STRATEGIES TO OVERCOME CHALLENGES IN MARKETING TO THE BOTTOM OF THE PYRAMID – Digging diamond is not easy, but it is worth digging. [pic] Submitted for paper presentation at the 6th MMA All India Management Students Convention ______________________________ Introduction: GDP growth of the planet is at 7. 74%, of which the developing countries and the Economies in the transition show a significant double digit growth, 16. 53 % and 26. 64% respectively1. This is an invitation for the marketers to dig out the diamond mine underneath.
The diamond mine is the Bottom of the Pyramid. The benefits of the growing economy are mainly enjoyed by the rich and the upper middle class. In developing countries, particularly in India the rich become richer and the poor become poorer. In today’s world of growing differences between the rich and poor, the bottom of the pyramid plays a major role in deciding the future economy of the globe. Most of the developed markets show a lower growth rate and the corporates are exhausting resources in growing the Tier1 & Tier2 markets.
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It is time to nurture the bottom of the pyramid (BOP) markets and reap the fruits. BOP exists because of the people on the upper layers. If a person on the top of the pyramid wants to go up further, why cant the people in the BOP? It would be inappropriate to blame only the people on the top, but reinforcing the collective responsibility of MNC’s, SME’s, Government, NGO’s and the people would be more appropriate. Reaching the BOP is difficult, even establishing a brand to the Tier 1 market is challenging too, because of cut-throat competition.
It is time now to search for newer markets, and the market is just here. Incorporations have seen success in launching business models for accessible markets and it is possible to market profitably even to the BOP. Rural areas are the ones perceived as the deprived markets, but in reality 25 percent of the BOP is distributed in the metros and the other cities. For example, Mumbai being a home for more than 11. 9 Million people, 26. 5 percent of the people live under the monthly house hold income of less than Rs. 5000 ($125)2, which is very low compared to the cost of living in Mumbai.
The spending pattern of the deprived shows a clear room for the marketers to take a share, without making a hole in their pockets. In long term the BOP tends to increase the standard of living with a good saving potential. For example: a local money lender charges interest rates of up to 20 percent a day, which means a vegetable vendor borrowing Rs. 100 in the morning must return Rs. 120 in the evening. Even Rs. 200 sales will earn only Rs. 80 as a profit. Add to that, the local illegal practice, where BOP pays a premium to the gangsters for having a shop in a particular locality.
Extending credit to the BOP will certainly help themselves elevate economically. Grameen Bank has reversed conventional banking practice by removing the need for collateral and created a banking system based on mutual trust, accountability, participation and creativity. Grameen Bank provides credit to the poorest of the poor in rural Bangladesh, without any collateral. Founded by Professor Muhammad Yunus, the bank provides financial resources to the poor people on terms and conditions that are appropriate and reasonable As of May, 2007, Grameen Bank has 7. 1 million borrowers, 97 percent of whom are women. With 2431 branches, provides services in 78,659 villages, covering more than 94 percent of the total villages in Bangladesh3, shows the vital role of banks in development of the BOP profitably. Further in this article, we will see the change of the shape of the economic pyramid, and the benefits which can be reaped by the marketers, possible challenges and the strategies to overcome the challenges in marketing to the Bottom of the Pyramid.
From Pyramid to a Diamond: Diamond trying to come out, by itself The distribution of wealth and the capacity to generate income in the world can be captured in the form of an economic pyramid. The top of the pyramid comprises people of the elite society, whose average purchase power parity in USD is more than 20,000. The excessive income allows them to go in for more purchasing more of products and services, allowing them to have a better financial status and life status. In other words it can also be expressed as Globals4. There are approximately 75 to 100 million people in the Tier 1 markets.
Below them are the Tier 2 and the tier 3 markets whose PPP in USD is between 1,500 and 20,000, who are also termed as the strivers4. The population of this tier 2 and 3 is between 1. 5 to 1. 75 million. The cause of concern is the Tier 4 markets, the deprived and whose income is just enough to feed themselves and their families, and some of them even live on compromised meals. In the layman terms expressed as poor people, form the Bottom of the Pyramid. Compared to the world population of more than 6 billion, they are the 2 of the every 3 person in the world. They are the ones not benefited out of globalization.
