Lecture 3 BOP Spring 2012

8/3/2019 Lecture 3 BOP Spring 2012

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Marketing Issues in Pakistan

Week 2: Lecture 1


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A gendaTh e Market at the Bottom of the Pyramid

Th e Power of t h e Dom inant L o gic

Th e N ature of th e BOP Market

Th e Market Devel opm ent Imp erative


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T he Market at the Bottom of the Pyramid Bottom -of -th e -Pyra m id Market s (BOPM s)

wealthy

Less than $2 aday

BanksPower

ConstructionMarketingFMCG

T he strength of these innovative

approaches, as youwill come toappreciate, is thatthey tend to createoppo rtunities for thepoor by offering themch o ices andenc o uraging self- estee m


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Th e Bu s iness DILEMMA: D ont M iss the Opportunity

F irst , th ere are nu merou s ca s e s wh ere large fir ms an d multinationalcor poration s (MNCs) is to ignore th em altoget h er.

Sec o nd, th e BOP , a s a market , provide s a new growth opportunityfor th e private s ector an d a foru m for innovation s . Old and tireds olution s cannot create market s at t h e BOP. Th e new BusinessM o del

T hird , BOP market s mus t beco me an integral part of th e work of t h e

private sector . Th ey m us t beco m e part of t h e fir m s core businesses ; th ey cannot

merely be relegate d to th e real m of cor porate s ocial re s pon s ibility(CSR)initiative s .

S ucce ss fully creating BOP market s involve s change in the functioningof MN Cs a s muc h a s it doe s ch ange in t h e functioning of develo p ing

countrie s

T he Market at the Bottom of the Pyramid


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Biggest Reason

Th e BOP re pres ent s a va s t, unex p loited , multitrillion-dollar market p lace. (a pp . 4 billion market )

For co mp anie s s truggling wit h maturing markets,floundering business models, and serious questionsabout who their customers of the future will be , th es eare i mp ortant market s to crack.



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T he Market at the Bottom of the PyramidT he Power of the D ominant Logic

Dom inant logic relate s to th e main mean s a co mp any u s e s to make aprofit. In e ss ence , it is an interpretation of h ow a co mp any h a s s uccee ded .

Th e poor pre s ent a market

Poor a s active con s umer s/ entre preneur s

Creative Bun dling of Pro duct s an d tec h nologywith a local flavor

S electively leapfrogan d innovate

Focu s on creativity an d entre preneur s h ip

Innovation to develo p a new model

Lim itation of infor m ation an d acce ss ; imagination con s traints

Th e poor are a proble m

Poor a s war ds of th e s tate

Th e poor do not a pp reciate new tec h nology.Old tec h nology s olution s are acce ptable

Follow th e wes tern model of bu s iness

Focu s on Re s ource Con s traints

Lim itations on Ca pital

Efficiency in a knownm odel


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HLL Examp le


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HLL Examp le A N ew Business D esign for Laundry D etergent

an u ps tart co mp any calle d N irma entere d th e laun dry detergentmarket for l o w-inc om e Indians .

At fir s t, HLL d is m iss ed Nir ma a s a l o w-end p r o ducer , an d continue d to focu s on u ps cale market s . But to it s a s tonis h ment , Nir ma began toeat u p market s h are fr om the b o tt om -u p .

Nir mas bu s ine ss model wa s de s igne d to cater t h e nee ds of BOP ; offering a li m ited quantity, with po werful cleaning ele m ents,cutting c o sts by decentralized p r o ducti o n, and went f o r B T L and mo bilizati o n o f l o cal netw o rks enabling it to ac h ieve a priceaffor dable at t h e very botto m of th e market.


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shouldnt ice-cream be for EVERYO N E?



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T he N ature of a BOP Market

A ssumption 1: the poor have n o purchasing po wer andtherefore d o n o t represent a viable m arket.

