Acara Challenge 2011
Business Models for Emerging
Markets
Learning Objectives
• To understand who/what the Base or Bottom of
the Pyramid (BOP) is
• To understand how marketing and selling at the
BOP is different
• To understand existing and proven BOP
business models
Bottom of the Pyramid
Income
• Imagine a pyramid made
up of the world’s
population and arranged
by income
• The Bottom (or Base) of
the Pyramid has the least
per capita income and
the most people in it
$$
$$$$
$$$$
$$
Bottom of the
Pyramid
Number of
people
BOP by Numbers
• Definitions vary, but we don’t need to be exact in
order to understand the concept
*
– Over 3 billion people living on less than $2.50 per day,
nearly half the world’s population
– 880 million people living on less than $1 per day, more
than 10% of the world’s population
2010 figures. Source: http://www.globalissues.org/article/26/poverty-facts-and-stats
Importance of Primary
Research
• Although we can make some generalizations in order
to think about selling to the BoP, they should not be
seen as one homogeneous group
– For comparison, would you say that all people who make
$20-30K USD per year are the same?
• We probably hold false assumptions about people at
the BOP and how they spend their money
• It is important to put aside preconceived ideas and
find out wants and needs from the people themselves
Some Challenges
• Though these will vary, some possible challenges in
selling to the BOP include:
–
–
–
–
Low rates of formal education & literacy
Lack of access to information/media
Lack of access to capital, savings
Lack of infrastructure: electricity, sanitation, etc.
• What other challenges might you face when working
with BOP needs?
Selling at the BOP: What’s
Different?
• Selling is still selling. It’s an emotional decision.
People aspire to similar things, and buy what they
want not what they need.
• For example, consumers don’t buy drip irrigation
because it uses less water, or even increases yields.
They buy it to get more money for their family, for
things like education, entertainment, etc.
References: Ramkishen, Y. “New Perspectives on Rural Marketing, Jaico Publishing House; Rirchandani, Rahul, “Evolving a New
Marketing Mix for Selling to Rural Indians,: Concept Paper, Sept, 2005; “Marketing to Rural consumers – Understanding and
tapping the Rural Market Potential, “ IIMK Rept., April, 2008.
Selling at the BOP
• Product Features and Capabilities
– Take into account availability of services (poor or no
electricity) and auxiliary products (e.g. batteries).
– On the other hand, telecom infrastructure (mobile phones)
may be very good
• Pricing
– Price sensitivity is very high
– Pricing should be for affordable value offerings but doesn’t
necessarily mean “cheap”
– Cash flow may fluctuate seasonally
Selling at the BOP
• Promotion and Advertising
– Rural consumers like to touch and feel a product before
making a decision
– Many of the consumers may be semi-literate and/or poorly
educated but still very shrewd about their purchase
decisions.
– Intermediaries are often the foundations of distribution.
These trusted members of the community, represent your
product. This is similar to distribution models in the US
like Avon or Tupperware.
Community Organizations
• Many BOP businesses utilize various kinds of community
organizations to sell and/or distribute their product or
service.
• These are common in most developing countries to
organize community events and/or services
• Called different things such as Self Help Groups,
Community-Based Organizations (CBOs).
• Formal organizations but loosely organized (an analogy in
the US would be a PTA).
• Run by trusted members of the community
• Also a source to recruit local entrepreneurs
Source: http://www.self-help-approach.com
Business Models for BOP
• The Monitor Group in Mumbai did an extensive
survey of the BOP in India and identified 7 basic
business models in use.
• Reference: Emerging Markets, Emerging Models”,
March, 2009.
• These models are summarized in the next slides.
• Models include both for-profit and non-profit
companies or organizations.
Source: http://www.monitor.com/in
Pay-Per-Use
• Pay-Per-Use. Consumers pay lower costs for each
use of a group-owned facility, product, or service.
This limits the impact on their cash flow while the
high volume of consumers makes the proposition
sufficiently attractive for third-party providers.
• Key Features
– Customers pay as they have cash available
– May have a group management structure (village level
management for example)
– Alternatively, a local entrepreneur may manage
Pay-Per-Use: Byrraju
Foundation
• The Foundation seeks to build progressive
self-reliant rural communities by
providing services in healthcare,
environment, sanitation, primary
education, adult literacy and skills
development. The Foundation currently
works in 200 villages.
• One 1000-2000 liters-per-hour water
purification plant per village
• Shared investment between Foundation
and community
• Provides 2-3 liters of pure and safe
drinking water per person per day at
nominal service charge of 16 paise (less
than half a cent) per liter.
Source: http://byrrajufoundation.org/index.php
No Frills
• A pared-down, No Frills service that meets the basic
needs of the poor at very low prices and still generates
positive cash flow and profits through high volume,
high asset utilization, and service specialization.
• Features
– High customer volume and high asset utilization drive
down unit costs
– Specialized service offering, not a full service business
– Highly standardized service protocols
No Frills: Lifespring Hospitals
• Affordable, high quality maternal
care for low income women and
children in India.
• Lease old 20-25 bed hospitals
(saves land and construction costs)
• Focus only on maternity
• Efficient and standardized
operations
• Deliver about 150 babies per
month per hospital
– Normal delivery is 2000 rupees
(about $40).
– Each patient consultation is 75 rupees
(about $1.50).
Source: http://www.lifespring.in/index.html
Paraskilling
• Paraskilling. Combines No Frills services with a
reengineering of complex services and processes into
a set of simple standardized tasks that can be
undertaken by workers without specialized
qualification.