It is the billions of aspiring poor who are joining the market economy for the first time5. India’s economic growth has accelerated significantly over the past two decades and so, too, has the spending power of its citizens. Real average household disposable income has roughly doubled since 1985. With rising incomes, household consumption has soared and new Indian middle class has emerged. 6 McKinsey & Company’s report on the rise of India’s consumer Market, May 2007 states that the Indian market will undergo a major transformation if the current high growth path continues over the next two decades.
Indian income levels will almost triple and India will climb from its position as the 12th largest consumer market today to become the world’s fifth largest consumer by 2025. As the Indian income rise, the shape of the country’s income pyramid will also change dramatically. Over 291 million people will move from desperate poverty to lead a more sustainable life, and India’s middle class will swell by over ten times from its current size of 50 million to 583 million people. Even the FMCG major Hindustan Lever Limited, a subsidiary of Unilever PLC also predicts the same, expecting a significant shift from Bottom of the Pyramid to the middle.
This clearly exhibits the underlying potential of the BOP market. Better marketing strategies towards the BOP will definitely earn more profit to the organization bringing a better quality of life of the deprived. Similarly the BOP markets around the globe will also grow, as the MNCs have started focusing on them. The cost of labour in these markets is far low compared to the developed markets, so most of the MNC’s have gone beyond boundaries to manufacture their products by foreign citizens in foreign lands at lowered manufacturing cost.
Service sector, predominantly Business Process Outsourcing (BPO) companies in India have played a major role in providing employment to youth of the country, helping them enhance the economic status of their families and that of the country. Looking at this robust growth, many countries have started inviting the MNC’s to take part in the nation’s development. Products and services: What to offer to the BOP? Understanding the needs of the BOP market is the first priority.
The BOP are not the same as the elite society, whose needs are different from the globals. Offering a product or service, which will enhance their earning or saving potential would help them have more money to spend. Banking, Finance & Insurance: Preventing loss, promoting Life Grameen Bank has reversed conventional banking practice by removing the need for collateral and created a banking system based on mutual trust, accountability, participation and creativity, providing credit to the poorest of the poor in rural Bangladesh.
Credit is a cost effective weapon to fight poverty and it serves as a catalyst in the overall development of socio-economic conditions of the poor who have been kept outside the banking orbit on the ground that they are poor and hence not bankable. Prof. Yunus, reasoned that if financial resources can be made available to the poor people on terms and conditions that are appropriate and reasonable, “these millions of small people with their millions of small pursuits can add up to create the biggest development wonder. “3
Apart from this, Life and the Health Insurance products will certainly help them reduce the losses incurred by the poor due to loss of life or health of the earning family member. For example, BOP workers are mostly found working in unorganized sectors, without any protection for their life and their health. If a person working in the construction site dies in an accident, his dependent family will have no other source of income, forcing the children to work with a compromise to their education. The children will continue to work, later they realize the need for education.
This could be possibly prevented to a large extent by promoting insurance products to them. Apart from this are the Agricultural Insurance Products, preventing losses incurred by the farmers due to natural causes. Household & Healthcare products: Health is wealth Just like the elite society, there are certain universal needs for everyone in the modern world. HLL has specific products for the BOP, in the near affordability of the BOP. BOP has a poor access to the healthcare and looses a significant labor working days due to illness. In India Direct to Consumer (DTC) for the pharmaceutical products are restricted.
Pharmaceutical companies promoting the generic low cost drugs through the doctor in the rural areas for the BOP would significantly reduce the healthcare expenditure of the poor, helping them to have a better health. The above are the major and basic needs of the poor. Apart from these any product which is used by the elite society can also be used by the BOP. So there is no harm in promoting any new product to the BOP, but ensuring a better Return on Investment (ROI) is a fact to be considered, for which the better understanding of the need of the BOP is important.
Marketing the product based on the needs can show a better ROI. Selling System: Which weapon use to dig the diamond mine? For Penetrating into the BOP market remains a challenge. Geographically, BOP is spread around the globe. The BOP does not lend itself to a single distribution solution. Urban concentrations represent a problem distinct from that of the distribution access, to dispersed rural communities. Worldwide, the cost of reach per consumer varies significantly across countries. Companies and the social welfare organizations are experimenting to identify the right business model for distributing goods and services.
In India HLL, has been a pioneer among the MNC’s in exploring markets at the BOP. They did face lot of challenges in the BOP market. One of them was accessibility to the BOP markets. They started with a project Shakti, changing lives in the rural India to create income-generating opportunities for the rural population, such initiatives are successful and sustainable when linked with the company’s core business and are mutually beneficial to both the population for whom the programme is intended and for the company. The products were distributed and sold by the Shakti ammas.