Ch ina is alrea dy a $5 .0 trilli o n ec o n om y , making it t h e s econ d large s t econo my be h ind th e Unite d S tate s in PPP ter ms .S im ilarly, th e Indian ec o n om y is worth about $3.0 trillion in PPPter ms .

th

e buying power th

e s e peo p le cannot be co mp are d with

th

epurc h a s ing power of in dividual s in th e develo ped nation s .However , by virtue o f their nu m bers , th e poor re pre s ent as ignificant latent purchasing po wer th at mus t be unlocke d .

Unlock t h e Purchasing Penalty



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A ssumption 2: distribution access to the BOP markets isvery difficult and therefore represents a major impedimentfor the participation of large firms and M N Cs.

Urban areas are a m agnet f o r P oo r Pe op le

T here will be at least 23 cities with more than 10 m illi o nresidents. Collectively, these cities will account for about 1. 5

t o 2 .0 billi o n pe op le . Over 3 5 t o 40 percent of these urbanconcentrations will be comprised of BOP consumers

Create efficient m eth o ds of reaching these people.



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A ssumption 3: the poor are n o t brand-c o nsci o us.

On t h e contrary , th e poor are very brand-c o nsci o us . Th ey are al s oextre mely value c o nsci o us by nece ss ity. T hey ex pect quality at p rices they can aff o rd.

Th e main c h allenge i s to offer bran ds th at are affor dable to t h e s epeo p le or go for brand extensi o ns .



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Ass ump tion 4: Contrary to t h e popular view , BOP con s umer s aregetting c o nnected and netw o rked . Th ey are ra p idly exp loiting th ebenefit s of infor mation network s

by th e en d of 20011 , Ch ina = in s talle d ba s e of 750 m illion cell ph one s . Paki s tan h a s over 100 m illion s ub s criber s

Ind ia = 400 Pyra m id m illion. Growing at about 1.5 m illion h an ds et s per m onth .

Brazil alrea dy h a s 80 -90 m illion.

Both th e current market s ize an d th e growt h rate s s ugge s t th at t h e BOPm arket i s a critical factor in worldwide wireless growth .



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So how to tap the market?

Go for the Market D evelopment!

1. Create t h e Ca pacity to Con s ume

2. Th e Nee d for New Goo ds an d S ervice s

3. Dignity an d Ch oice

4. T rus t Is a Prerequi s ite



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T he N ature of a BOP Market: Market D evelopment

1. Create the Capacity to Consume Create t h e Th ree As

A ffordability : th e key i s affor dability without sacrificing qualityor efficacy.

A ccess: T ime of t h e day , Proxim ity at Inten s ity A vailability : BoP cu s tomer s are out for nece ss ity. Cannot defer

purc h a s ing. Dis tribution efficiency i s critical.

2. Creation of N ew Products and Services

PRO DEM FF P , a Bolivian financial s ervice s comp any , h a s introduce d s mart auto mate d teller mac h ine s ( AT Ms) th atrecognize finger prints , us e color -coded touc h s creen s , an d s peak in t h ree local language s .



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T he N ature of a BOP Market: Market D evelopment

3. D ignity and Choice Wh en BOP con s um er s buy t h e s e product s th ey acquire

the dignity o f attenti o n and ch o ices fr om the p rivatesect o r th at were previou s ly res erve d for th e m idd le-cla ss an d rich .

Switching costs of s ingle s erving are lower ; better c h oice

4. T rust Is a Prerequisite Th ere i s a mistrust th at runs deep

S im ilarly MNCs often a ss um e t h at t h e default rate amongth e poor is likely to be h igh er t h an t h at of t h eir rich cu s tomer s



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D oes this always happen?

Are peo p le provided th e s ame quality an d benefit s as th e bran d prom is es?

Or mos t of th e purc h as es are utilitarian ?

Is th e real value of money or do peo p le nee d th ings for ba s ic nece ss ities?

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Lecture 3 BOP Spring 2012