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Bottom of the Pyramid : Implications for Indian Consumer Market 1 2 3 4 Unrealized opportunity at the BOP Why BOP remain invisible Strategies for the BOP Hindustan Lever Limited Case LOGO .
500~1750 million people $ 1500~ $20.500 Less than $1.<Fig-1>The World Pyramid and BOP More than $20.000 75~100 million people Tier2 1.000 million people Tier 4 Less than $1.500 Tier 5 LOGO .000 Tier 3 4.000 Tier 1 $ 1500~ $20.
Most MNCs originated in this affluent world. In the top 200 MNCs in the world. LOGO .Bottom of the Pyramid Think of the global market as a pyramid (Figure-1). At the very top of the pyramid there exists a small fraction of customers. developed countries. more than 195 have their origins in the affluent. Most MNC managers' views of business are conditioned by their knowledge and familiarity with Tier 1 consumers.
The per capita income in this tier is less than $1. For well over a billion people. The vast majority of those in Tier 4 live in rural villages and urban slums and shanty towns. where 4 billion people reside.Bottom of the Pyramid Now consider the vast emerging consumer base at the bottom of the pyramid. credit. These markets are hard to reach-from the point of view of distribution. LOGO .500 (PPP) per year. Educational levels are low to non-existent. or communications. per capita income is less than a dollar per day.
LOGO .Bottom of the Pyramid This market is often unorganized. and limited in quantity and quality of products and services available. since the bulk of the world's population growth is expected to come from this segment. the numbers in Tier 4 could swell to 6 billion or more. Yet. local. Over the next 40 years. this massive tier of the World Pyramid has been largely invisible to the corporate sector.
This implicit divide is stronger than most realize.A huge opportunity lies in breaking this code-linking the poor and the rich across the world in a seamless market organized around the concept of sustainable growth and development. and NGO activists all suffer from this historical division of roles.Argument 1. LOGO . 2. public policy makers. 3.Our society have implicitly assumed that the rich will be served by the corporate sector (MNCs) and governments or NGOs will protect the poor and the environment.Managers in MNCs.
The bottom of the pyramid presents a new managerial challenge .one potentially as powerful as the challenge posed by the Internet and e-business. It will require a reexamination of the "priceperformance" relationships for products and services. Companies will be forced to transform their understanding of scale." will require radical innovations in technologies and business models. It will demand a new level of capital efficiency. LOGO . from "bigger is better" to the capability to match for highly distributed small-scale operations and world scale capabilities.Unrealized opportunity at the BOP Raising the 4 billion poor at the "bottom of the pyramid.
If we looked at per capita incomes.Why the BOP market opportunity remain invisible? The perception of market opportunity is a function of the way many managers are socialized to think and the analytical tools they use. LOGO . The same conclusions would be reached if the analysis was done with the current portfolio of products and services. the bottom of the pyramid will be automatically excluded from consideration in most MNCs. Converting the poor into active consumers requires managers in MNCs to come to terms with the core set of assumptions and practices that are embedded in most firms. geared to the developed world.
The poor can use the last generation of technology. MNC cost structures are a given. The poor are not our target consumers because MNCs. The poor cannot afford and have no use for the products and services that are sold in the developed markets. Assumption #2. Assumption #3. Innovations come from Tier 1.Misleading Assumptions Assumption #1. We focus on product and process innovations and not business innovations. cannot compete for that market profitably. Product is our focus. with their current cost structures. Only the developed markets appreciate and will pay for new technology. LOGO . not functionality.
Because of the prevalence of these key assumptions by MNCs. We do not see the bottom of the pyramid forcing us to innovate around sustainable development. It would be hard to recruit. LOGO . Assumption #5. and motivate managers who would want to spend time in creating a commercial infrastructure at the bottom of the pyramid. The bottom of the pyramid is not important to the longterm viability of our business. the market opportunity at the bottom of the pyramid has remained invisible. Intellectual excitement is in the developed markets. Managers do not get excited with business challenges that have a humanitarian element to them. train. It represents a large and unexplored territory for profitable growth. We can focus on Tiers 1-2 and leave Tier 3 and 4 to governments and non-profits.Misleading Assumptions Assumption #4.
LOGO . environmentally sustainable. Yet this opportunity cannot be seized without fundamental innovations on the part of MNCs. and economically profitable way.The challenge and Opportunity The challenge is clear: There are expectant consumers and potential innovations that can no longer be systematically ignored. developing the products and services required. in a culturally sensitive. We will argue here that it is possible to serve the bottom of the pyramid.
4)Threat of migration to urban centers: MNCs must create products and services for rural populations. 3)Global overcapacity combined with Intense rivalry in Tier 1 and middle Markets: Tier 3 and 4 represent a huge untapped opportunity for profitable growth. 1)Increasing aspirations due to improved access to TV and information :Tier 4 aware of many products and services and eager to become consumers.Strategies for the BOP Forces that point to the emergence of a market for goods and services at the bottom of the pyramid. 2)Deregulation and diminishing role of governments and international aid: More hospitable investment climate for MNCs entering developing countries and more cooperation from NGOs. LOGO .
LOGO . Nirma. HLL like most MNCs. by creating a new business system . in its detergent business. Like most MNCs. A local firm.Hindustan Lever Limited Case An illustration of the successful execution of this strategy comes from Hindustan Lever Limited (HLL). and pricing. new manufacturing process. HLL realized both its new opportunity as well as its vulnerability. a subsidiary of Unilever.a new product formulation. distribution. As Nirma grew rapidly. Nirma was attacking. widely considered the best managed company in India. from the bottom of the pyramid. packaging. initially dismissed Nirma as a low end producer. for over 50 years it catered to the needs of the elite of India. challenged HLL in its detergent business.the top of the pyramid.
Hindustan Lever Limited Case HLL responded with its own offering for this market drastically altering the traditional HLL business model. They decentralized the production. marketing. enabling the introduction of the product at a price point affordable to those at the bottom. LOGO . thereby reducing significantly the pollution associated with washing cloths in rivers and other public water systems. HLL created a new product formulation which dramatically reduced the ratio of oil to water in the detergent. and distribution of the product to take advantage of the abundant labor pool in rural India and quickly penetrate the thousands of small outlets where people at the bottom of the pyramid shop. They reinvented the cost structure of the business.
political chaos.Conclusion Contrary to popular assumptions. To fully capture this opportunity. the game is about volume and capital efficiency. however. LOGO . if MNCs are willing and able to change their business models. and so on. and it means averting the social decay. those at the bottom of the pyramid must become active market participants.especially. Margins are likely to be very low (by current norms) but unit sales extremely high. Opening Tier 4 means narrowing the global gap between rich and poor. it means lifting billions of people out of poverty and desperation. The bottom of the pyramid is not a market that allows for traditional (high) margins. Like the Internet space. Managers who innovate and focus on economic profit will be rewarded. the poor can be a very profitable market.
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