Such selling system will overcome the challenges of distribution in every corner of the country. The Shakti ammas who live in a village get regular training and adequate product information. They play a major role in the distribution in network of distributing the products from the Mini towns to the interior villages. HLL also runs many programs for the self-development of these Shakti amma’s and attractive financial development programs. Replicating what HLL is doing is also a good model. They earn between Rs. 3,000 and 7,000 per month (U. S. $60???$150) and therefore create a new capacity to consume for themselves and their families.
More importantly, these entrepreneurial women are increasingly becoming the educators and access points for the rural BOP consumers in their communities. This approach is not new. Avon is one of the largest cosmetics operations in Brazil and has used a similar approach by leveraging more than 800,000 “Avon ladies” as distributors to reach even the most remote regions of Amazonia. 7 Apart from this, the multi-level marketing (MLM) also to an extent encourages the consumers to recommend a particular product to another consumer and helps in developing the individual income.
But how far this can implemented in the BOP still needs to be tested and established. We know many people in the BOP markets still take part in the MLM presentation of the Amway, Modicare etc. , successful in earning. At the same time, there are some who lost their investment for various reasons. Keeping people focused in the MLM still remains the challenge for the MLM Business plans. Optimal utilization of the transport system need to be considered. One of the major challenges in the present distribution system is the increasing fuel prices. These increasing fuel prices are irreversible.
The oil price increases the cost of transportation thus taking the products away from the BOP. This will remain a continuous challenge, and this can be handled by having the most optimal usage of the existing system. Petrol prices in India have doubled within a decade, emphasizing the need for optimum usage of the transportation system. Lending the transport to the farmers for transportation of their crops from the village would certainly be a win-win situation. A vehicle transporting FMCG products from a metro to a BOP market, most of the times returns empty.
This gives an opportunity to utilize the same vehicle for transport of agricultural products from the village to the metros. Complimenting this, Government of India have constructed the golden quadrilateral linking the metros in India, this reduces the cost of maintenance of vehicles. Similarly there are many projects underway in the undeveloped and the developing countries for construction of better roads Channel Management: In this techno-world, having a country-wide connectivity may not be a difficult task; this will improve the management of inventories and preventing of the products remaining unsold after the expiry dates.
Payments can be deposited in any branch of a bank to a particular centralized account. This not only helps in the timely payment collection but also helps us to understand the market needs. A person sitting in the corporate office can know the need of a particular market and find out why a particular product or service is not been sold properly. Optimum use of the technology will help manage the sales channel. SAP, which revolutionized the distribution system around the world, could be a tool for an ideal channel management.
These tools must not only help in the distribution but also in analyzing the sales trends in every micro markets. Education on these distribution techniques is mandatory for everyone involved in the system. They must receive periodic training on the development and the usage of the distribution system to them. Distribution system should not only focus on the delivery of the goods, it should also help in knowing the sales pattern of the markets. Usage of the computer would definitely help in monitoring the sales for better forecasting. Pricing:
Importance of the price structure is well established in the BOP market. Determining the correct price needs knowledge of the market for various prices. The Consumer needs acceptance & affordability need to be considered. Probably a pricing survey could also help. Having different pricing for a same product will not be a right option. This may lead to a particular product purchased form the BOP market in bulk and sold at the supermarket. This in turn eats up the sales of the established market, and dissatisfaction of the established distributor at the metro markets.
Have a uniform price, but try to skip some of the distribution channel, cut costs and pass the benefits to the BOP consumer. HLL, in the laundry sector promotes WheelTM for the BOP, whereas it positions Rin-advanced for the middle of the pyramid and Surf-excel for the Top of the pyramid. Similarly Lifebouy TM soap & Clinic plus shampoo in the Personal Wash and Hair Care sector for the BOP. HLL also plans a strategy to convert the non users of a particular product to users and existing users to aspiration brands. 8 In the healthcare sector, generic drugs have played a major role in reducing the cost of healthcare in the developed world.
In India because of the lenient patent law, the drug prices are far below than the international standards, even then distribution cost for an average medicine is more than 35 percent of the retail price. The distribution takes three layers; bypassing one layer can save 10-20 percent. Some of the pharmaceutical companies started experimenting the same concept in India. Packaging: Providing smaller sachets instead of a large pack will be at the reach of the BOP. Observing the street shop at the BOP market and the purchasing pattern of the people at the shop will show a different view compared to the supermarkets in the elite area.
