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Traditionally, the poor have not been considered an important market segment. “The poor can’t afford most products”; “they will not accept new technologies”; and “except for the most basic products, they have little or no use for most products sold to higher income market segments”-??these are some of the assumptions that have, until recently, caused most multinational firms to pay little or no attention to those at the bottom of the pyramid. Typical market analysis is limited to urban areas, thereby mooring rural villages where, in markets like India, the majority of the population lives.
However, as major markets become more competitive and in some cases saturated-??with the resulting ever-thinning profit margins-?? marketing to the bottom of the pyramid may have real potential and be worthy of exploration. One researcher suggested that American and European businesses should go back and look at their own roots. Sears, Roebuck was created to serve the lower-income, sparsely settled rural market. Singer sewing machines fashioned a scheme to make institution possible by allowing customers to pay $5 a month instead of $100 at once.
The world’s largest company today, Walter, was created to serve the lower- income market. Here are a few examples of multinational company efforts to overcome the challenges in marketing to the BOP. Designing products for the BOP is not about making cheap stuff but about making technologically advanced products affordable. For example, one company was inspired to invent the Foreplay, a windup self-power-generating radio, when it learned that isolated, impoverished people in South Africa were not eating information about AIDS because they had no electricity for radios and could not afford replacement batteries.
BOP MARKETING REQUIRES ADVANCED TECHNOLOGY The BOP market has a need for advanced technology, but to be usable, infrastructure support must often accompany the technology. For example, TIC, a $2. 6 billion a year Indian conglomerate, decided to create a network of PC kiosks in villages. For years, TIC conducted its business with farmers through a maze of intermediaries, from brokers to traders. The company wanted farmers to be able to connect directly to information sources to check It’s offer price for produce, as well as prices in the closest village market, in the state capital, and on the Chicago commodities exchange.
With direct access to information, farmers got the best price for their product, hordes of cataract cases 001-019. Tend 10 intermediaries were bypassed, and TIC gained a direct contact with the farmers, thus improving the efficiency of It’s soybean acquisition. To achieve this goal, it had to do much more than Just distribute PC’s. It had to provide equipment for managing power outages, solar panels for extra electricity, and a satellite-based telephone hookup, ND it had to train farmers to use the PC’s. Without these steps, the PC’s would never have worked. The complex solution serves TIC very well.
Now more than 10,000 villages and more than 1 million farmers are covered by its system. TIC is able to pay more to farmers and at the same time cut its costs because it has dramatically reduced the inefficiencies in logistics. The vast market for cell phones among those at the BOP is not for phones costing $200 or even $100 but for phones costing less than $50. Such a phone cannot simply be a cut-down version of an existing handset. It must be very liable 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 low-cost cell phone with battery life as long as 500 hours for villagers without regular electricity and an extra-loud volume for use in noisy markets. Motorola’s low- cost phone, a no-frills cell phone priced at $40, has a standby time of two weeks and conforms to local languages and customs. The cell-phone manufacturer says it expects to sell 6 million cell phones in six months in markets including China, India, ND Turkey. CREATIVE FINANCING There is also demand for personal computers but again, at very low prices.
To meet the needs of this market, Advanced Micro Devices markets a $185 Personal Internet communicator-??a basic computer for developing countries-??and a Taiwan Company offers a similar device costing Just $100. For most products, demand is contingent on the customer having sufficient purchasing power. Companies have to devise creative ways to assist those at the BOP to finance larger purchases. For example, Chem., the world’s third- arrest cement company, recognized an opportunity for profit by enabling lower-income Mexicans to build their own homes.
The company’s Patrimony Ho Programmer, a combination builder’s “club” and financing plan that targets homeowners who make less than $5 a day, markets building kits using its premiered cement. It recruited 510 promoters to persuade new customers to commit to building additions to their homes. The customers paid Chem. $1 1. 50 a week and received building materials every 10 weeks until the room was finished (about 70 weeks-??customers were on their own for the actual building).
Although poor, 99. 6 percent of the 150,000 Patrimony Ho participants have paid their bills in full. Patrimony Ho attracted 42,000 new customers and is expected to turn a $1. 5 million profit next year. 8/27/10 2:14 PM Cases 3 Assessing Global Market Opportunities One customer, Diego Cheaper, thought the scheme was a scam when she first heard of it, but after eight years of being unable to save 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. ” Another deterrent to the development of small enterprises at the BOP is available sources of adequate financing for microinstructions 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. ICC Bank, the second- largest banking institution in India, saw these people as a potential market and critical to its future.
To convert them into customers in a cost-effective way, ICC turned to village self-help groups. ICC Bank met with micromanage-aid groups working with he poor and decided to give them capital to start making small loans to the poor-??at 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 composed 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 group’s track record of savings, the bank then lends money to the group, which in turn lends money to its individual members. ICC has developed 0,000 of these groups reaching 200,000 women. Icicle’s money has helped 1 million households get loans that average $120 to $140. The banks executive directory says the venture has been “very profitable. ” ICC is working with local communities and Nags to enlarge its reach.
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 multimillionaires, stocking tiny shops in outlying villages a short bus ride from her own. She sells about 10,000 rupees ($230) of goods each month, keeps