• Key Features
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–
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Engineer process into simple, discrete parts
Low skill workers can perform on a high volume
Development of para-professional employees
Typically for service offerings like medical or educational
Paraskilling: Gyan Shala
• Provides primary education to poor
• 330 one room schools in slum areas
in India
• Parents pay about $.60 per month
per student tuition, less than
government (public) school tuition
and much less than private schools
• Created a standardized curriculum,
lesson plans and teaching aids that
can be taught by less-skilled
teachers (lower salary)
• Students test scores very high
Source: http://www.gyanshala.org/
Shared Channels
• Shared Channels. Piggybacking products and
services through existing customer supply chains into
hard-to-reach areas.
• Key Features
– Proper incentives to all participants in the distribution chain
– Using existing channels, creating alliances
– Using an existing trusted distributor
Shared Channels: BASIX
• BASIX serves 200,000 customers in India, most of which
earn less than $1 per day
• One product is weather insurance for small farmers in
India
– Insurance policies indexed to rainfall amounts
• Sold through ITC’s e-Choupal kiosks.
– Village Internet kiosks managed by farmers themselves, that
enable the agricultural community access ready information in
their local language on the weather & market prices, disseminate
knowledge on scientific farm practices, facilitate the sale of farm
inputs and purchase farm produce from the farmers’ directly.
Source: http://www.euacpcommodities.eu/files/ScalingUpMicroinsuranceweb.pdf
Contract Production
• Contract Production. Directly involves small-scale
farmers or producers in rural supply chains. The
contractor organizes the supply chain from the top,
provides critical inputs, specifications, training, and
credit to its suppliers, and the supplier provides
assured quantities of specialty produce at fair and
guaranteed prices.
• This model, along with the next two, engage lowincome suppliers or producers.
Contract Production: Calypso Foods
• Specialty fruit and vegetable
exporter, including Gherkins
• Works with about 5000 farmers on a
contract basis.
• For-profit, $6M in revenues in 2008
• Farmers are paid in installments
every two weeks to guarantee cash
flow
• Calypso’s supply is assured
Source: http://www.calypsofoods.net/index.php
Contract Production: Honey Care
Africa
• For-profit Kenyan company, sources honey directly
from 12,000 farmers in East Africa
• Provides farmers supplemental income for a low
investment of time and money
– About 15 minutes every two weeks
– 4 hives produce in first year about $80 worth of honey
against a $220 investment; established hives would produce
$200-$220 per year in later years
• Honey Care manages the entire supply chain and
helps arrange financing
Source: http://www.honeycareafrica.com/
Deep Procurement
• Deep Procurement. Bypass traditional middlemen and
reach into the base of the economic pyramid, enabling
direct purchases from large networks of low-income
producers and farmers in rural markets and often
providing training for quality and other specifications.
• Key features
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–
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Technical Assistance to producers
Quality assurance close to the source of production
Linkages from producer direct to major buyers
Very similar to contract production but usually at a much larger
scale and run by a third party, not the buyer directly.
Deep Procurement: SERP
• Society for the Elimination of
Poverty (SERP). A public agency
that organizes more than 800,000
women into self-help groups.
• Has arranged buying agreements
with large government agencies to
procure commodity crops and
hand made goods.
• This model is similar to contract
production but has a third party
involved, works with very large
buyers (governments or large
companies) and works to eliminate
the middle man.
Source: http://www.serp.ap.gov.in/SHG/index.jsp
Demand-Led Training
• Demand-Led Training. Applies a formal-sector
“temp agency” model to down-market opportunities,
with enterprises paying a third party to identify, train,
and place employees for job openings at the edges of
the formal and informal sectors.
• Key features
– Certification of quality
– Pre-assured demand for placement is defined before
training occurs
Demand-Led Training: TeamLease Services
• India’s second largest private
employer, serves 1000 clients
with 80,000 employees
• Takes requirements from
employers, lays out the operation,
identifies and recruits individuals
to fill the jobs
• Trains people as necessary and
charges training back to customer
• Focuses on placing rural workers
into urban formal sector jobs
Source: http://www.teamlease.com/
Exercise
• As a group, talk about businesses or organizations you
know in your own community and think about them
in these terms?
• Do you use any as a customer? What is your
experience?
• Are there other models besides these seven that you
can think of?
• Think about these models and constraints as you
develop and analyze your design research.
Questions to Address for Your
Plan
• Is the product or service one poor customers will pay for? Do
low-income people say they want it, or has someone decided
they need it? Do you need to educate the users? If yes, how,
and how can the channel absorb the cost of the education?
• What substitutes exist for the product? How else do poor
customers satisfy the demand the product or service offers?
• What is the price, and how does it match up to irregular and
unpredictable cash flows?
• What is the revenue model? The distribution model? How
strong are the linkages from producer to end buyers and their
preferences?
Source: Monitor Group “Emerging Markets, Emerging Models”, March, 2009
Resources
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Ramkishen, Y. “New Perspectives on Rural Marketing, Jaico Publishing House;
Rirchandani, Rahul, “Evolving a New Marketing Mix for Selling to Rural Indians,: Concept Paper, Sept,
2005;
“Marketing to Rural consumers – Understanding and tapping the Rural Market Potential, “ IIMK Rept.,
April, 2008.
Self Help Groups - http://www.self-help-approach.com/
Monitor Group – www.monitor.com/in