This is because they don’t want to buy a large pack; they prefer the smaller one that too on need based. “The sachet phenomenon is an example of reaching to the bottom of the pyramid; it was a recognition that a lot of people in India are just not willing to buy a whole bottle of shampoo. That doesn’t mean they won’t buy shampoo. “9 Measured in tons, the size of the Indian shampoo market is as large as the US market. MNCs such as HLL and Procter & Gamble (P) are major participants Likewise, depending on the products and the consuming potential of the BOP market, the packaging needs to be designed to optimize the sales in those regions.
The poor are as brand conscious as the rich. Pantene shampoo, a high end shampoo from P is also available in single use sachets at Rs. 3 each. In addition for those buying and using Clinic Plus at Re. 1/-, P also positioned its Rejoice shampoo at Re. 1/-. The entrepreneurial private sector has created a large market at the BOP; the penetration of shampoo in India is more than 90 percent. Promotion: Different products need a different promotional strategy, so does the market too. Each market is different from other.
One of the impressive promotional strategies is that of HLL’s Lifebuoy Swastya Chetna (LBSC) is a rural health and hygiene initiative started in 2002. LBSC was initiated in media dark villages of selected states in India with the objective of spreading awareness about the importance of washing hands with soap. According to a study done by the London School of Hygiene and Tropical Medicine, the simple practice of washing hands with soap and water can reduce diarrhoea by as much as 47%. However, ignorance of such basic hygiene practices leads to high mortality rates in rural India.
Lifebuoy saw a role for itself in propagating the message of hygiene and health in villages. LBSC is a multi-phased activity works towards effecting behaviour change amongst the rural population. It demonstrates that “visible clean is not really clean” thereby proving the importance of washing hands with soap. It targets children as they are the harbingers of change in society and mothers since they are the custodians of health. The campaign has been divided into various phases. In the initial phase, a Health Development Facilitator (HDF) and an assistant initiates contact and interacts with students and influencers of the community, i. e. illage community representatives, medical practitioners, school teachers etc. A number of tools such as a pictorial story in a flip chart format, a “Glo-germ demonstration” and a quiz with attractive prizes to reinforce the message are used. The “Glo-Germ demonstration” is a unique tool to make unseen germs visible and emphasize the need to use soap to wash hands and kill germs. The first interaction with students is then replicated with the women and finally the rest of the community. The various stages reinforce the message and learnings, which is crucial in order to effect awareness and behaviour change in favour of hand wash hygiene.
The programme has touched 27800 villages and 80 million people over the last four years. In 2006 alone LBSC contacted 10,000 villages in UP, MP, Jharkhand and Bihar. 10 Communication: End of twentieth century, revolutionized the Information and Communication Technology. It is very rare to see any village without an access to the Television or Radio. The TV and Radio will remain the prime medium for the communication. Apart from the conventional medium, the usage of internet, mobile phones and etc. , also can play an important role in overcoming difficulties faced by the marketers in the inaccessible markets.
Media Selection: BOP marketing aims at reaching the mass, which means advertising is important. It needs to go for a low priced advertisements in these markets. Continue with nationwide Television advertisement. In addition, find out a cheaper mode for local advertisements. MNC’s pay a huge sum for the brand ambassadors; impact of the celebrity advertisement can be felt well in rural areas, because BOP consumers are easily attracted towards the celebrities. At the same time there must be a point to which the companies can spend money on the celebrities, who are becoming costlier day by day.
In addition there is a necessity to search for the best mode of advertisement. Finding out the programs of interest of the BOP in the media will help us to select the slot for advertising in these programs. Power Soaps manufactures, who advertise only in the programs watched by the BOP, is an example of selecting a best slot for maximum brand advertisement. There are various cheaper ways of advertising in these markets. One among them is the transport, both public and private, used widely by the BOP. One can advertise in the public transport, wherever there is a place for advertisement, inside and outside.
Companies can even invest in some advertised seat covers for bi-cycles, advertisement painting on trucks, with a minimal rent helping them earn some income out of carrying these advertisements. Cultural Differences: India is not like one country, it is like 25 different countries9 Diverse cultures make a marketer’s job more challenging. One particular thing followed by one culture may not be suitable for another. Products and services offered to them should be global, whereas the way it is marketed should be local. There are 13 recognized languages in India, apart from those there are also many which are in use.
