Bottom of the Pyramid - University of Winnipeg

Welcome to class of
Bottom of the Pyramid
Dr. Satyendra Singh
University of Winnipeg
Opportunity for growth
• 7 b people
• 2b can afford good products
• 5b Bottom of Pyramid (BOP)
o We need to cater BOP and develop market
oriented products accordingly
o Emerging markets
o Developing countries
o Moral responsibility to cater BOP!
o Because they’re denied resources and
Bottom of the Pyramid
BOP: 5 trillion worth of purchasing power
Marketing Strategies for EMs…
• Need 2 strategies
– Urban  Global strategy is applicable
• Consumers prefer global brands to local brand
• Global brand equates to quality and prestige
• Communicates sophistication and modernity
• Admire HIG lifestyle and the products that symbolize
• Large cities have advanced distribution channels
• HIG customers are less price sensitive
• Serves as social distinction
• Firms do not need to be based in developed countries
• Concept of 3rd world countries multinationals
– E.g. Nando’s fast food from Africa
 Now in +30 countries
Marketing Strategies for EMs
• Bottom of the pyramid strategy
– LIG  radically different
• Low price/value focused segment  Tata Nano
– Less features, toothbrush with no angles (i.e new design is
• No need to focus western markets in the beginning
• Satisfy needs of the mass markets
– Mahindra and Mahindra tractors, India
– Ranbaxy pharmaceuticals, India
– Orascom telecom, Egypt
– Embraer aerospace, Brazil
• These firms have learned to make a profit at prices unheard of
the developed countries  due to mass marketing at low $
Successful firms from emerging markets
• Acer
• Bharti Airtel
• Hailer
Successful industries:
• Lenovo
Fast-moving consumer goods
• LG
• QQ
• Samsung
 move from OEM (1-5% margin) to
leadership position (+40% margin)
Barriers in BOP markets
Distribution costs ↑
Scattered villages  service cost is high for durables
Difficult to penetrate (+5%) remote villages
Small scale growers are decentralized
Uncertain cash flow  BOP cannot pay upfront/poor
Local knowledge and local trust
Mismatched priorities clean water vs cell phone
Difficult to predict demand China/child education
Local knowledge and Trust  microfinance
 Low margin and high volume difficult to achieve
How to ↓ distribution costs
• Get local input (raw material…)
• Organize the suppliers in groups
• Coca-Cola in Uganda and Kenya for its juice
organizes small farmers, gives them training
• Wal-mart in India to make cold storage
• Use technology for delivery, if possible
• Use existing network of distribution post office
and Western Union
How to ↑ cash flow
• It is ok to borrow (credit) to pay  western culture
• University fee, car loan, house mortgages…
• ↓ upfront payment
• Use sachet retail strategy
• Even 50-kg fertilizer bag is sold in 5kg, eg.
• Pay-per-use  Cell phone pay-as-go, irrigation
pumps in India, clean drinking water in Philippines
• Installment payment in India to buy gold
Sachet distribution in BOP markets
Standardization and Specialization:
Successful low-Cost providers to BOP
Economy of scale, very basic
Innovation: Reverse engineering
TATA Nano: $3,000
Bundling: tooth brush, paste, soap
Not Free in BOP Yet But Will Be Soon
Need to optimize value addition
The BOP segment may not be brand conscious yet.
Is the BOP market suitable for you?
Source: Simanis (2012), HBR, June
Strategy implementation in EMs
• Leadership more involved
– Socioeconomic
• Low formal education and high unemployment
– Culture
• Highly embedded and hierarchical, risk avoidance
• Organizational structure
– More centralized and formalized is appropriate
– Small team, and group reward, collective society
• Intraorganizational relations
– Social and relational identities
• Rank, status, self esteem, well being > relations
• Top managers available physically for guidance
• Learning
Five myths about EM!
• EM are technology backwaters
– I.e. Use outdated technologies; may not be true in case
of cell phones
• EM consumers won’t pay premium for brands
– Brands affect preferences
• EM cannot afford technology purchases
– May not true in case of BRIC countries
• Tech. from mature markets will succeed in EM
– Develop new product with relevant feature
– Nokia phone in India flashlight, individual call
tracking for shared use of phones, multiple address
• EM consumers focus on products, not services26
Where are Emerging Markets?
Emerging Markets Trading Blocks
• Asia
– Association of SouthEast Asian Nations (ASEAN)
– Asia Pacific Economic Cooperation (APEC)
• Africa
– Economic Council of West African States (ECOWAS)
– Common Market for Eastern and Southern Africa (COMESA)
• South America
– Mercosur (Mercosul)
ASEAN: Asso. Southeast Asian Nations
• Free Trade
• 10 countries
– Brunei, Cambodia,
Indonesia, Lao, Malaysia,
Mayamar, Philippines,
Singapore, Thailand, and
• HO: Jakarta
• ASEAN scholarship
• ASEAN Univ.Network
APEC: Asia Pacific Economic Cooperation
• Eco. Growth & prosperity
– Trade/invst Liberalization
– Business Facilitation
– Economic/tech cooperation
• Important
– 40% of world’s pop
– 50% of world’s GDP
– 40% of world’s trade
• 21 countries
– Australia, Brunei, Canada, Indonesia, Japan, Korea, Malaysia, NZ,
Phil, Singapore, Thai, US, Taipei, HK, china, Mexico, PNG, Chile,
Peru, USSR, Vietnam
• HO: Singapore
ECOWAS: Economic Council West African States
• Economic integration
– Mutual defense, court of justice
– Ecowas rail, common currency 2015
– Gambia, Ghana, Guinea, Nigeria, Sierra L
• 15 countries
– Benin, Burkina Faso, Cape Verde
Cote d’lvoire, Gambia, Ghana, GuineaBissau, Liberia, Mali, Nigeria, Senegal,
Sierra Leone, Togo
– Niger – suspended 2009– election problem
– Guinea – suspended 2008 – coup attempt
– Liberia wants to join Ecowas
• HO: Abuja, Nigeria
COMESA: Common Mkt for Eastern Southern Africa
• Regional economic integration
– Trade and investment
• 19 countries
– Burundi, Comoros, Congo, Djibouti,
Egypt, Eretria, Ethiopia, Kenya,
Libya, Madagascar, Malawi, Mauritius
Rwanda, Seychelles, Sudan, Swaziland
Uganda, Zambia, Zimbabwe
• HO: Lusaka, Zambia
• Branding: Buy African, Build Africa
• COMESA statistics
• Free trade and people movement
• Full member
– Argentina, Brazil, Paraguay, Uruguay
Venezuela (Paraguay to ratify)
• Associate member
– Bolivia, Chile, Columbia, Ecuador
• Observer members
– Mexico
– New Zealand
• HO: Montevideo, Paraguay