Selling to the Bottom of the pyramid (Part 1)
by Catherine LaineOctober 20th, 2006
“If we stop thinking of the poor as victims or as a burden and start recognizing them as resilient and creative entrepreneurs and value-conscious consumers, a whole new world of opportunity will open up.”
This is how CK Prahalad’s 2004 book “The Fortune at the Bottom of the Pyramid. Eradicating Poverty Through Profits” starts out. A major point that Prahalad makes is that businesses are missing out on huge profit-making opportunities by ignoring the buying power of the 4 billion people at the bottom of the pyramid (BOP). By turning their gaze onto the poor, companies could not only cash in, but could also help eradicate poverty. (Read an excerpt)
It’s a fabulous proposition, but leads to the difficult question of what are the necessary conditions that would allow you to target the extreme poor, while both being profitable and alleviating poverty. What are the characteristics of the products/services, the company, the market, the distribution channels, and the strategy that would make this even the slightest bit feasible?
Let’s start with thinking about products. Before I go on I must confess that my training is in mathematical modeling. A big thing that my thesis advisor taught me was to break complex questions down into their simpler component parts. Often this allows you to get some clarity in what would otherwise be a tangle of complexity. So forgive me if the questions seem obvious.
1) What are the things that a product must do to help the end-user have more money (i.e. alleviate poverty)?
Well, it either has to help the end-user
A) Spend less money by decreasing the necessary expenditures thus making their existing income go farther or
B) Make more money by increasing productivity/efficiency, diversifying/improving skills or increasing the number of saleable items he/she has, etc.
A biodigester, for example, could help alleviate poverty in a variety of ways. The methane gas produced would decrease the money spent on firewood, charcoal, kerosene or other fuels used for lighting or cooking. In households where firewood is collected as a source of fuel, it could decrease or eliminate time spent foraging for wood and allow this time to be devoted to other activities. The fertilizer from the biodigester could decrease money spent of chemical fertilizers, could help increase income by increasing crop yields or could be sold to other farmers.
Another technology, the high efficiency stove reduces the amount of firewood that must be used to cook a meal thus introducing cost savings for the buyer. Efficient stoves also decrease indoor air pollution and reduce related respiratory diseases. As a result, they can restore productivity that would be lost due to illness or time spent caring for sick relatives. This is sort of the Jeff Sachs argument about health and economic development.
While there are probably hordes of technologies that would enable people to make more or spend less, it is not altogether clear if there are as many that could be marketed at a price point affordable to the extremely poor. Personally I reckon that there are; they’ll just be very different to what is seen for the rich. An example is the Internet motomen in Cambodia I wrote about the other day who deliver emails and search queries once a day for a small fee.
2) But hang on a tick. Poor people don’t have a lot of disposable income. They are extremely vulnerable and thus tend to be risk-averse. How do you convince them to buy a product that is likely to be a big-ticket item?
For your product to be adopted (and I make no mention of the speed of adoption), it has to
- Resolve an existing (perceived) need of the end-user in a way that’s better than what’s currently out there
- Have a proven track record within the end-user’s community/social network (i.e. utility, durability, reliability)
- Be compatible with the existing value system of the end-user
- Be fairly easy to understand or very much worth the hassle if it is not
- Leave the end-user able to change his/her mind without too many consequences
- Have a reasonably fast return of investment (ROI)
(A lot this part is coming from Diffusion of Innovations by Everett Rogers. Rogers makes some interesting comments about how it is difficult to get people to adopt an innovation that is “incompatible with the values and norms of a social system”. This is not to say that it shouldn’t be tried, it can just be an uphill battle until norms begin to change. He gives the example of promoting contraception in countries where the religious beliefs discourage the use of family planning. Let’s just say, it’s a toughie.)
But getting the characteristics of the product right is only half the battle. After that, you’ve got to communicate the benefits to the potentials customers. A company is going to have to spend a decent chunk of change on marketing and has to have a strong knowledge of the communication channels that exist.
In his criticism of Prahalad’s hypothesis, Aneel Karnani comments that weak infrastructure (transportation, communication, media, and legal) can make this step particularly difficult and drastically increase the cost of doing business. (read his paper Fortune at the bottom of the pyramid: a mirage.
Martin Fisher, the co-founder of Approtech (now Kickstart), who was in Boston and gave an excellent lecture the other day, told the audience that Kickstart has had to spend a large amount of donor funds to subsidize market development. While still getting great bang for your buck ($200-$250 enables them to get a family out of poverty and keep them out long-term), they have found that a high ratio of marketing dollars/sale is required when first introducing an innovation into a community. Once they hit the tipping point, much less expenditure on marketing becomes necessary.
He also brought up a really interesting point about word of mouth marketing. Apparently, word of mouth does not always operate the way that you would like it to. Kickstart saw two different phenomena in Kenya where the NGO does a great deal of its sales. The first was related to how African socialism operated within the country and more specifically how it applied to the sharing of resources within families. What they noticed was that some individuals who were reaping big benefits from the “Money Maker” pump were somewhat reluctant to spread the news far and wide lest some long-lost family member come to make a claim on their newfound wealth. They also noticed that in some instances, people who were starting to get ahead and increase their standard of living, weren’t copied but instead sabotaged. They noted not a few instances where the pumps were destroyed by disgruntled 3rd parties rather than just stolen and used. He likened it to a large company where the up-and-coming worker with lots of ideas breeds resentment amongst his colleagues rather than the desire to emulate. Here is a great quote from Machiavelli’s the Prince on the subject…
“There is nothing more difficult to plan, more doubtful of success, nor more dangerous to manage than the creation of a new order of things….. Whenever his enemies have occasion to attack the innovator they do so with the passion of partisans, while the others defend him sluggishly so that the innovator and his party alike are vulnerable.” (1513)
Aaah, human nature, it’s so slow to change.
(FYI: Fisher reported that growth in sales as a result of word of mouth is happening faster in Mali and Tanzania, however. Hurray!).
Okay it is 3:30 am and I am turning into a pumpkin. I shall write more on this tomorrow if times allows. I’d love to here about people’s experiences selling to the BOP, what worked, what didn’t, why.
Until then, goodnight and good luck.