BOP markets need advertising in local language. Hence clear understanding of the local cultures will provide a solution for this challenge. In addition to all the challenges mentioned above there are certain crucial challenge to market to the Bottom of the Pyramid. Political issues: In spite of being the largest democracy in the world, both the Central and the many State Governments are coalition governments. Implementing a policy is very difficult. India being a culturally diverse country, there is lot of difference of opinion between the political parties.
Implementation the Value Added Tax (VAT) was an evidence of how it is difficult to implement a policy. Even if Central Government suggests something, it takes its own time for the State Government to implement it. When Reliance Fresh started their retail outlet in some of the metros, it did face protests from the parties present in the ruling government and also opposition parties. Political parties take these issues for their own advantage, making it a difficult task for the marketers to establish a new concept or a new distribution system.
It will not be a surprise, if posed with a governmental pressure in implementing an innovative selling system. These issues need to be handled tactically. Local Gangsters: The thief within While helping the poor may grow the living standards of people and the country, may not hold good for the gangsters. The BOP is ruled by local legal and illegal administrators. It would be inappropriate if not highlighted the local dynamics. A shop keeper in the BOP areas are forcefully demanded a sum for having a shop in a particular locality by the gangsters.
Implementing a new system may also alarm these people. This is again a very sensitive issue needs to be handled tactically carefully. Conclusion: A journey of thousand miles starts with a single step11 The BOP markets look very lucrative for the companies, just like the diamond mine. But reaching and marketing products and services to them is a mammoth task. It requires a collective responsibility and cooperation of policy makers of the society and corporations. Coupled with a societal development and better culturally adaptable marketing strategies, can ensure a higher Return on Investment.
Most of the commonly faced challenges have been discussed. Apart from those challenges, more challenges will still exist and will be discovered during the implementation. More than the theory, using a common sense at those stages would certainly bring a solution and successful implementation of the business plan. There can be no second thought on whether to market products and services to the bottom of the pyramid or not. If the world economy grows the benefit will surely be passed on to the BOP, if not the fullest at least a small portion of it.
The shape of India’s income pyramid will change dramatically as income grow12 from pyramidal to the diamond. Several measures are taken by government and the NGOs in reducing the gap between the rich and poor. Narrowing the gap will make the market more accessible and profitable. Proper planning and implementation will ensure the marketers digging the diamond at the earliest. References: 1. adapted from UNCTAD Handbook of statistics 2006-2007 2. Urban Poverty and Transport: The Case of Mumbai, www. worldbank. org/transport/learning/presentations/Poverty%20&%20Trans/Cropper. df – 3. http://www. grameen-info. org/bank/index. html 4. The Great Indian Middle Class: Results from the NCAER market information survey of Households 5. The fortune at the bottom of the pyramid- C K Prahalad and Stuart L. Hart, Strategy + Business issue 26. 6. R. K. Shukla, S. K. Dwivedi, and Asha Sharma (with assistance from Sunil Jain), The Great Indian Middle Class: Results from the NCAER Market Information Survey of Households, National Council of Applied Economic Research (in association with Business Standard), 2004, (http://www. caer. org/Downloads/PublicationsCatalog. pdf). 7. Roberto Hernandez and Yerina Mugica. “What works: Prodem FFP’s Multilingual smart ATMs for Micro Finance. ” World Resources Institute, Digital Dividend Website, www. digitaldividend. com, August 2003. 8. HLL Investor presentation, Road show ???Presented by SP Mustafa 8-10th August, 2007 9. Consumer Markets in India ??? the next big thing? ??? KPMG report 10. http://www. hll. com/citizen_lever/lifebuoy_chetna. asp 11. Lao Tzu 12.
McKinsey & Company – The ‘Bird of Gold’: The Rise of India’s Consumer Market, May 2007 ———————– Figure 1. The economic pyramid. Source: Prahalad, C. K. and Hart, Stuart, 2002. The Fortune at the Bottom of the Pyramid, Strategy + Business, Issue 26, 2002. Rajkumar P. I year MBA, School of Management, D G Vaishnav College, Chennai ??? 600106, India. [email protected] com +91-98402 39547 Maanasaa S. Kumar I year MBA, School of Management, D G Vaishnav College, Chennai ??? 600106, India. [email protected] co. in +91-98416 67580