Monday, May 20, 2019

Bottom of the Pyramid

The demand for the mickle at the posterior of the pyramid potential and ch each(prenominal)enges Dennis A. Pitta The University of Balti more, Baltimore, Maryland, USA, and Rodrigo Guesalaga and Pablo Marshall ? Ponti? cia Universidad Catolica de Chile, Santiago, Chile Abstract Purpose The bearing of this obligate is to examine the bed of the pyramid ( jazz) masterfessionalposition, where personal companies elicit both be pro? t corrected and help alleviate p all overty by att revokeing let out-income consumers. Design/methodology/ progression The writings on whack was re vistaed and around spot elements of the bang ascend were proposed and examined.Findings thither is no agreement in the literature more or less the potential bene? ts of the bop approach for both private companies and low-income consumers. However, further try on characterizing the give it off constituent and ? nding the appropriate fear manakin for attending the do it bay window pr ovide some answers to this issue. possible implications The article provides some guidelines to managers as to how they destiny to adapt their grocerying strategies to sell to the do it market, and what type of partnerships they indispensability to pee-pee in order to succeed.Originality/ tax The article collapses a thorough analysis of the key elements conglomerate in the be intimate initiative companies motivations, characterization of the make up it off consumers, and the vocation sit to attend the make love. Keywords Private bena organizations, Emerging markets, Consumers, Poverty, Disadvantaged groups Paper type Re chase paper beneathpin the concept, and refutes its staple fibre premises. Instead of a market of untapped potential, this literature stream sees a ? nancial desert that screw principles whitethorn harm more than help. The get along may be a less a source of signi? sham pro? ts than a source of serious buttones.Karnanis analysis posits that the hapless may want the same wares as the copious do but by virtue of being unequal, they domiciliatenot afford them. The ridiculous spend most of their income on food, clothing, and fuel. For the brusk, the mathematics ar clear buying a branded product reduces the funds they must devote to survival. In contrast, Karnani argues that raising income ordain alleviate their poverty, provide hail impelling products to an opposite(prenominal) consumers, and allow the erst unforesightful to consume more. Raising their incomes may require that they go away producers with s dishearten jobs and wages. Both judgementpoints concentrate on the poor but draw varied onclusions about how to alleviate their poverty. The twain positions as well as differ in the nature and proper character reference of industry and government. In light of the differences, the argument would bene? t from empirical selective information that tests the rudimentary premises of each viewpoint. Ve rifying the premises would allow further logical analysis of implications and applications of the concept. In fact, the enquire for clari? cation is recognized. In the next section, the authors provide some seats for the most traditionalistic and still dominant approach to market, i. e. the focus on the top of the pyramid (TOP).The rest of the article foc make use ofs on the after part of the pyramid ( eff) it explores Prahalads proposition and the opposing viewpoint, reviews key aspects of the eff initiative companies motivation the trip the light fantastic toe transaction type the role of little? nance and the key participants and proposes some implications and challenges for trade theory and employment, and ? nally some implications for marketers. An executive director summary for managers and executive readers can be found at the end of this issue. Introduction The bottom of the pyramid ( make out) approach to earning corporal pro? ts has foregathitherd dole out able attention in the arketing literature. It has awakened managers to the potential of serve an unserved market and alleviating the level of international poverty while still earning a pro? t. However, the BOP proposition, while clear, appealing, and enlightening has not been judge in an unquali? ed manner. cardinal severalize of the BOP literature puts forth the elements of the BOP proposition and supports its ? ndings with numerous case studies (Prahalad, 2004). Those studies portray the poor as motivated by similar desires as the rich. They want flavour products and any company that can supply those products at he right expenditure will gain their business. Some of the case studies show the strategies for reducing the effective price of products through packaging and growing spurn cost sizes. Prahalad and others describe the untapped potential of the BOP, and list strategies that companies may use to tap that potential. An opposing branch of the literature (Karnani, 2007a Martinez and Carbonell, 2007) analyzes the nature of the BOP market, the applicability of the case studies that The menses issue and full text inscription of this journal is available at www. emeraldinsight. com/0736-3761. htm Journal of Consumer merchandising 5/7 (2008) 393 401 q Emerald Group Publishing expressage ISSN 0736-3761 DOI 10. 1108/07363760810915608 393 The spare- clipping activity for the fortune at the bottom of the pyramid Journal of Consumer Marketing Dennis A. Pitta, Rodrigo Guesalaga and Pablo Marshall brashness 25 reckon 7 2008 393 401 The top of the pyramid guests, and labeled them as Platinum or Gold. In contrast, those with start to actually low LCVs earn the value labels, Iron and Lead. They point out that a hotshot Gold or Platinum client may cook a Lifetime Customer Value, legion(predicate) times high than that of someone in the Iron or Lead tier. Speci? ally, one Platinum customer may be worth more than tons of those labeled as Lead. Co nceptually, identifying value and potential pro? t deriving from the top of the pyramid is straightforward and represents traditional organization addresss. Companies can use bill market segmentation and product contrastiveiation to satisfy these tiers. Dealing with these customers requires professionalism, but the normal market interrogation actes, product development, channels of statistical statistical distribution, promotion, and credit functions should result in success. Thus, Zeithaml and her coauthors showed companies how to use their tried and trusted arketing approaches to maximize effectivity and pro? tability. The key is to serve those customers most ilkly to generate pro? ts or else of losses. The justi? cation is clear companies expect limited resources and should concentrate their efforts where the re cracks will be the highest. They demonstrate the value at the top of the pyramid (TOP) and overlap strategies for component part those customers while discou raging or level off ? ring the lower, money-losing tiers. For pro? t seeking companies, the customer pyramid approach is appropriate and allows them the best chances to survive in typically competitive surprisingly, the top of the pyramid (TOP) approach is at the heart of Western business practice. conventionally, businesses require a touch on of four conditions