Serving the bottom of the pyramid presentation.
- 1. S e r v i n g t h e W o r l d ’s P o o r P r o f i t a b l y b y C . K P r a h a l a d a n d A l l e n H a m m o n d . P r e s e n t e d b y R o n a l d K y e i .
- 2. T h e w o r l d ’ s e c o n o m i c P y r a m i d 2
- 3. I N T R O D U C T I O N MNCs have a role to play in today’s world economy. Their willingness to enter and invest at the bottom of the economic pyramid by stimulating commerce and development will have multiple impacts; • Improve the lives of billions of people. • Help provide a more stable, less dangerous world • There are enormous business opportunities to be gain by Multinational companies in terms of expansion and profitability.
- 4. Bottom of the Pyramid( BoP) Market There is untapped market potential amongst the poor, and corporations can generate significant profits by targeting them. • They make the majority of the world population 65% • Their aggregate buying power combined is quite large.
- 5. Why BoP ? Poor markets are under-served. Although the segment is desirous for low-priced, high quality products and services - aggregate prices can be 10 to 500% more for varying items, from water and food to phone calls and credit.
- 6. Why BoP ? Cost saving opportunities: Utilizing cheap labor and implementing innovation based product or services. Investing a company’s operations and the workforce of the poorer regions of the world. And because the market is under-served, companies are already making significant innovations to serve this niche.
- 7. Misperceptions Realities 1.BoP markets have little to spend and that what they do spend goes to basic needs like food and shelter. 1.Aggregate buying power of poor communities is actually quite large (Bangladesh example) Poor often do buy “luxury” items. (Mumbai shantytown of Dharavi exp) 2. Various barriers make it impossible to do business profitably in these regions. 2. Barriers to commerce -although real - are much lower than is typically thought 3. Goods sold there are incredibly cheap so no scope for competition. 3. BoP consumers pay much higher prices for most things than middle-class consumers, Great Opportunity for companies, particularly big corporations with economies of scale and efficient supply chains, offering higher quality goods at M i s p e r c e p t i o n v s R e a l i t y
- 8. Misperceptions Realities 4. Reaching BoP consumer is challenge 4. Many of BoP consumer live in densely populated and will be even more so in the years to come. 5. BoP markets have no interest towards Technology 5. They are good technology adopter if they find benefit in it. (example of Bangladeshi women and Kenya’s slums’ teenagers, farmers in El Salvador and Indian Coastal-women 6. Highly charged issue of exploitation of the poor by MNCs. 6. BoP markets are full of inefficiencies and exploitive intermediaries M i s p e r c e p t i o n v s R e a l i t y
- 9. Example These people living in the villages spend an average 7% of their income on phone services called village phones provided by Grameen Telecom.
- 10. BoPs market Three advantanges to be gain A new source of revenue growth Access to innovation Greater efficiency
- 11. 11 1. New source of revenue growth- MNCs are now saturated in existing markets. The BoP markets being new, growth can be rapid. Opportunities for low-priced, high-quality goods or services are enormous. 2. Greater efficiency- By shared access model with higher resource utilization, outsourcing operations to low-cost labor markets, restructuring products, finances, and supply chains to enhance productivity. 3. Access to innovation- Developing ways to produce and deliver BoP customers low cost product or services with the help of rapidly growing IT. The aim remains low-price, high-quality or efficiency Above advantages can be easily transferred to existing markets for higher profits. Three advantanges to be gained
- 12. 1. New IT & Communications infrastructures (esp wireless)-inexpensive way to establish marketing and distribution channels in these communities. 2. BoP markets are very large and attractive 3. Local innovations can be leveraged across other BoP markets 4. Innovations from the BoP markets will find applications in developed markets 5. Lessons from the BoP markets can influence the management practices of global firms Opportunities
- 13. I. When HLL introduced cheap and high quality candy, it became the fastest growing category in their portfolio. Not only profitable, it estimates revenues at $200 million per year. Similar success with low-priced detergent and iodized salt. (New sources of profit) II. OrphanIT.com’s marketing telecentres in India and the Philippines pay 10% of labour costs in the U.S. (Reduced operation costs) III. Ericsson’s Mini-GSM cellphone service provides stand- alone networks for up to 5,000 users within a 35km radius. Capital costs to the operator, usually a local entrepreneur, can be as low as $4 when cell phones are shared in communities. (Innovation). Successful stories at the BoP Market
- 14. Example – candy- aimed at the bottom of the pyramids has become the fastest growing category in the company’s portfolio and it has the potential to generate revenues of $200 million per year in India
- 15. 1. Distribution access, not a lack of buying power. 2. Educating consumers through product and process 3. Adopting Local need based components in Product and services 4. New business models are needed. Challenges
- 17. Strategies for Serving BOP Markets Next: