Bottom of the Pyramid in Emerging Markets

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BOTTOM OF THE PYRAMID IN EMERGING MARKETS (e.g. China, India) Sameer Mathur, Ph.D.

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Agenda

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Sameer Mathur smathur.com Asst. Professor (Marketing) 2009 – 2013 Ph.D. and M.S. (Marketing) 2003 – 2009

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Bottom of the Pyramid (BOP)  The largest, but poorest socio-economic group. Requires business model that give consumers all they want, at a price they can afford, and still allow companies to be profitable. Bottom of the Pyramid

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Bottom of the Pyramid

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Emerging Economies Private investment and entrepreneurship – Causing economic growth, creating jobs and wealth, and bringing new consumers into emerging markets like India, China and Brazil.

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Decreases poverty, provides social benefits, increases stability and reduces conflicts.

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Large dependence on MNCs entering and investing in world’s poorest markets.

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MNCs in BOP markets – generate strong revenues, greater operating efficiencies and discover new innovation sources. 65% of the world’s population earns less than $2,000 each year – largely untapped market of 4 billion people. Worldwide BOP Markets

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Opportunity to establish brand emotion and aspiration when consumers are poor - helps ensure brand loyalty for future. Secures loyalty of millions of consumers who are in economies where real national income is slowly increasing. Sensible Future Investment

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BOP Consumer Characteristics

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CHANGING CONSUMPTION ORIENTATION OF BOP CONSUMERS FROM TO Settle for less Stretch for more Reluctance, avoidance Seeking experience Abstemiousness ("not for us") Affordable indulgence Destiny-driven, resigned to fate Struggling and aspiring for a better life Simple needs State-of -the -art needs too! Poor But No Longer Backward Example : BOP consumers believe a better wood stove is not good enough in a world with LPG, nor is a television without a remote.

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They value productive devices that help earn more or save more – through access to information, knowledge, healthcare, education, transportation and communication. Example: Philips’ distant healthcare services reduces the cost of taking loans and spending money on treating illnesses. Value Productive Devices

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Poor consumers have extremely low default rates on loan repayments. Value Processing/Financial Models

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Poor consumers are innovative. They create their own product solutions to make them value-right. Examples: Rather than making outgoing calls, use missed calls as an indicator to call back. Community lighting with the headlights of a jeep or tractor. Innovative

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BOP Misperceptions

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Individual incomes may be low, but communities have a large aggregate buying power. Eg : Telecommunication services Grameen Telecom’s village phones in Bangladesh generate revenues of 90$ to 1000$ per month. The Poor Have No Money

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Buying a house may be unrealistic, hence expenditure is more on products that they can buy now and which improve the quality of their lives. Eg : In Dharavi , Mumbai  85% of households own televisions, 75% own pressure cookers and 56% own a gas stove. Nonessential Goods

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Reality  BOP consumers pay much higher prices than middle-class consumers for most things. Opportunity for corporations to capture market share by offering higher quality goods at lower prices – economies of scale and efficient supply chains. Eg : Food costs 20-30% more due to lack of bulk discounts, Water is 4 to 100 times more expensive, interest rates are much higher (10 to 15% per day). BOP Goods are Cheap

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New IT and communication infrastructures (especially wireless) provide inexpensive methods to establish marketing and distribution channels. People in BOP actually adapt quickly to new technologies. Eg : GSM cell phones in Bangladesh, training of web page designers in Kenya. Advanced Technologies

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MNCs do not exploit the poor in BOP markets – simply eradicate inefficiencies and exploitive intermediarie.s Eg : Citigroup uses its scale to offer microloans at 20% annually. MNC Exploitation

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Comparison of costs of essentials in Dharavi , a shantytown of more than 1 million people in the heart of Mumbai, India, with those of Warden Road, an upper-class community in a nice Mumbai suburb Costs could be dramatically reduced if the poor could benefit from the scope, scale, and supply-chain efficiencies of large enterprises, as their middleclass counterparts do. The High-Cost Economy of the Poor

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The High-Cost Economy of the Poor Cost Dharavi Warden Road Poverty Premium Credit (Annual Interest) 600% - 1000% 12% - 18% 53X Municipal-grade water (per cubic meter) $1.12 $0.03 37X Phone call (per minute) $0.04 - $0.05 $0.025 1.8X Diarrhea medication $20 $2 10X Rice (per kilogram) $0.28 $0.24 1.2X

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Requires change in mindset and attitudes of MNC executives. Structural Changes – like setting up R&D units that focus only on local opportunities Eg : HP Labs’ ‘e-inclusion.’ Creating a business development task force focused on BOP markets. Strategies for Service BOP Markets

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Joint entry strategies with external partners such as businesses, NGOs and community groups. Creating venture groups and internal investment funds to promote entrepreneurship in BOP markets. Poor infrastructure, inadequate connectivity and corrupt intermediaries need to be removed for these strategies to work – technology is the solution. Strategies for Service BOP Markets

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BOP Consumer Characteristics

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BOP Misperceptions

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Serving the World’s Poor, Profitably by C.K Prahalad and Allen Hammond Background Reading

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Background Reading

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Summary

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Over 500,000 views from more than 95 countries http://www.slideshare.net/ProfessorMathur/ Sameer Mathur smathur.com http://www.facebook.com/ProfessorSameerMathur/

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