to belong successfully in a market segment. The segment must be identi? able, measurable, meaning(a), and admission chargeible. In Western economies, business and communication foots are developed suf? ciently to toy all of the criteria for most segments. Arguably, while all four conditions are cardinal, the substantial and glide pathible elements are the more important. For a pro? t- fashioning ? rm, the segment must be colossal enough to generate pro? s. If that condition is satis? ed, it is little that consumers in the segment be reachable by communications media to receive promotional m essages. In addition, they must be physically accessible to distribution alternatives. From a pro? t perspective, companies concentrate on those areas in which they can be effective, namely segments that meet all four requirements. Serving the TOP inevitably means a focus on pro? ts instead of revenues, and pro? ts are central to Western business. In practice, over time, numerous Western companies accommodate ceded market share or entire markets to others when the pro? ts eclined. One prime interpreter is the computer memory part market. Memory chips were once produced exclusively in the US and Europe. As Asian competitors entered the market, they cut prices at the spending of pro? ts. Their goal was to create chips the US ? rms wanted to make pro? ts. Consequently, US ? rms abandoned the market and searched for fundaments that were more pro? table. European and US companies still make chips. Their dominance of the microprocessor markets is the result of the strategic ques t for pro? tability. However, European or US players do not find the huge market for memory chips.To be accurate, the US companies actions are not crashn solely by the desire to earn pro? ts. Their organization, corporate coating, and internal processes require economies of scale, which demand exploiting the richest target markets. In many cases, successful companies have evolved into ef? cient machines whose foundation is high structural cost. Thus targeting the most lucrative segments is vital for continued success. Pro? t, in its simplest form, is the inordinateness of revenue over costs. If companies can drive costs low enough, it is conceivable that prices might be low enough for the poor to fford and high enough to generate a pro? t. However, earning a pro? t with such customers today takes enormous effort. More important, companies that exist today may be unable to drive costs low enough to succeed. In fact, costs are only one part of the equation. The underlying problem is that companies are ill equipped to serve the poorest customers. They dont really neck what the poor want and dont survive what bene? ts they seek in products and services. In addition, companies may not know what mix of product bene? ts, price, quality, promotion, and distribution industrial plant best for this segment.However, the focus on pro? ts has led to success. Recognizing the vastness of pro? ts, Zeithaml and her colleagues have worked on the customer pyramid concept (Zeithaml et al. , 2001). Without development the term, they focuse explicitly on the top of the pyramid, those consumers with the highest lifetime customer value (LCV). By dividing the customer pyramid into four sections called customer pro? tability tiers, they identi? ed the best, most pro? table The bottom of the pyramid approach Prahalads proposition In the book The Fortune at the Bottom of the Pyramid Eradicating Poverty through Pro? ts, C.K. Prahalad (2004), provided that initial expression that had been missing in merchandise thought. His book succeeded in planting the intelligence that consumers with low levels of income could be pro? table customers. He painted a picture of the double bottom line social goals feature with the business objective, pro? t (Harjula, 2005). Coincidently, he appealed to the best motivatings among those at the top of the pyramid. By citing examples of successful attempts to empower the poor and share in global wealth, he kindled the imagination of those who want the world to be a better place. This is an ppealing proposition low-income markets present a prodigious hazard for the worlds wealthiest companies to seek their fortunes and bring prosperity to the aspiring poor (Prahalad and stag, 2002). Prahalads proposition is an invitation to company executives, politicians, managers of non-pro? t organizations, and ordinary citizens, to view poverty as something that might be alleviated rather than inevitable. He presents a wellreasoned con ceptual view supported with case study selective information of how companies might mine pro? ts from the lowest economic strata (Hart, 2005 Prahalad, 2004). more of the reatment centers on the nature and scope of pro? ts and the collective wealth of consumers at the bottom of the pyramid (BOP). The master(prenominal) thesis of Prahalads work rests on the idea that the potential growth for many multinational (MNC) and forte sized companies does not rest on the weensy highincome market in the ontogenesis world. Instead, its source is the spile low-income raft that are joining the market for the ? rst time. This idea goes against the following 394 The quest for the fortune at the bottom of the pyramid Journal of Consumer Marketing Dennis A. Pitta, Rodrigo Guesalaga and Pablo MarshallVolume 25 Number 7 2008 393 401 assumptions, which, according to Prahalad, most MNCs make it is not pro? table for them to attend the BOP due to their high cost structure the low-income segment cannot afford the products and services they sell and only developed markets value innovation and will fall in for refreshful applied science. These arguments imply that governments and nongovernmental organizations (NGOs) should take care of the low-income segment. According to Prahalad, marketers who believe that the BOP is a precious unserved market also believe that even the poor can be reliable customers.Despite their low level of income, they are perspicacious consumers who want value and are well aware of the value brands favored by more af? uent consumers. This aim of thought recognizes the obstacle that low income creates. It postulates that if companies take the correct steps and devote suf? cient resources to firm the demand of the BOP, they can overcome barriers to consumption. This view rests on Prahalads calculations of the immense size of the global BOP, in his view, a $1. 