Marketing to the Bottom of the Pyramid

Rangesh Fernando 9 June 2011

Contents
1.0 2.0 Introduction ................................ ................................ ................................ .... 3 BOP Market Dynamics, Characteristics & Challenges ................................ .... 4

2.1 Lower disposable income ................................ ................................ ................. 4 2.2 Purchase behaviour ................................ ................................ .......................... 4 2.3 2.4 3.0 Countries economy, living standards and poor infrastructure development .. 5 Low level of literacy ................................ ................................ ................... 5 Guidelines for a marketing strategy for the BOP segment ............................... 6

3.1 Packaging and product ................................ ................................ ..................... 6 3.2 Intense distribution network ................................ ................................ ............. 6 3.3 Electricity limitations ................................ ................................ ....................... 7 3.4 Easy payment terms ................................ ................................ ......................... 7 3.5 Demonstrations and Visual Advertising ................................ ........................... 7 3.6 Empowered rural community ................................ ................................ ........... 8 3.7 Use of technology ................................ ................................ ............................ 8 4.0 Corporate social responsibility view point in lending and financing the BOP ....... 9 5.0 Conclusion ................................ ................................ ................................ ........10 6.0 References ................................ ................................ ................................ .........11

1.0 Introduction
Three fourths of the worlds population represents $14trillion in purchasing power Three fourths of the worlds population lives in the Bottom-of-the-Pyramid (BOP) segment. This globally constitutes of four billion people that subsist on less than $2 a day. There is enormous fortune which organizations can make use of by catering to this segment as this is a highly lucrative source. Marketers and their efforts in catering to this segment is highly appreciated by the BOP consumer and is viewed as a mutually beneficial partnership, as it helps them up bring their lives, as opposed to obtaining a share of wallet. However, organizations today tend to ignore this enormous potential due to logistical difficulties faced in getting the product to the consumer in this market segment. The idea behind is to make products and services of quality affordable and relevant for use by the people in this segment backed by an intense distribution network. This short report looks at key areas an organization should look at when adopting their strategies in order to cater to this BOP segment and evaluates the mindset and buyer behaviour of the consumer.

2.0 BOP Market Dynamics, Characteristics & Challenges

2.1 Lower disposable income Majority of the organizations concentrate on the High Income and Middle Income segments in order to sell their products and services. The reason to do so is due to the relatively high disposable income in these segments. However, in reality despite the BOP segments having lower disposable income, they too have similar aspirations, needs and wants as those in the High and Middle Income segments. All human beings for that matter have aspirations, needs and the want to elevate themselves from their current level.

2.2 Purchase behaviour Due to the low income levels and the subsequent disposable income, the quantity of purchase is relatively very low as opposed to convenience based purchasing. The consumer in this segment lives by the day. Going to the shop on a daily basis is a routine for them as opposed to convenience based weekly or monthly shopping. Hence, in order to make customer winners, it is important for the products to be of quality and sold at an affordable price. Anchor milk for example, is purchased by the BOP consumers on spoonfuls at the kiosks on a daily basis as opposed to packets due to the low level of disposable income. There are several organizations that successfully pack and carry their products to this segment. For example, the sachets which are very popular in Sri Lanka are a product primarily targeted for the BOP segment. Today the sachets carry a range of products from food products such as tomato sauce, mail grooming products such as hair gel and body colognes, to instant remedy medicinal cough syrups and more.

2.3 Countries economy, living standards and poor infrastructure development Majority of the presence of BOP segments are in less developed and the least developed countries. Examples of such countries include Sri Lanka, Indonesia,

Cambodia, Philippines, certain African nations, etc. India and Africa for example, has the largest number of hungry people in the world. low. However, due to poor living standards and infrastructure development, marketers are faced with great challenges in making their products available to the BOP consumer. The relevant geographic areas in concern are often in the rural areas and thus amenities such as electricity, on wheel transportation, close proximity to town, supermarkets, hospitals, etc. are considered a luxury. In newly industrialized

countries and developed countries however, the intensity of this segment is relatively

2.4 Low level of literacy 80 million people in India will never have the chance to attend school Due to poor levels of literacy, marketers are faced with the challenge of having to produce instructions in the form of demonstrations and visuals that can be easily understood without having to read. The alarm clock of the Nokia 100 series basic phones, especially made for the BOP segments for example, reads out the time in addition to the display as some consumers in this segment are unable to read the time or are unable understand numeric figures.

3.0 Guidelines for a marketing strategy for the BOP segment

Taking the above into consideration, the following are a few factors that need to be considered when marketing to this segment.

3.1 Packaging and product The disposable income levels are low. People live by the day and visit the shop on a daily basis as opposed to convenience based weekly or monthly shopping. The consumer in this segment will be making regular purchases in small quantities. Hence, the product need not necessarily have value added augmentations; but it need to be of high quality and deliver the core basic benefits. Hence the packaging needs to be redesigned and be in line with the lifestyle. Sachets for example have worked well for brands such as Gold hair gel, Pro Sport colognes, etc., in the mail grooming market in Sri Lanka. Others include products such as Nestomalt, Samahan, etc.

3.2 Intense distribution network Due to the poor infrastructure and unavailability of access through vehicles, a comprehensive dealership program needs to be developed and managed. Further, the retail shops catering to these consumers are small kiosks. The kiosks owner himself will be within the BOP segment and will be subjective to similar dynamics. The storage space and facilities can be limited. Hence, the distribution team will have to replenish stocks on a daily basis or very regularly. Due to the inaccessibility through vehicle, the distributor/ sales person will have to carry the goods in a bag pack, walk or look for other avenues of access to reach the shops and kiosks.

