. Focus on Price performance of products and services.

2. Innovation requires advanced technology that is the combination of creativity and suitability of the existing infrastructure.

3. Focus on reducing Wastage and conserving the resources i.e is recycling and reusing.

4. There is a need of process innovation as BOP markets suffer from proper infrastructure that is required for using a product. That's why it is essential to have process innovation terms of that can make product accessible to BOP.

5. Design of products should not require the demand of high skills as BOP markets are poor in skills

6. Education of the product usage is the key element that can stimulate the BOP markets to buy the products.

7. Products must be developed to accommodate the low quality of infrastructure such as electricity and water.

Last but not least is the requirement of winning the hearts of BOP people by winning their trust .

Conclusion:

This article has argued that running a business enterprise and serving the poor need not be mutually exclusive domains; infact, the two can effectively converge to attain a win win goal- profits and poverty alleviation. The examples of various organizations have shown the way of making it successful. The marketers should identify various barriers like cultural , awareness levels ,social and access barriers and should devise the ways of overcoming those barriers. Customer's motivation technique needs to be retailored to the BOP segment. The managers should create capacity to consume among the BOP consumers to afford, try and buy their products. The Bottom –of The Pyramid presents a new managerial challenge which requires a  new outlook at the whole activity and an innovative approach of marketing.

References

1. TVenkat Ram Raj," Bottom of The Pyramid – The Small ,Big Market, Market Master Mind, October2006 

2. C.K. Prahalad,"The Fortune at The Bottom Of The Pyramid"

3. Karuna Kumari,"Exploring the market potential in aspiring poor", Marketing Master Mind,May2006

4. http://www..iccidd.org

5. www.worldbank.com

6. "Making Business for the poor", www.financialexpress-bd.com

7. Mahalakshmi,"HLL's I Shakti exploits the power of women", The Financial express
 


Mr. Sunil Kumar
Asst. Professor
Aravali Institute of Management
Marwar Bhawan, Polo No.2, Paota, Jodhpur-342 006
 

Source: E-mail November 2, 2008

           

Articles No. 1-99 / Articles No. 100-199 / Articles No. 200-299 / Articles No. 300-399
Articles No. 400-499 / Articles No. 500-599 / Articles No. 600-699 / Articles No. 700-799
Back to Articles 800 Onward / Faculty Column Main Page