4Bn people in the world earn less than $2 a day, and they form what Dr C K Prahalad classifies as Bottom of Pyramid. His premise is very simple. If you break the economic and physical bottlenecks of distribution you can reach a huge previously neglected market. Millions of small sales can add up to big profits. This means that corporate should focus on ways to lower the cost of providing goods and services so that you can offer them at lower price and still maintain margins
The bottom of pyramid thus is made up of mass market made even more mass comprising of under served consumers.
In India, according to NCAER, there are 70Mn households in Urban India, and 160 Mn households in Rural India comprise of what we call as BOP market. By itself it is a very large market, and increasingly corporate are trying to focus on these consumers
It would be wrong to assume that companies think of approaching this market by reducing the goods to their bare minimum and delivering them at a massive scale. The sachet story, or the recharge cards of mobile phones or the micro finance story is not a story of bare bone product with low cost. Large corporations are approaching this market to improve their bottomline, but are also making sure that the lives of consumers improve.
Take for example, Nestle which now has a renewed focus on BOP market. Yes they have introduced smaller packs of their blockbuster Maggi Noodles and Ketchups. This is helping them in increasing the penetration of their products. What is interesting is that they have innovated and created a product specifically for the BOP audience which is a taste enhancer that has added iron and vitamins. This allows them to not only improve the taste of everyday dishes, but also enhance the quality of food by the added nutrition
Or take the example of Project Shakti of Unilevers. While the Shakti Amma’s help in promoting range of Lever products, they also work towards improving the general well being of the village they work in. for instance the Scojo foundation of US works with Shakti Amma’s in providing reading glasses to the poor at very affordable costs. Scojo foundation has trained Shakti Ammas to test the eyes and provide reading glasses to artisans for them to do their work better and improve their life. Shakti Ammas help in educating the village about the benefits of consuming iodised salt over non iodised salt. Medically its proven that children who grow up consuming non iodised salt have 13 point lower IQ than children who consume iodised salt.
Take the entire Nokia Life Tools programme that they have launched in India. By providing its farmer subscribers with latest crop rates in the mandi, or teaching them English they are ensuring that customers improve their standard of living.
Microinsurance is one big success story in India, and like Microcredit that was an Asian invention, Microcredit is an Asian invention that comes directly from understanding the needs of BOP consumers in India. For instance IFFCO Tokio leverages its association with IFFCO and sells micro crop insurance, at a premium of Re1 that is bundled with the cost of fertilizers. Today IFFCO Tokio serves more than 8Mn farmers across the country
Godrej Agrovet, HSCL Haryali Bazaar, ITC and even the world famous Amul are all examples of companies targeting the BOP consumers and not selling them skinned product at cheaper prices.
So what is driving the growth of BOP markets?
One, the connectivity is a big driver of BOP markets. And connectivity is both by Road and by Phone. The enhanced connectivity by road is improving their employability quotient. This is allowing them to earn more and therefore have a slightly higher disposable income, especially in non harvest seasons
Two the inventiveness of this set of consumers, that has been fuelled by the BOP markets. Possibly half the cell phones sold in India are sold to the poor. For them a phone is much more than a mere tools for communication, it’s a tool for improving their economic status
Three the BOP consumers are fairly ambitious in their own attitude. They are focused on improving their lives, use education as a tool to improve life, and dream big for their children. They will not compromise for the good of their children
To top it the Mahatma Gandhi Rural Employment Guarantee Scheme is strengthening the rural economy and allowing even the poorest of poor to become a consumer of branded goods at some stage.
Published in Pitch Anniversary Special Issue, October 2010