3.3 Electricity limitations Lack of electricity brings in a lot of new challenges for marketers. This requires fresh thinking and the processes need to be reengineered. For example, when Cargills Magic ice cream Company, wanted to reach this segment they had to rethink refrigeration to maintain Ice creams at the required temperature of minus 18 degrees Celsius. Electricity is a key requirement for the Ice Cream industry and represents the largest component of 40% of the production costs. To address this, Cargills made use of battery charged refrigerators. The batteries and ice creams are replenished once in every three days. Nokia 100 series phones for example were specifically produced to cater to this market. The phone was a basic model with the key calling and SME facilities. However, it was equipped with a standby time of two weeks in order to work effectively under electricity limitations.

3.4 Easy payment terms Easy payment terms and financing facilities will need to be arranged for relatively high valued items. For example, Singer successfully sold their sewing machines to the housewives in this segment. Thus empowering them and enabling them to start their own form of small business. Assistance of the local Garmeen Bank can be used for this. Past research has shown that the default rates are way much lower compared to commercial banking for the wealthy.

3.5 Demonstrations and Visual Advertising Due to the low level of literacy, the consumers will have difficulty reading instructions. Hence, the packaging should be transparent for them to identify the product. 7

The TV and Radio Advertisements need to be descriptive and informative. Demonstrations and visible application of the product need to be done in the case of TV for the consumer to understand the use of the product.

3.6 Empowered rural community Especially for technically advanced products and sensitive products, we will need to use empowered rural community to market the products and educate the consumers. For example, under the Shakthi Amma concept of Unilever, the rural woman of India is empowered and educated on products of Unilever. They then carry this knowledge across to the community and educate them. For a products like condoms for example, visual aids such as videos will need to be used. As people are ignorant and are unaware about the importance of using condoms due to their very low level of literacy.

3.7 Use of technology As seen above, catering to this segment will bring about a whole new set of challenges upon the organization. Hence, approaching the BOP segment will require a separate set of people. It will require us to go to the outstations. A dedicated team will need to constantly

communicate with the local dealers/ sales staff to monitor the movement of stocks. Systems such as sales force automation will be required to manage this large operation, to monitor movement of stocks and for auditing purposes. This will also help the organization to identify fast moving goods, slow moving goods, the outlets/ area, etc., and improve the overall operation.

4.0 Corporate social responsibility view point in lending and financing the BOP
There is enormous potential at the Bottom of the Pyramid. It is a very important segment that helps marketers to profits from. It is also important and is the key to develop a countrys economy by increasing its production capacity. Past research and observation has shown that this segment is highly courageous and is persevering. The hardships of life have made them more determined and

hardworking. Despite their low level of literacy, they are willing to learn, develop and enhance their skills. At present the main mode of borrowing for these consumers is through local lenders that lends at a rate of 300% per annum. On the contrary, the best customers of a commercial bank would obtain this at 10% per annum. The Micro Financing concept of Grameen Banking in this light has proved effective and has become a life saver to this segment. The Grameen Bank lends to this segment at 25% per annum and collects the loan in daily installments. Research has proved that the rate of default in this segment is less than 1%. Whilst in the commercial banking sector it is around 5%. Hence, this is highly lucrative for the financial industry. It will help the Financer or the Bank to obtain a premium of 25%. It is less risky compared to financing to the wealthy. It helps the people in this segment to uplift their lives and also increase the countries production. This helps develop the village and the rural areas of the country and thus improve the overall production & economy of the country. Critics however argue that lending at 25% is exploitation of the wealth of this segment. The higher interest rate usually signifies higher risk. However, observation has shown that in reality the default rates of this segment are at an average of only 1%. Thus, the banks can actually lend to this segment at less than 10% which is currently given to their best customers but who also has a higher risk of defaulting. 9

On the BOP borrowers point of view however, charging 25% is seen as a life saver as opposed to the 300% rate given by the local lender. Thus enabling the borrowers to start their own business in a small way or improve and uplift themselves. Hence, the Micro Financing concept for the BOP, adopted by Grameen Bank is a great example for corporate poverty elimination.

5.0 Conclusion
Looking at the above, BOP is a highly lucrative segment that represents majority of the society. Hence it is important for marketers, governments and organizations to look into this segment and it is one that cannot be ignored. The BOP consumer has aspirations like any human being. Fashion products such as hair gel and body colognes for example, has enabled the youth today to look and feel good and fashionable about themselves. They are able to purchase the affordable sachets as opposed to an entire can or bottle as purchased by those with better disposable incomes. Thus increasing the self confidence and uplifting their lifestyle. The key to cater to this is segment is to sell reasonable quantities, sufficient for daily use, at prices which are affordable. The quality of the product however needs to be maintained at all times. The BOP segment has opened up new avenues for marketers. For consumers, they are able to full fill their aspirations and uplift their lives. For the economy, it helps eliminate poverty and increase the overall production capacity of the country.

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6.0 References
Cateora, P. R. & Graham, J. L. (2008), International Marketing, 13th edition. Tata McGraw Hill Paliwoda, S. & Thomas, M. (2002), International Marketing, 3rd revised edition. Oxford, Butterworth & Heinemann / Viva Books.

Bradley, F. (2001), International Marketing Strategy. 4th edition. Harlow Pearson. Doole, L & Lowe, R. (2001), International Marketing Strategy: Analysis Development and Implementation, 3rd edition. London. Thompson Learning.

Keegan, W. J. (2002), Global Marketing Management, Education

7th edition. Pearson

Keegan, W. & Schlegelmilch, B. (2000), Global Marketing Management: European Perspective. Hemel Hempstead, Prentice Hall.

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