At the turn of the millennium, a distinguished business professor from University of Michigan's Ross School of Business, C.K. Prahalad, introduced a simple yet unique concept. In his book 'The Fortune at the Bottom of the Pyramid', he put forth the idea that the world's poorest 4 billion (earning < $1,500 / year) make up the largest consumer segment, and companies can both serve as well as profit from them.
Why did this seem like a unique idea? So far, companies had only been focusing either on the middle class or the upper class audience. In fact, after emerging economies like India, China, and Russia opened their borders to foreign trade and investments, FMCG and FMCD companies got obsessed with the middle class audiences, often quoting that their increasing standard of living affords them some "disposable income". As a result, for a very long time these companies absolutely missed the golden opportunity of serving a sizable market. And because reaching this audience segment requires a totally different type of supply chain and marketing acumen, Prahalad's ideas were initially rejected by critics.
Challenges at the Bottom of the Pyramid
Bottom of the Pyramid can be turned into a huge business opportunity by developing innovative products and services for the underserved markets, and several companies have already started doing so. However, it requires overcoming a lot of challenges and hurdles.
Cultural and Social Roadblocks
A lot of rural and underserved markets have cultural and social practices that have been deeply ingrained since generations, making them resistant to try out anything which either goes against those beliefs or has a steep learning curve. That's why companies must ensure that their product or service is easy to understand and simple to use.
Supply Chain Barriers
Last-mile-delivery continues to remain a problem in underdeveloped areas and extremely small towns where roads are not adequate to support heavy transportation vehicles. Due to rising costs of reaching such markets, companies had been turning a blind eye towards them.
Economic Drawbacks
Lack of disposable income means that companies can't sell the same products or at least the exact SKUs in rural markets which they do in their urban and metro counterparts. Keep in mind that the average daily income in these markets is often as low as $1.5-2 (~INR 100-140 as per today's exchange rate). Many companies have still not figured out how to setup the infrastructure to produce, market, and distribute something at such a cheap price and still make profits.
Besides Unilever, very few companies have succeeded in cracking the bottom of the pyramid. There are stories of both success and failure, but the latter dominate in numbers. Let's look at innovative solutions from 3 different emerging to developing economies, and whether they succeeded or failed.
ChotuKool by Godrej
Country: India
In 2006, a few years after C.K. Prahalad had published his book, Godrej believed that it could create a disruption in the Indian rural market which consisted of several hundreds of millions of people at the bottom of the pyramid. To do so, Godrej appointed an HBS Professor Clayton Christensen and his consultant firm as advisors. After mulling over a few options, they decided that they would produce a low cost refrigerator and market it to the bottom of the pyramid. They developed a small cooler, called ChotuKool (Chotu in Hindi means small, and Kool was a slang for Cool) which was priced at $50, weighed 10 pounds, and could keep food between 40-60 degree F.
After its launch, it won the Edison Award for Social Innovation, and was quoted in countless business school case studies as a 'disruptive innovation'. Godrej even believed that it would sell several millions of units. However, the truth is that it barely managed to sell 15,000 units even 2 years after the launch. Finally, Godrej redesigned it and started marketing it to the middle class audience as a luxury convenience inside their cars. Such a massive shift in approach!
Where did Godrej err? According to me, Godrej and Prof. Christensen 'decided' upon a solution without confirming whether it was for a genuine problem. Sure, people at the bottom of the pyramids couldn't afford the traditional refrigerators which cost an average of $200-300 (INR 15,000 - 20,000) but they never really expressed a desire for an alternative to a refrigerator. The BOP customer segment doesn't store perishable items like people in metro cities do, because they can't afford to stock up so much food. They live on day-to-day wages. Even if they do, they stock food grains. As such, cold drinks, juices, butter and cheese etc. are absolutely out of question. And as far as water goes, they keep it cool in traditional earthen pots.
Grameen Bank by Mohd. Yunus
Country: Bangladesh
Grameen Bank was the name of a micro-finance bank started by Mohammed Yunus in Bangladesh back in 1976. It was the result of strong consumer insight, and developed keeping in mind cultural and social nuances of the Bangladeshi bottom-of-the-pyramid segment. Mohd. Yunus was a professor at Chittagong University, and surveyed the nearby economically poor neighborhood of Jofra for a project. It was during this episode that he realized that this audience segment practically had no means of getting loans (credits). They had absolutely no credit history, nor understood how traditional banks worked for them to be able to apply for one. Yunus also came to a conclusion that this segment was fundamentally trustworthy because he had seen how tightly and responsibly they managed their households.
Mohd. Yunus with low-income female entrepreneurs and home makers
Thus, he started the Grameen Bank, a micro-finance institution which lent money to the low income segment. In order to run the business more efficiently and secure the bank from defaults, he started dividing a loan among many recipients. This had a two-fold effect - firstly, it reduced transaction costs, and secondly, by diving the loan among a community and holding all of them accountable for defaulting even if one of them defaulted, it created a societal pressure for everyone to repay on time. Mohd. Yunus' tactics worked successfully and ended up yielding several beneficial results. It acted as a vehicle for women empowerment, since women got together to take loans for putting up small businesses related to food or textile. For his phenomenal work. Yunus was awarded the Nobel Prize in 2006. To date, his model continues to be replicated across the globe.
Grameen Bank's tagline unabashedly says "Bank for the Poor. Through this, Mohammed Yunus proved that having a strong pulse over your audience segment's needs, motivations, and fears goes a long way in making a venture successful. As of a few years ago, 4 decades after its foundation, the Grameen Bank was going stronger than ever and was about to record its most profitable year.
Zipline Medicine Delivery
Country: Rwanda
Rwanda is called the Land of 1,000 Hills, given its harsh topography. Let alone last mile delivery, even basic connectivity between towns isn't very evolved. And as such, getting doctors or medicines to reach hospitals was a huge task. Zipline, a drone technology company came up with an idea - if you can't reach using the roads, use the sky! Rwanda became the first country to authorize the use of unmanned drones and even included these Zipline drones as a part of its airspace.
These drones operate out of Zipline's main distribution center, can fly 75 miles, carry 1.5 pounds of load, and can survive all weather conditions. They can deliver medicines to any of the hospitals within 30 minutes, which is 1/8 the time it previously took to cover the same distance. This result? Countless lives saved!
As of last year, Zipline had saved over 15,000 lives across Rwanda and Ghana by providing timely delivery of medicines and blood for blood transfusions. Zipline's model is being analyzed by several emerging economies where last-mile delivery continues to pose challenges for reaching out to the relevant audience.
Bottom of the Pyramid marketing continues to both intrigue as well as elude marketers and brands. It takes a lot to get it right, but when brands do get it right, it can result in wonders.