Selling at the Bottom of the Pyramid (BOP)

It is usually argued that the great potential of developing countries is not in its natural resources but in its growing population. Indeed, as countries develop, people at the bottom of the pyramid gain purchasing power and can start accessing manufactured consumer goods.

Now, how can companies do business with the bottom of the pyramid?

Certainly it requires new business models and it is not as easy as it looks. Some experts are already pointing out its conceptual failure, a sometimes too “romantic approach” to reality that views the poor as “resilient and creative entrepreneurs and value-conscious consumers”. See below article by Anneel Karnani from Ann Arbor University.

http://www.un.org/esa/desa/papers/2009/wp80_2009.pdf

Reaching out to the poorest population requires radical innovations in technology and specially radically new business models. It is about insight based business opportunities, with appropriate concepts, products, pack sizes, pricing, sourcing, manufacturing, distribution & communication.

In my opinion, the critical factors for developing a sustainable business for the BOP are :

1. Achieve affordable consumer price

Low income consumers are likely to behave in two ways, maximizing value for money and making sure their budgets are appropriate (out of pocket).

The thinking is “ will it be enough for all the family” and “”can i afford it”. Still, consumers will want strong aspirational quality brands and the right nutritional value.

2. High sales volumes

In order to be able to deliver good value propositions, economies of scale play an important role. The business will have to be intensive in unit sales but also the price/g will have to be maximized. It’s about selling small pieces of valuable items, for instance concentrated spices. That is why for exampler Maggi cubes are a popular BOP product in Africa.



3. Efficient and cost effective manufacturing and distribution

To achiebve all that, OPERATIONS will be KEY. Production in developing countries is not always an easy task. Skilled labour might be in shortage or simply the country might lack the technological advancements to produce the desired products.

Some multinationals for instance set-up their factories as modular independent units that need only “plug-and-play”. Another way to tackle the issue might be to co-create businesses within the communities where the company sells its goods.

Distribution, will also have to be taken into account. How do you reach for instance suburbs with no retailing infrastructure? How do you ensure the cold-chain? Here also, alterantive models need to be developed. In Brasil for example Nestlé uses a boat along the Amazon river to serve the local communities.

More information on BOP:

http://www.fastcompany.com/1687863/marketing-to-the-bottom-of-the-pyramid

More information on world poverty data:

http://www.globalissues.org/article/26/poverty-facts-and-stats



Posted by Ignacio Molins