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Homework answers / question archive / Cases 3 Assessing Global Market Opportunities CASE 3-3 Marketing to the Bottom of the Pyramid One customer, Diega Chavero, thought the scheme was a scam soap and single-use sachets of Sunsilk shampoo and Omo laun- when she first heard of it, but after eight years of being unable to dry detergent, which he sells to riverside shopkeepers for as little save enough to expand the one-room home where her family of six as 2
Cases 3 Assessing Global Market Opportunities CASE 3-3 Marketing to the Bottom of the Pyramid One customer, Diega Chavero, thought the scheme was a scam soap and single-use sachets of Sunsilk shampoo and Omo laun- when she first heard of it, but after eight years of being unable to dry detergent, which he sells to riverside shopkeepers for as little save enough to expand the one-room home where her family of six as 2.5 cents each. At his first stop he makes deliveries to a half lived, she was willing to try anything. Four years later, she has five dozen small shops. He sells hundred of thousands of soap and bedrooms. "Now I have a palace." Another deterrent to the development of small enterprises at shampoo packets a month, enough to earn about $125-five the BOP is available sources of adequate financing for micro- times his previous monthly salary as a junior Communist party Professor C. K. Prahalad's seminal publication, The Fortune farmers got the best price for their product, hordes of interme- official. "It's a hard life, but its getting better." Now, he "has at the Bottom of the Pyramid, suggests an enormous market at diaries were bypassed, and ITC gained a direct contact with distributors and budding entrepreneurs. For years, those at the enough to pay his daughter's schools fees and soon . . . will have the "bottom of the pyramid" (BOP)-a group of some 4 billion bottom of the pyramid needing loans in India had to depend on saved enough to buy a bigger boat, so I can sell to more villages." people who subsist on less than $2 a day. By some estimates, the farmers, thus improving the efficiency of ITC's soybean acquisition. To achieve this goal, it had to do much more than local moneylenders, at interest rates up to 500 percent a year. Because of aggressive efforts to reach remote parts of the country these "aspirational poor," who make up three-fourths of the just distribute PCs. It had to provide equipment for managing ICICI Bank, the second-largest banking institution in India, saw through an extensive network of more than 100,000 independent world's population, represent $14 trillion in purchasing power, more than Germany, the United Kingdom, Italy, France, and power outages, solar panels for extra electricity, and a satellite- these people as a potential market and critical to its future. To con- sales representatives such as Hon, the Vietnam subsidiary of based telephone hookup, and it had to train farmers to use the vert them into customers in a cost-effective way, ICICI turned to village self-help groups. Unilever realized a 23 percent increase in sales last year to more Japan put together. Demographically, it is young and growing at PCs. Without these steps, the PCs would never have worked. than $300 million. percent a year or more. The complex solution serves ITC very well. Now more than ICICI Bank met with microfinance-aid groups working Traditionally, the poor have not been considered an impor- 10,000 villages and more than 1 million farmers are covered by with the poor and decided to give them capital to start mak- "they will not accept new technologies"; and "except for the its system. ITC is able to pay more to farmers and at the same ing small loans to the poor-at rates that run from 10 percent BOP MARKETING REQUIRES tant market segment. "The poor can't afford most products"; time cut its costs because it has dramatically reduced the inef- to 30 percent. This sounds usurious, but it is lower than the AFFORDABLE PACKAGING most basic products, they have little or no use for most products ficiencies in logistics. 10 percent daily rate that some Indian loan sharks charge. Each sold to higher income market segr e are some of The vast market for cell phones among those at the BOP is group was composed of 20 women were taught about sav- As one observer noted, "the poor cannot be Walmartized." the assumptions that have, until recently, caused most multina- not for phones costing $200 or even $100 but for phones cost- ing, borrowing, investing, and so on. Each woman contributes Consumers in rich nations use money to stockpile convenience. to a joint savings account with the other members, and based We go to Sam's Club, Costco, Kmart, and so on, to get bargain tional firms to pay little or no attention to those at the bottom ing less than $50. Such a phone cannot simply be a cut-down version of an existing handset. It must be very reliable and have on the self-help group's track record of savings, the bank then prices and the convenience of buying shampoos and paper of the pyramid. Typical market analysis is limited to urban areas. towels by the case. Selling to the poor requires just the opposite thereby ignoring rural villages where, in markets like India, the lots of battery capacity, as it will be used by people who do not lends money to the group, which in turn lends money to its indi- majority of the population lives. However, as major markets vidual members. ICICI has developed 10,000 of these groups approach. They do not have the cash to stockpile convenience, become more competitive and in some cases saturated-with have reliable access to electricity. Motorola went thorough four reaching 200,000 women. ICICI's money has helped 1 million and they do not mind frequent trips to the village store. Products have to be made available locally and in affordable units; fully the resulting ever-thinning profit margins-marketing to the redesigns to develop a low-cost cell phone with battery life as long as 500 hours for villagers without regular electricity and households get loans that average $120 to $140. The bank's bottom of the pyramid may have real potential and be worthy an extra-loud volume for use in noisy markets. Motorola's low- executive directory says the venture has been "very profitable." 