Marketing at the bottom of the pyramid Submitted by: Akshay Garg (001) Akshay Mishra (007) Keerthi N. (028) Mreegasha Mondal (034) Background and Motivation The Bottom of the Pyramid (BOP) has emerged as one of the dominant ideas in business lately. The phrase “bottom of the pyramid” was used by U. S. president Franklin D. Roosevelt in April 7, 1932. In economics, the bottom of the pyramid is the largest, but poorest socio-economic group.
According to the author of the book-‘Fortune at the bottom of the pyramid’ and the famous management Guru C.K Prahalad, almost two-third of the world population which earns less than US$2 per day comprises of the bottom of the pyramid population. The world economic pyramid Historically, businesses around the world have been focusing on traditional markets with good spending power. However with increased saturation in this market and in order to sustain growth, the companies started seeking to penetrate into the largely untapped rural markets with new marketing techniques.
The proposition of inclusive capitalism thus arose—involving and mobilizing the resources, managerial know-how and technology of the large FMCG firms to co-create solutions to the problems at the bottom of the pyramid—those people that live on less than $2 a day. This way, the firms contribute to poverty eradication and upliftment of the marginalized; in return, they would get fantastic business opportunities like cheaper and easier procurement of inputs and a wider customer base. This creates a win-win situation for both.Hence subsistence markets, when entered and explored correctly, are becoming a constant source of revenue for businesses.
Hindustan Lever Limited (HLL), as HUL was known back then, experimented as early as in 1995 in the refined salt market. Firstly, they aimed at upgrading the 75 per cent unrefined market (BOP consumers) to Annapurna and secondly of converting branded consumers to Annapurna. In 1999, HLL launched Project Shakti.
It identified promising opportunities like confectionaries and healthcare products for the bottom-of-the-pyramid consumers.Amul started its DISK project which comprised of computerization of more than 70,000 village societies and automation of milk collection process. It adopted a 3 tier structure involving farmers, village societies and district milk federations, doing away with the middlemen.
ITC’s e-Choupal program was launched in 2000. The motive was to make Indian agriculture self-sufficient by leveraging digital technology and customized extension services to empower farmers and raise rural incomes through better crops, yield and practices. The initiative began while procuring soya from rural India.
The effort illustrates the social impact of bringing global resources and farm and business practices to the Indian farmer as well as the opportunities to garner revenue by ITC. Objective The major objectives of our study and research are: 1. ) Analyze and understand BoP approach and its significance.
2. ) Study how Indian companies are identifying opportunities and entering into the unexplored markets present at BoP 3. ) Analyze the inclusive approach of ITC e-choupal and HUL Shakti in terms of reach to Bottom of Pyramid. Literature ReviewThe Bottom of Pyramid constitutes the market made up by the world’s poorest people who lives on less than $2 per day. The idea behind BOP suggests that the best way to meet the needs of the poor is through a profit driven market – based approach. Most companies have not considered people at the base of the economic pyramid as potential consumers due to the low level of their individual incomes.
The common belief that the poor have no significant purchasing power ignores the volume of the market. The bottom of the economic pyramid in India representing the masses is an over $1. -trillion market, making up the biggest chunk of the global $5-trillion BOP market excluding China, says a study by IFC and World Resources Institute (WRI). The BOP population of 924.
1 million people – 78% of them in rural areas – makes up about 95% of the country’s population. In India, BOP accounts for 88. 1% of the total national household expenditure on food, 87. 2% of energy expenditure, 85. 3% of health spend, 78. 8% of household goods expenditure and 52.
6% of the spend on information and communication technology. The business potential at the BOP has five central advantages: * Size of the market * Rapid market growth Less competitive environment * Opportunities for cost saving * Opportunities for innovation The commercial challenges of the BOP market are: * Cash poor consumers * Geographic, economic, and cultural distance between the seller and the buyer * Limited product awareness and understanding * Weak physical and institutional infrastructure * Working with longer time frames Profit driven investment in the BOP market has a broad range of social benefits. Investing in the BOP market has great potential for reducing poverty by accelerating growth through job creation, and for lowering prices whereby the capacity to consume is increased.Companies can generate profits for themselves, and at the same time, benefit the poor by improving their welfare. ITC and HUL are the two companies which have invested a lot of money for the BOP market. Sources: Websites: Wikipedia. org, bopstrategy.
com Books: ‘Fortune at the bottom of the Pyramid’ by C K Prahlad and Stuart L. Hart E-Choupal The e-Choupal is a three layered infrastructure with the first layer consisting of ICT kiosks which have internet access and which are manned by ITC trained village farmer. It is generally situated within 1. km of every target farmer and is meant to serve the purpose of six villages. The second layer, called Choupal Sagar is a mortar and brick infrastructure located within 10-30kms of every target farmer. A Choupal Sagar is situated in the middle of 40-50 e-Choupals, typically few km away from the town to facilitate procurement.