3 trillion dollar market. Prahalad recognizes that serving the low-income sector requir es a commercial strategy in response to the needs of hose plenty to succeed, other players have to get involved mainly local and central government, ? nancial institutions, and NGOs. He proposes four key elements to thrive in the low-income market 1 creating buying power 2 regulate aspirations through product innovation and consumer education 3 improving access through better distribution and communication systems and 4 tailoring local solutions. opportunities and poverty eradication through pro? ts may set unrealistic expectations for business executives (McFalls, 2007). Second, the traditional timelines for achieving social goods versus pro? s differ (Harjula, 2005). furrowes may use a ? ve-year horizon as their benchmark for returns. In contrast, social goals like reducing smoking and other intumescent lifestyle behaviors may take generations. Thus, rather than viewing the poor primarily as consumers, this group suggest a focus on this segment as producers, i. e. potential e ntrepreneurs that can improve their economic part by increasing their income level. Companies must be willing to invest time, resources and fostering to insure that the producers create products with some barriers to entry and a reasonable level of productivity.They need to do so to avoid the trap of producing commodities that are diffused to duplicate and, thereby, keep the poor, poor. Otherwise, alleviating poverty becomes real unlikely. Reconciling the two opposing viewpoints It is clear from the front discussion that ? ndings in the literature about the nature, scope, and value of the BOP proposition are mixed. More research is needed on this topic to gain an accurate view of the presence and extent of opportunities at the bottom of the pyramid. The following sections examine some key elements of the BOP initiative that have been, acknowledged in the literature speci? ally, the ? rms motivations to attend the BOP market, the characterization of the BOP consumers, and the B OP business model. The latter element focuses on ternion major issues the role of micro? nance, the sizeableness of establishing alliances among different actors (e. g. for-pro? t ? rms, NGOs, governments), and how for-pro? t companies need to adapt their marketing mix to attend the BOP pro? tably. The opposing viewpoint The second literature thread emerged long time subsequently in the discussion and represents a thoughtful attempt to verify the bottom of the pyramid (BOP) concept.It questions the assuage with which companies may tap the BOP and whether pro? ts exist there at all (Karnani, 2007a). First, this group dismisses the promulgated calculations about the size of the BOP and its wealth. They describe the economic size of the BOP as considerably pocketableer than Prahalads estimate and cite the inherent subsistence problem the poor spend 80 percent of their income on food, clothing, and fuel. There is hardly anything left to spend after that (Karnani, 2007b). Second, t hey argue that it is precise unlikely that companies will be able to attend the BOP market pro? tably.In fact, the costs of serving this segment can be very high. BOP customers are usually much dispersed geographically they are very heterogeneous, which reduces the opportunities for obtaining signi? hypocrisy economies of scale and their individual transactions usually represent a low amount of money. In addition, consumers at the BOP are very price sensitive, which, again, makes pro? tability a dif? frenzy goal to achieve. Those factors show that the pattern that both pro? ts and social good can result from serving the BOP is questionable. First, each goal has different motivations, demands, and echanisms to satisfy and they can be contradictory. The differences between business realities and development imperatives are not easy to reconcile. Some recent case study work suggests that the early language around the inclusive capitalism idea that emphasizes unlimited business Fir ms motivation to attend the BOP market A comprehensive interrogatory of the BOP approach requires ?rst an understanding of why for-pro? t companies engage in such an initiative. The literature suggests two main motivations that companies have to attend the BOP market 1 they can convert this segments purchasing power into ro? ts and 2 they can bring prosperity to the poor, and gum olibanum alleviate poverty. ? For example, in the 1970s, draw shutdown was able to contribute to social progress while developing a competitive advantage and making pro? ts in Moga, a district in India. With the purpose ? of establishing local and diverse sources of milk, Nestle build many refrigerated diaries and then sent its trucks to collect product while providing ? nancing, nutritional supplements, and assistance and naturalizeing to the sodbusters. With this action, ? Nestle increased its milk turnout and the suppliers roductivity, improved the quality of the product and ? processes, and incr eased the penetration of other Nestle products in the region. In turn, furthestmers raised their ideal ? of living Nestle was able to turn over higher(prenominal) prices, and removedmers were then able to obtain credit. A second case illustrates how a focus on the BOP can be an important strategic goal, with two dimensions pro? tability and corporate social responsibility. Masisa is a lede company in the production and trade of wood boards for furniture and interior architecture in Latin America. It has 395The quest for the fortune at the bottom of the pyramid Journal of Consumer Marketing Dennis A. Pitta, Rodrigo Guesalaga and Pablo Marshall Volume 25 Number 7 2008 393 401 established the goal of generating 15 percent of the revenues from inclusive businesses, i. e. the bottom of the pyramid, before 2012. under their de? nition, inclusive businesses must be pro? table, and socially/environmentally responsible. They expect to help improve the standard of living for low-inco me muckle by facilitating their participation in the value chain as suppliers, distributors, or other element of the hannel, and by providing them with access to products and services that can help them improve their socio-economic condition. cooperatively owned items like a television, a telephone, an electric generator, medical services, or even something to help make products for sale. Managing that sum for the rough-cut good presents a major dilemma community public assistance versus individual choice. People in the BOP would need a high sense of community involvement and consumer education to make responsible choices. A non-pro? t community action organization or a socially conscious business would be very helpful in marshalling cooperation.However, overly many of the poor make poor choices like spending money on tobacco instead of food for their children. Even if this optimistic level of potential purchasing power exists, harnessing it for pro? t will be extremely dif? cul t. One further concern questions this premise. Traditionally, serving the poor was the role of charities, not for pro? t, and other non-governmental organizations. Much of the excitement that the BOP proposition has generated stems from the comprehension of pro? t making companies in the process. The thought is that pro? t will be a powerful goad toward achieving success.Pro? t is clearly an incentive but beyond the cases cited in Prahalads work, there is little proof that companies can make the shift. More empirical data would aid the process of developing purchasing power. Purchasing power and pro? tability Karnani (2007a) notes that BOP concept rests on a fuzzy de? nition of the target market. It is dif? cult to ? nd an article in the BOP literature that does not cite the now democratic ?gure four billion. Four billion to begin with referred to those heap who primarily live in developing countries and whose one-year per capital income is under US$1,500 per annum.Some of the li terature takes as an article of faith that the BOP exists and earns that level of income. The perception is that individually the consumers are poor but together they represent massive purchasing power. However, authors de? ne the BOP income level using several standards, which obscures its true nature. For example, Hammond et al. (2007) consider the bottom of the pyramid as composed of people with per capita incomes below $3,000 in local purchasing power. Prahalad (2004) states that there are more than four billion people with per capita income below $2 per day at purchasing power parity (PPP) rates ($750 per year).This is a signi? cant reduction in previous estimates four billion people with per capita income below $1,500 per year ($4 per day) (Prahalad and Hart, 2002), or four billion people with per capita income below $2,000 per year ($6 per day) (Prahalad and Hammond, 2002). Other contemporary sources like the public Bank estimated the number at 2. 