Fortune at the bottom of the pyramid

The Fortune at the Bottom of the Pyramid

Presented By-

Gopal Kumar(13DM041)

Sayan Chandra(13DM016)

Overview

Definition ‘BOP’Principles of BOPPrevailing Global Myth about ‘BOP’ OpportunitiesRisks & ChallengesIdeal Business Model for BOP & PracticesConclusion

What is BOP?

In economics, the bottom of the pyramid is the largest but poorest socio-economic group.

Current usage pronounces >4 billion population across the world living on <$2 per day.

The World Economic PyramidAnnual Per Capita Income Tiers Population in Millions

>$20,000 1 75-100

>$1,500-20,000 2 & 3 1,500-1,750

<$1500 4 4,000

Prevailing Global Myth: BOP The poor are not our target consumers because with our current

cost structures, we can not profitably compete for that market. The poor cannot afford and have no use for products and

services sold in developed markets Only developed markets will appreciate and pay for the new

technology. The poor can use the previous generation of technology

The bottom of the pyramid is not important to the long-term viability of our business. We can leave tier 4 to govt. & NGOs.

Managers are not excited by the business challenges that have a humanitarian dimension

Intellectual excitement is in developed markets. It is hard to find talent managers who want to work at the bottom of the pyramid

Principles of BOP

Price PerformanceInnovation: HybridScale of OperationsSustainable Develpopment:Eco-FriendlyIdentifying FunctionalityProcess InnovationDeskilling of work

Principles of BOP cont.…

Education of CustomersDesigning for hostile InfrastructureInterfacesDistribution: Accessing the CustomerBOP markets allow us to challenge the

conventional wisdom in delivery of product

Risks & Challenges

Operating Environment Exposure to new political

and economic risks Resources, capabilities and

knowledge of the complexities and subtleties of sustainable development are required.

Consumers can’t afford differentiated products

Competing with local business can threaten the existing power structure.

Economics

Market size nuclear: estimates range from $0.3 trillion to $13 trillion

Prahalad uses purchasing power parity and assumes 4 billion BOP spending $4/day

Low Margin: High Fixed costs

Distribution challenges

High price sensitivity and per unit transaction costs

OpportunitiesBOP consumers suffer a poverty penalty

Lack of access to competitively and efficiently-provided goods and services

Higher prices for some goods and services (i.e. manufactured goods, credit)

Poorer quality goods and services

At the same time, BOP consumers Are Brand-conscious Have well connected

communities(word of mouth) Readily accept advanced

technology Collectively have purchasing

power Are always trying to upgrade

from their existing condition

HUL(formerly known as HLL) & Nirma:Case Study

HLL has been a pioneer among MNCs exploring markets at the BOP for over 50 years

In the 1990s Nirma Ltd. began offering detergent products for poor consumers under a business system that included a new product formulation, wide distribution network, special packaging for daily purchasing and value pricing

In 1995 HLL’s new detergent called wheel was formulated to substantially reduce the ration of oil to water in the product, knowing that poors often wash their cloths in rivers or other public water systems

HLL also decentralized the production, marketing,& distribution of the product to leverage the abundant labour pool in rural India

Quickly creating sales channels through thousands of small outlets where people at the BOP shop

HLL also changed the cost structure of its detergent business so it could introduce wheel at a low price

4 keys to unlock BOP markets to MNC products

Bangladesh Grameen Bank: Case Study

One of the first in the world to apply micro lending model in commercial bank

Grameen Bank pioneered lending service for the poor that has inspired thousands of micro lenders

Program has been designed to extend credit to lowest income customers also have challenges like-lack of collateral, high credit risk, contractual enforcement

Loan application process is applicants seeking loan must have their proposals thoroughly evaluated by 5 nonfamily members of the community

Bank’s sales & service people frequently visit the villages, getting to know the applicants who have loans and the projects they are suppose to invest

With 1170 branches, providing microcredit services in >40000 villages As of 1996 Grameen Bank had achieved 95% repayment rate

Arvind Mills: Case Study

Arvind mills, the world’s 5th largest denim manufacturer Indian Denim sales limited due to $ 40 to $60 a pair was unaffordable to masses

Arvind mills introduced ready to make kit of jeans under the brand “Ruf & Tuf” at about $6

Kits were distributed through a network of thousands of local tailors, many in small rural towns & villages

“Ruf & Tuf” Jeans are now largest selling jeans in India surpassing Levi’s

Khira District Milk Cooperative:Case Study

In 1946,Khira District Milk Cooperative set up its own processing plant under the leadership of Varghese Kurien,created brand AMUL.

In India milk originates in many small villages Villagers may own 2 or 3 cows or buffaloes and bring their milk twice a day to the

village collection centres Refrigerated vans transport the milk to central processing plants, where it is

pasteurized The khira district cooperative provide veterinary care and cattle feed to farmers As a result previously marginal village farmers are earning steady incomes and

being transformed into active market participants Earlier India had supply shortage of milk .Per capita availability of milk grew from

107g to 213 g in twenty years making India, world's largest milk producer. National Dairy Development Board claims 10.7 million individual farmer

members-owners, covers 96,000 village level societies, includes 170 milk producer unions, and operates in more than 285 districts, Milk Production has increased 4.7%/year since 1974

Conclusion: For those combating poverty

• IF corporations canwithout causing the very poor to divert income from

pressing needssell products that make people more productive that are produced in a way that create local jobs and

increase local human capitalwithout driving out local industriesand reinvest locally instead of repatriating profits

• THEN, they can be an important part of the solution to poverty, which is an excellent CSR

Conclusion: For MNCs Interested in venturing BOP Market

• IF corporations cancreate low price, quality products that can be scaled across many BOP markets and achieve

high volumewhile creating means for the capital constrained poor to

buyand building relationships and infrastructure that allow

them to reach poor consumersand finally, follow the directives on the previous slide (at

least enough to avoid becoming a publicized “bad” example)

• THEN, they can serve BOP markets profitably.

Thank You