60 percent of the value of all shampoo sold in India is in single- of exploration. cost phone, a no-frills cell phone priced at $40, has a standby its reach. ICICI is working with local communities and NGOs to enlarge erve packets. Nestle is targeting China with a blitz of 29 new ice cream One researcher suggested that American and European busi- brands, many selling for as little as 12 cents with take-home nesses should go back and look at their own roots. Sears, Roebuck time of two weeks and conforms to local languages and customs. BOP MARKETING REQUIRES EFFECTIVE and multipack products ranging from 72 cents to $2.30. It also was created to serve the lower-income, sparsely settled rural The cell-phone manufacturer says it expects to sell 6 million cell phones in six months in markets including China, India, DISTRIBUTION features products specially designed for local tastes and prefer- market. Singer sewing machines fashioned a scheme to make ences of Chinese consumers, such as Nestle Snow Moji, a rice consumption possible by allowing customers to pay $5 a month and Turkey. instead of $100 at once. The world's lar argest company today, When Unilever saw that dozens of agencies were lending micro- pastry filled with vanilla ice cream that resembles dim sum, credit loans funds to poor women all over India, it thought that and other ice cream flavors like red bean and green tea. The ice Walmart, was created to serve the lower-in market. Here are BOP MARKETING REQUIRES CREATIVE a few examples of multinational company efforts to overcome the FINANCING these would-be microentrepren sinesses to run. cream products are distributed through a group of small indepen dent saleswomen, which the company aims to expand to 4,000 challenges in marketing to the BOP. Unilever realized it could not sell to the bottom of the pyramid Designing products for the BOP is not about making cheap There is also demand for personal computers but again, at very low unless it found low-cost ways to distribute its product, it created women by next year. The project is expected to account for as much as 24 percent of the company's total rural sales within the stuff but about making technologically advanced products prices. To meet the needs of this market, Advanced Micro Devices a network of hundreds of thousands of Shakti Amma ("en owered next few years. affordable. For example, one company was inspired to invent markets a $185 Personal Internet communicator-a basic com- the Freeplay, a windup self-power-generating radio, when it puter for developing countries-and a Taiwan Company offers a mothers") who sell Lever's prod Indian version of Tupperware parties, Start-up loans enabled the ough an learned that isolated, impoverished people in South Africa similar device costing just $100. BOP MARKETING CREATES were not getting information about AIDS because they had For most products, demand is contingent on the customer women to buy stocks of goods to sell to local villagers. In one no electricity for radios and could not afford replacement having sufficient purchasing power, Companies have to devise case, a woman who received a small loan was able to repay her start-up loan and has not needed to t batteries. creative ways to assist those at the BOP to finance larger pur- sells regularly to about 50 homes and even serves as a miniwhole- the now HEALTH BENEFITS Albeit a promotion to sell products, marketing to BOP does chases, For example, Cemex, the world's third-largest cement company, recognized an opportunity for profit by enabling sales, stocking tiny shops in outlying villages a short bus ride from her own. She sells about 10,000 rupees ($230) of goods each help improve personal hygiene, The World Health Organization BOP MARKETING REQUIRES (WHO) estimates that diarrhea-related diseases kill 1.8 million lower-income Mexicans to build their own homes. The com- ADVANCED TECHNOLOGY pany's Patrimonio Hoy Programme, a combination builder's month, keeps about $26 profit, and ploughs the rest back into new people a year and noted that better hand-washing habits-using The BOP market has a need for advanced technology, but to be "club" and financing plan that targets homeowners who make stock. While the $26 a month she earns is less than the average $40 monthly income in the area, she now has income, whereas soap-is one way to prevent their spread. In response to WHO less than $5 a day, markets building kits using its premium- before she had nothing. urging, Hindustan Lever Company introduced a campaign called "Swasthya Chetna" or "Glowing Health," which argues that even usable, infrastructure support must often accompany the tech- grade cement. It recruited 510 promoters to persuade new Today about 1,300 poor women are selling Unilever's prod- clean-looking hands may carry dangerous germs, so use more nology, For example, ITC, a $2.6 billion a year Indian conglom- customers to commit to building additions to their homes. The ucts in 50,000 villages in 12 states in India and account for about soap. It began a concentrated effort to take this message into the erate, decided to create a network of PC kiosks in villages. For customers paid Cemex $11.50 a week and received building 15 percent of the company's rural sales in those states. Overall, tens of thousands of villages where the rural poor reside, often years, ITC conducted its business with farmers through a maze materials every 10 weeks until the room was finished (about rural markets account for about 30 percent of the company's with little access to media. of intermediaries, from brokers to traders, The company wanted 70 weeks-customers were on their own for the actual build- revenue. "Lifebuoy teams visit each village several times," using a "Glo farmers to be able to co nation sources ing). Although poor, 99.6 percent of the 150,000 Patrimonio Germ" kit to show schoolchildren that soap-washed hands are to check ITC's offer price for produce, as well as prices in the Hoy participants have paid their bills in full. Patrimonio Hoy In another example, Nguyen Van Hon operates a floating closest village market, in the state capital, and on the Chicago attracted 42,000 new customers and is expected to turn a sundries distributorship along the Ke Sat River in Vietnam's Mekong Delta-a maze of rivers and canals dotted with villages. cleaner. This program has reached "around 80 million rural folk," His boat is filled with boxes containing small bars of Lifebuoy and sales of Lifebuoy in small affordable sizes have risen sharply. commodities exchange. With direct access to information. $1.5 million profit next year. The small bar has become the brand's top seller.