7 billion, in 2001. However , other researchers characterize the solid ground Bank forcing out as an overestimation, with some experts estimating the poor at 600 million (The Economist, 2004). The differences range from four billion to 600 million, a en jumbod enough gap to cause oncern. The three reported income levels range from $2-6 per day. The $2 per day criterion is arranged with previous literature in development economics. It is important to understand that how to alleviate poverty depends on the de? nition of poverty. development the $2 per day ? gure presents different challenges than the higher levels people who earn less than $2 per day have very different needs and priorities than people who earn $4-6 per day. Adopting the higher poverty line obscures these differences (Karnani, 2007b) and overestimates the potential at the BOP.In principle, it is clear that collectively the mass of poor customers do hold wealth. However, an additional problem is that they do not hold it in the right concentr ations. If one considers a hypothetical example, the nature of the wealth at the BOP may become a bit clearer. If a village of 1,000 adults earns an average of US$750 per year (the $2 per day ? gure), the gross earnings of the village are signi? cant. However, the question becomes how much remains after satisfying the necessities. Even if an impressive 10 percent of income remains per household, that translates into $0. 0 per day. It is dif? cult to perceive how such small sums might generate pro? ts. Collectively, the village may have $200 per day in expendable income. That might translate into community- Poverty alleviation and prosperity to the poor From a social responsibility perspective, there are distinct differences between a market-based approach to poverty reduction and approaches that are more traditional. Traditional approaches often focus on the very poor, proceeding from the assumption that they are unable to help themselves and then need charity or public assistanc e.In contrast, a market-based approach starts from the light that being poor does not eliminate commerce and market processes virtually all poor households trade cash or drive to meet a signi? cant part of their basic needs. The latter approach is the one for-pro? t companies have embraced to pursue the BOP initiative. The argument regarding poverty is that the poor face undeveloped distribution outlets and must pay monopoly prices for the goods they desire. In addition, they are unable to afford the standard quantities and qualities of products projected to richer consumers. This is consistent withHammond et al. (2007), who describe people at the BOP as having signi? cant unmet needs, and being dependent on informal or subsistence livelihoods. They are vulnerable, poorly integrated to the formal economy, and impacted by a BOP penalty under which they pay higher prices for basic goods and services than wealthier consumers. Successful attempts to bring quality products to the poo r at affordable prices would overcome the high price of poor distribution (Martinez and Carbonell, 2007). In that sense, it would increase their purchasing power by bringing previously unaffordable goods at bottom their budgets.However, the $2 per day income limit is a signi? cant obstacle and may make this goal insurmountable to attain. There is some hope in alleviating poverty but it is more in line with Karnanis vision of the poor as producers who are able to boost their income suf? ciently to rise above the bottom of the BOP. The very recent example of ITC Limited outlined the distribution based economic problems faced by poor farmers in India. There are many factors that affect the ? ow of goods and services in and out of rural areas, and thus reduce the rural populations income and quality of life 96 The quest for the fortune at the bottom of the pyramid Journal of Consumer Marketing Dennis A. Pitta, Rodrigo Guesalaga and Pablo Marshall Volume 25 Number 7 2008 393 401 (Va chani and metalworker, 2008). fleck the major source of problems was the poor transportation infrastructure, other factors influence to keep disadvantaged groups like poor Indian farmers in poverty. Buyers bully them into accepting buyers prices. Moreover, farmers are ignorant of their rights and the market value of their crops. In addition, they pay monopoly prices for the items they need.These factors act to keep them at a disadvantage and unable to earn the proper income from their efforts. By addressing farmers insufficiency of information about the current value of their crops, the best beginning to use for high yields, proper nation practice, and alternative outlets for their crops, ITC increased their welfare. To accomplish this, ITC set up a parallel distribution system, which led to increases in farmers income and consumption. The effort started at the grassroot with ITC hiring agents already in the ? eld and rewarding them for improvements in farmer welfare and consu mption.The company placed computers with satellite based internet connections in each village and taught farmers to use them to assess current crop pricing. ITC guaranteed to match or exceed the prices offered by others. In addition, ITC provided products farmers needed like seed at a discount from the existing retailers. There was signi? cant missionary education aimed at allaying the farmers fears of exploitation. After a few farmers tried the system, more of them signed on. The result was increased income, higher satisfaction, more independence, and lower cost to purchase supplies.The example is encouraging and demonstrates the commitment and stamina organizations need to operate at the BOP. ITC set up a private distribution network that was more closely associated with a cooperative than the typical channel. Farmers and grassroots agents who k innovative their needs very well cooperated to operate the channel and share in its economic bene? ts. In essence, ITC adopted Karnanis model of buying from BOP producers to raise their level of income developing them into pro? table customers. Can companies really generate pro? ts and alleviate poverty at the BOP? This example seems to show that they can.It also shows the extent to which companies will have to re-engineer their approaches and operations to succeed. There is some data on the changes in the size of the BOP that aid in forecasting the future. Chen and Ravallion (2007) report a decline in the proportion of people living under the poverty line in the developing world over the period 19812004. That represents a reduction of about 0. 8 percent points per year over the period. Separate from the numbers, the question remains, Who are BOP customers? Current demographic labels such as blue-collar or working-class, fail to capture the extreme level of poverty.As marketers gain more experience with the BOP, it is possible that other profitable differentiations may emerge based on speci? c variables, such as b ehavioral or psychographic. The global distribution of BOP customers adds another factor to consider horticulture. The cultures of Latin America, Asia, and Africa differ widely. It is logical that differences in culture will affect future attempts to understand the needs of the BOP segments. In general, DAndrea et al. (2004) ? nd that consumers at the BOP spend a higher portion of their income on consumer goods (50 to 75 percent), as compared to wealthier segments (around 35 percent).These authors also ? nd that, due to their limited and unstable cash ? ow, lowincome consumers tend to shop daily and spend small amounts of money each time. Then too, they are reluctant to buy in places that are located far away from their homes. The ? ndings show that stay at home mothers make most of the purchases and family spending decisions by doing this, they ful? ll roles as wife, mother, and household manager. Companies currently devote resources to listening to the voice of the customer and a re con? dent in their efforts with currently serviced segments. A change of focus to the BOP ill require new techniques, and freedom from reliable knowledge. The BOP is so radically different that companies will have to ignore what they know as truths that may not apply anymore. Faulty new product development eradicates the potential for pro? t and foreign product development (NPD) territory increases the risks of failure. Firms can increase their NPD success rates by integrating consumers into the process as boundary spanning team members instead of mere respondents to surveys. Thus, product development will bene? t from the arousal of customers at the lowest levels of income (Pitta and Franzak, 1997).However, that initiative will be supremely different from current successes. A good example of how companies, NGOs, governments, and other institutions can collaborate in this aspect is the formation of BOP learning laboratories (McFalls, 2007). The laboratories were designed to i nvestigate the complex factors that interact at the BOP as well as opportunities for both sustainable and human development. More initiatives like this one are needed, as well as research on the characteristics of the BOP consumers. Characterization of BOP consumers A fundamental requirement to attend the BOP market uccessfully is to know deeply the characteristics of the people in this segment. Some academic studies and reports from NGOs have contributed re? ning the understanding of the BOP how many they are, where they are located, what their income level is, and what some of their characteristics in terms of needs and habits are. According to Hammond et al. (2007), the BOP is concentrated in four regional areas Africa, Asia, Eastern Europe and Latin America and the Caribbean. 12. 3 percent of the BOP lives in Africa, 72. 2 percent in Asia, 6. 4 percent in Eastern Europe and the remaining 9. 1 percent lives in LatinAmerica and the Caribbean. Rural areas dominate most BOP markets in Africa and Asia while urban areas dominate most in Eastern Europe and Latin America and the Caribbean. Estimates of the size of the BOP in US dollars or buying power approximate $1. 3 trillion. The Asia market has a buying power of $742 billion, Latin America market is $229 billion, the Eastern Europe market $135 billion and Africa $120. The BOP business model In spite of the opposing viewpoints in the literature regarding the extent to which there is a business opportunity at the BOP, there is agreement that serving the low-income sector ro? tably requires a different business model (Chesbrough et al. , 2006 Prahalad and Hart, 2002). Prahalad and Hart (2002) state doing business with the worlds four billion poorest people two thirds of the worlds population will require radical innovations in technology and business models. Moreover, the market at the BOP requires a 397 The quest for the fortune at the bottom of the pyramid Journal of Consumer Marketing Dennis A. Pitta, Rodrig o Guesalaga and Pablo Marshall Volume 25 Number 7 2008 393 401 combination of low cost, good quality, sustainability, and pro? ability (Prahalad and Hart, 2002). As a result, for-pro? t ? rms need to understand how the BOP segment differs from upper tiers, and adapt the marketing approach to meet the characteristics of consumers at the bottom. Prahalads concentration on the bottom of the pyramid requires a sea change in a companys approach to business. Attempts to reap pro? ts from the BOP using current marketing techniques will fail. Failure will result because the products are too expensive or compound, are not available in small enough quantities or sizes, or are simply not what the poor want. The BOP is not low hanging fruit.It is a market with potential, and achieving that potential will require costly effort and innovative strategies (Seelos and Mair, 2007). Even with a completely new management approach, evidence suggests that pro? ts at the bottom of the pyramid may be elusive (Karnani, 2007a). The literature suggest that the three most critical aspects in developing a new business model to serve the BOP are the access to credit, the establishment of alliances, and the adaptation of the marketing mix. The following subsections address these issues. still in its early stage in countries like Brazil, Mexico, and Argentina.Most of the edges that have participated in micro? nance are large commercial banks in search of new and attractive markets. The main reasons for commercial banks to attend the BOP have been . the strong competition among large banks . the evidence by NGOs supporting the BOP initiative . the social responsibility dimension . the opportunity to shift their business operation and . the possibility of working together with other institutions, like NGOs and governments. According to Westley (2007), by the end of 2005, there were 30 commercial banks in Latin America oriented to the microentrepreneurs.The establishment of alliances The re is recognition that serving the BOP requires the involvement of multiple players, including private companies, governments, nongovernmental organizations (NGOs), ?nancial institutions, and other organizations e. g. communities (Prahalad and Hart, 2002). By infusing the pro? t motive into value foundation garment, the hope is that private companies will take the leading role in serving the BOP and, thus, the purpose of alleviating poverty will more likely succeed. Prahalad and Hart (2002) suggest that, among private companies, multinational corporations (MNC) with huge ? ancial resources are in the best position to lead the process of interchange to the poor. However, MNCs have entire weaknesses that limit their potential for success with these consumers. They are simply too large, too rigid and too far from the customer to be effective. Instead of the top down approach that MNCs represent (McFalls, 2007 Harjula, 2005), a bottom up process is necessary (Karnani, 2007a). Chan ging perspectives from top down to bottom up is so complicated that if MNCs are to be involved, they may have to create ? exible subsidiaries free from the corporate structure, processes, culture, and assumptions.ITC has succeeded using that model and has done so at the grassroots level. Therefore, more research is needed to ? nd out under which circumstances MNCs or other types of private company should lead the BOP initiative. This line of argument is consistent with DAndrea et al. (2004) who, in the context of retailing in Latin America, suggest that smallscale independent supermarkets and traditional stores are more likely to reach emerging consumers than MNCs. Likewise, NGOs have been critical in the development of the business model infrastructure in several successful cases of for-pro? t ? rms serving the BOP.For-pro? ts have created sustainability for the technology used (Chesbrough et al. , 2006) NGOs, understand peoples needs. In addition, NGOs are closer to people at the BOP, and are better fain to educate them. For example, in Uganda, Africa, the NGO Infectious Disease make up in Kampala collaborated with P? zer by educating people about the causes of AIDS, and how to prevent and combat it. This facilitated P? zers initiative to provide these people access to drugs that combat HIV/AIDS (Chesbrough et al. , 2006). Lastly, the public sector has an important role in developing the BOP proposition.The focus is changing from traditional governmental assistance delivery, to different ways of creating a sustainable environment for aiding the BOP. For example, Micro? nance Microloans are well know and originally seemed like the answer to self-suf? ciency. The concept that a poor consumer could gain a small loan and become a producer alter to family income and independence is tantalizing. There is evidence that microloans have succeeded in aiding the bottom of the pyramid. There is also evidence that many of the would-be entrepreneurs failed to capitali ze on such credit. They got deeper into debt (Karnani, 2007a).Some authors point out that the entrepreneurial skill that can lead to success is rare. Most individuals would rather have a guaranteed income rather than admit the risk that entrepreneurship entails. This adds to the argument that if businesses can create jobs and boost the poors income, then consumption will follow. Those businesses may not be able to obtain outside ? nancing. The BOP segments are not able to generate suf? cient pro? ts to justify a high cost of capital. To reduce the cost of capital, perhaps collaborationism with funding sources like the World Bank or other NGO will be necessary.With ?nancial aid, companies nerve-wracking for the BOP market may be able to succeed. The creation of buying power is one of the key elements that allow low-income segments to reach product and services. Formal commercial credit has been unavailable to this market and the cost of accessing and getting ? nancial services in the informal ? nancial market is enormous. Since the pioneering initiative of Grameen Bank, in the mid of the 1970s, several ? nancial institutions have been very successful in offering ? nancial services to low-income people who were not traditionally served by the formal bank system.Programs for microcredit have characteristics that are speci? c and different from those of the traditional banking sectors. These differences include property and corporate governance of the institutions, characteristics of the consumers, the technology used to manage credit, and the characteristics of the product and service. The growth of the microcredit market has been heterogeneous across countries. For example, in Latin America, the micro? nance industry has had a signi? cant ? growth in countries like Peru, Bolivia and El Salvador but it is 398 The quest for the fortune at the bottom of the pyramidJournal of Consumer Marketing Dennis A. Pitta, Rodrigo Guesalaga and Pablo Marshall Volume 25 Num ber 7 2008 393 401 the render of funding and training to entrepreneurs is a way governments can support consumers and producers at the BOP. Another example is design supportive tax structures that promote private sector investment in BOP initiatives. distribution makes the poor poorer. Today, with escalating global fuel costs adding to the cost of transportation, the poor face an increasingly rigorous future. The lack of infrastructure serving rural areas also increases prices.For example, in Chile, consumer goods prices in the remote North and South of the country are 20-25 percent higher than the more highly populated central zone of Santiago and Valparaiso (Ferreira and Litch? eld, 1999). The idea of af middling in distribution channels for consumers at the BOP is very important. This means, for example, having stores that are both geographically close and affectively close. In other words, emotional proximity is also very important. A good example is Banco Estado, a stateow ned commercial bank, which consumers consider the closest to the BOP segment.The reasons are its extensive distribution, its perception of being adaptive to peoples needs, its ? exibility, and its position as affectively close. In the context of retailing, DAndrea et al. (2004) show that the development of personal relationships with the stores strength has a positive effect on consumers self-esteem and well-being. Pricing for the bottom of the pyramid is, of course, also very critical. The challenge here is twofold. On the one hand, there is the issue of affordability prices need to be affordable to BOP consumers. Ramaswamy and Schiphorst (2000) emonstrate the challenges in companies trying to serve the poor. In order to achieve affordability, they must reduce the costs of production and simplify the products. On the other hand, ? exibility in payments is also very important. Providing options of how and when low-income consumers can pay for their products and services constitutes both a challenge and a source of competitive advantage to private companies. To do this, private companies may need the assistance of commercial banks and NGOs as key partners. Some marketing theorists (Karnani, 2007b) view the BOP as a collection of producers rather than consumers.Therefore, innovative payment models, which allow BOP consumers to pay using a marketing deputize model would increase their ability to pay for the things they consume. The ? Nestle milk agricultural exchange model cited above comes to ? mind. In that model, Nestle actually paid farmers for their milk at attractive prices. They could use the money to buy seed at as attractive prices. It is a small step to consider a more traditional barter system. As long as the barter system offered fair pricing it would present a win-win situation that would help sustain the arrangement. The marketing mixIt is no surprise that serving different market segments may require different marketing mixes. Therefore, for-pro ? t ? rms need to understand how the BOP segment differs from upper tiers, and adapt the marketing approach to meet the characteristics of these consumers. Since affordability is at the heart of serving the BOP, product modi? cation will help lower the price and improve affordability. The parallel strategy, reducing product size works in higher customer tiers but has limited usefulness at the lowest levels. In India, unit-use trim down size cachets of shampoo do promote consumption but are not the answer.The higher cost of packaging erodes pro? ts, and the resulting discarded packaging adds to pollution. The problem remains that the customer still has to allocate strange income to the shampoo. One answer is to create a bare-bones product with less product features that the poor can afford. One example, Nirma detergent made in India, highlights a poorer product that is affordable. A single entrepreneur created Nirma to compete with Hindustan levers market leading detergent, Surf. Surf gained market share because it is an excellent product. It has numerous additives that make it effective yet gentle to humans.Its cost was signi? cant. In fact, Nirma does not contain many of the ingredients and safeguards of its rival. It works but can cause blisters on the skin (Ahmad and Mead, 2004). Despite its harshness, the poor embraced it because they could afford it. The implication is that research must also seek to adapt foreign solutions to local needs (Prahalad and Hart, 2002). Evidence shows that consumers at the BOP care about branded products, because leading brands are a guarantee of product quality, which is particularly important to this segment because the ? ancial loss from an underperforming product is greater for people with limited incomes (DAndrea et al. , 2004, p. 6). However, emerging consumers are not very loyal to speci? c brand names, although they do not experiment with unknown brands. In practice, they switch among a few known brands (DAndrea et al. , 2004). DAndrea and colleagues also argue that low-income consumers prefer products in small sizes, even if the perunit cost is higher, because of their income and space constraints. Moreover, too many varieties of products can harm emerging consumers purchasing experience. They may eel tempted to buy things they dont need or cant afford, which can produce a feeling of inferiority or thwarting (DAndrea et al. , 2004). Marketers also need to revisit distribution channels also to attend the BOP market effectively. Vachani and Smiths (2008) recent work dealing with inclusive distribution has merit as a model for success. In essence, their examples infused a social action philosophy into a business model. One of their focal companies, ITC, demonstrated the vision necessary to discern pro? ts in the future and the determination to invest in a new distribution channel as a in-win proposition. Undoubtedly, the high cost of Conclusions and challenges for marketing theory and practice While the picture is not completely clear, the bottom of the pyramid may offer opportunities to create value for both the poor and companies. Early promises of a fortune seem to have been overstated. The degree of wealth present among the poor is much lower than ? rst reported. In addition, that wealth is too fragmented to be tapped under the current business models. It now appears that the basic concept overestimates the role that BOP consumers can play in contributing to company pro? ts.There is still no agreement in the literature about how bene? cial selling to the BOP can be for private companies, or for alleviating poverty. However, there are several elements of the BOP proposition that have been identi? ed as critical to 399 The quest for the fortune at the bottom of the pyramid Journal of Consumer Marketing Dennis A. Pitta, Rodrigo Guesalaga and Pablo Marshall Volume 25 Number 7 2008 393 401 succeed. First, an accurate characterization of the low-income sector both as c onsumers and as producers is required to understand their needs, perceptions, and behavior, which in urn will help companies to design a better business approach. Second, it is important to recognize that serving the BOP market requires a different business model, one incorporating access to microcredit, the establishment of alliances of collaboration among different types of institutions, and the adaptation of the marketing mix. Until companies better understand the needs of emerging consumers and adapt their business models to serve them more ef? ciently and effectively, their growth will be limited (DAndrea et al. , 2004, p. 3). It is well known that BOP markets involve managing ubstantial challenges in technical and economic infrastructure, education, ? nancial resources, and cultural differences. As participants from the economic sectors progress, a number of questions need to be addressed. Gardetti (2005) articulated them clearly. They include How can a company turn its strat egy at the BOP into a competitive advantage? What kind of business model will work? How can it build trust in the informal economy? What kind of education do business schools need? How does new technology integrate? How can we develop the educational/ social infrastructure? Moreover, from the viewpoint of egulatory and policy formulation, if incoming the markets at the base of the pyramid is a sound choice for both development and business, what does it take to turn this into a reality? Scholarly research, as well as practitioners participation in BOP initiatives, can provide some answers to clarify the true nature and scope of the fortune at the bottom of the pyramid. example in India showed its value in distribution and in customer relationship management. It will be equally valuable in research, product development, pricing, and promotion. Fourth, pricing is of paramount importance in serving the oor. In a for-pro? t enterprise, consumers must pay for the cost of serving them. Microcredit is one potential solution. It may be a limited solution, useful only to consumers with the skills necessary to manage it. However, innovative exchange models may offer even those without ? nancial management skills a chance to improve their condition. Fifth, given the economies of the BOP, it is likely that if pro? ts come, they will come later rather than sooner. Organizations need to choose a long-term involvement in order to avoid shame and a ? nancially ruinous midterm decision to exit.Finally, marketers should understand that some products are simply not worthy for the poorest of the poor. Some products of dubious value to this segment, like Armani handbags, or even cheap counterfeits, will have no place at the BOP. More importantly, some products and services related to health care will eternally be simply too expensive. Altruistic surgeons may care for uniquely disadvantaged patients by donating their time but they are only one part of a surgical team. Even if the hospital and each member of the team donate facilities, their time, and the resources to save a atient, that model is not sustainable as a for-pro? t venture. Similarly, the cost of a ten-day supply of a life-saving antibiotic cannot be reduced realistically using the smaller package size option. The implication would be either reduced daily doses or fewer full strength doses. Both are likely to breed drug resistant organisms and thereby threaten the life of the patient and society. To remedy this situation, other players like governments and NGOs will be important. many a(prenominal) marketers must realize that collaborating with them is important. To be effective, the collaboration must be proactive.Marketers wishing to serve the BOP, who recognize the importance of alliances with others, should seek out relationships with both government and NGOs. Early and persistent outreach will be valuable in alerting all of the players to each others strengths and in creating an accur ate picture of the challenges. Politically, coalitions of organizations with different fundamental objectives are prone to misunderstanding. Often their terminology is similar but the meaning is different. Alternatively, their objectives may be so totally different that they are fundamentally foreign to one another.If the goal is poverty eradication at a pro? t, all the players must collaborate. The goal may be so dif? cult and achieving effective teamwork is essential. Implications for marketers In general, if pro? t-seeking companies plan to serve the BOP, numerous factors will have to change. First, marketers will have to approach the BOP in a novel manner different from any they used in their prior successes. The BOP is mostly unknown territory. They may have to reinvent themselves or create divisions with substantial independence. If the old segmentation rules that worked at the TOP no longer apply, either will the product development, sales, pricing, distribution policies, and management. In addition, the pro? t objectives and revenue goals will have to be changed. Those who are not prepared to address the sea change in marketing approach should avoid entering this market. Second, simply modifying products and selling them is a path to failure. Success will depend on knowing the BOP intimately. Currently the BOP is terra incognita in terms of segments and their needs. To succeed, marketers must be able to differentiate different income segments and their value. Within the various BOP de? itions, there are three apparent segments, under $2 per day, $4 per day, and $6 per day. The needs and incomes of the segments seem to differ enough to indicate that they be treated differently. Marketers need to know which ones to serve and how to serve those successfully. Third, in order to understand the voice of the BOP consumer, companies need grass roots sources of intelligence. Collaborating effectively with agents on the ground who have direct contact with releva nt BOP segments is vital. Moreover, companies must train those agents to seek ? information that will help serve those customers.The Nestle References Ahmad, P. S. and Mead, J. (2004), Hindustan Lever Limited and Project twinge , Darden Business Publishing, Charlottesville, VA. Chen, S. and Ravaillon, M. (2007), Absolute poverty measures for the developing world, 1981-2004, Policy Research Working Paper 4211, World Bank, April. Chesbrough, H. , Ahern, S. , Finn, M. and Guerraz, S. (2006), Business models for technology in the developing world the role of non-governmental organizations, California Management Review, Vol. 48 No. 3, Spring, pp. 47-62. cd The quest for the fortune at the bottom of the pyramid Journal of Consumer MarketingDennis A. Pitta, Rodrigo Guesalaga and Pablo Marshall Volume 25 Number 7 2008 393 401 DAndrea, G. , Stengel, E. A. and Goebel-Krstelj, A. (2004), Six truths about emerging-market consumers, schema and Business, Vol. 34, pp. 2-12. (The) Economist ( 2004), 13 March, p. 84. Ferreira, F. G. H. and Litch? eld, J. A. (1999), Calm after the storms income distribution in Chile, 1987-1994, World Bank Economic Review, Vol. 13 No. 3, pp. 509-38. Gardetti, M. A. (2005), A base of the pyramid approach in Argentina, Greener Management global, Vol. 51, pp. 65-77. Hammond, A. L. , Krammer, W.J. , Katz, R. S. , Tran, J. T. and Walker, C. (2007), The Next 4 Billion. Market Size and Business Strategy at the Base of the Pyramid, World Resource Institute, International Finance Corporation. Harjula, L. (2005), Tensions between venture capitalists and business-social entrepreneurs goals will bottom-of-the pyramid strategies offer a solution? , Greener Management International, Vol. 51, pp. 79-87. Hart, S. L. (2005), Inclusive Capitalism The Unlimited Business Opportunities in Solving the Worlds Most Dif? cult Problems, Wharton School Publishing, amphetamine Saddle River, NJ. Karnani, A. 2007a), The mirage of marketing to the bottom of the pyramid how the private sector can help alleviate poverty, California Management Review, Summer, Vol. 49 No. 4, pp. 90-111. Karnani, A. (2007b), mishap at the bottom of the pyramid, Greener Management International, pp. 99-110. Martinez, J. L. and Carbonell, M. (2007), Value at the bottom of the pyramid, Business Strategy Review, Autumn, pp. 50-5. McFalls, R. (2007), Testing the limits of inclusive capitalism a case study of the South Africa HP iCommunity, The Journal of corporeal Citizenship, Vol. 28, Summer, pp. 85-98. Pitta, D. A. and Franzak, F. 1997), Boundary spanning product development in consumer markets learning organization insights, Journal of Product & Brand Management, Vol. 6 No. 4, pp. 235-49. Prahalad, C. K. (2004), The Fortune at the Bottom of the Pyramid Eradicating Poverty through Pro? ts, Wharton School Publishing, Upper Saddle River, NJ. Prahalad, C. K. and Hammond, A. (2002), Serving the worlds poor pro? tably, Harvard Business Review, Vol. 80 No. 9, pp. 48-57. Prahal ad, C. K. and Hart, S. L. (2002), The fortune at the bottom of the pyramid, Strategy and Business, Vol. 26, January, pp. 54-67. Ramaswamy, E. A. and Schiphorst, F.B. (2000), Human resource management, trade unions and empowerment two cases from India, The International Journal of Human Resource Management, Vol. 11 No. 4, pp. 664-80. Seelos, C. and Mair, J. (2007), Pro? table business models and market creation in the context of deep poverty a strategic view, Academy of Management Perspectives, November, pp. 49-63. Vachani, S. and Smith, N. C. (2008), socially responsible distribution distribution strategies for reaching the bottom of the pyramid, California Management Review, Vol. 50 No. 2, Winter, pp. 52-84. Westley (2007), Commercial Banks in Micro? nance BestPractices and Guidelines for Project Design, Monitoring, and Evaluation, IADB, MSM 138. Zeithaml, V. A. , Rust, R. T. and Lemon, K. (2001), The customer pyramid creating and serving pro? table customers, California Managemen t Review, Vol. 43 No. 4, Summer, pp. 118-34. Further reading Anderson, S. N. (1994), Unions/management create collaborative culture, Communication World, Vol. 4 No. 1. Corresponding author Dennis A. Pitta can be contacted at emailprotected edu To purchase reprints of this article please e-mail emailprotected com Or visit our web site for further details www. emeraldinsight. com/reprints 401

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