Finally the third layer consists of a network of companies managed by ITC who acts as the direct consumers of the farm commodities thus completing the three layered architecture of an e-Choupal.Real-time information and customized knowledge provided by e-Choupal enhance the ability of farmers to take decisions and align their farm output with market demand and secure quality ;amp; productivity. The aggregation of the demand for farm inputs from individual farmers gives them access to high quality inputs from established and reputed manufacturers at fair prices. As a direct marketing channel, virtually linked to the ‘mandi’ system for price discovery, e-Choupal eliminates wasteful intermediation and multiple handling. Thereby it significantly reduces transaction costs.Model in Action Benefits 1. The e-Choupal model has been specifically designed to tackle the challenges posed by the unique features of Indian agriculture, characterized by fragmented farms, weak infrastructure and the involvement of numerous intermediaries, among others. 2.
‘e-Choupal’ also unshackles the potential of Indian farmer who has been trapped in a vicious cycle of low risk taking ability ;gt; low investment ;gt; low productivity ;gt; weak market orientation ;gt; low value addition ;gt; low margin ;gt; low risk taking ability.This made him and Indian agribusiness sector globally uncompetitive, despite rich ;amp; abundant natural resources. 3. Such a market-led business model can enhance the competitiveness of Indian agriculture and trigger a virtuous cycle of higher productivity, higher incomes, and enlarged capacity for farmer risk management, larger investments and higher quality and productivity. 4. A growth in rural incomes will also unleash the latent demand for industrial goods so necessary for the continued growth of the Indian economy.
This will create another virtuous cycle propelling the economy into a higher growth trajectory.Launched in June 2000, ‘e-Choupal’ has already become the largest initiative among all Internet-based interventions in rural India. ‘e-Choupal’ services today reach out to over 4 million farmers growing a range of crops – soybean, coffee, wheat, rice, pulses, and shrimp – in over 40,000 villages through 6500 kiosks across ten states (Madhya Pradesh, Haryana, Uttarakhand, Karnataka, Andhra Pradesh, Uttar Pradesh, Rajasthan, Maharashtra, Kerala and Tamil Nadu. The problems encountered while setting up and managing these ‘e-Choupals’ are: * Infrastructural inadequacies, including power supply, telecom connectivity and bandwidth. Imparting skills to the first time internet users in remote and inaccessible areas of rural India. Several alternative and innovative solutions – some of them expensive – are being deployed to overcome these challenges e. g. Power back-up through batteries charged by Solar panels, upgrading BSNL exchanges with RNS kits, installation of VSAT equipment, Mobile Choupals, local caching of static content on website to stream in the dynamic content more efficiently, 24×7 helpdesk etc.
Going forward, the roadmap includes plans to integrate bulk storage, handling ;amp; transportation facilities to improve logistics efficiencies.As India’s ‘kissan’ Company, ITC has taken care to involve farmers in the designing and management of the entire ‘e-Choupal’ initiative. The active participation of farmers in this rural initiative has created a sense of ownership in the project among the farmers. They see the ‘e-Choupal’ as the new age cooperative for all practical purposes.
This enthusiastic response from farmers has encouraged ITC to plan for the extension of the ‘e-Choupal’ initiative to altogether 15 states across India over the next few years.On the anvil are plans to channelize other services related to micro-credit, health and education through the same ‘e-Choupal’ infrastructure. Choupal Pradarshan Khet This brings the benefits of agricultural best practices to small and marginal farmers. Backed by intensive research and knowledge, this initiative provides Agri-extension services which are qualitatively superior and involves pro-active handholding of farmers to ensure productivity gains. The services are customized to meet local conditions, ensure timely availability of farm inputs including credit, and provide a cluster of farmer schools for apturing indigenous knowledge. This initiative, which has covered over 70,000 hectares, has a multiplier impact and reaches out to over 1. 6 million farmers. Another initiative by ITC Apart from eChoupal, ITC has also taken initiative to improve the financial conditions of the farmers who also rears cattle for a living.
Although 70% of the rural population owns cattle, the quantity of milk produced is on the lower side because of the poor quality of the stock.ITC was quick enough to realize the high potential and opportunity trapped in this sector. They took the help of a NGO firm called BAIF Institute for Rural Development, a national NGO specializing in livestock development to improve the quality of cattle stock in the villages. ITC has focused on the small and landless farmers at the first stage. With the help of BAIF, superior quality of semen from Jersey and Holstein-Friesian cows is inseminated into the cattle which has resulted in better production of milk both quality and quantity wise.Quantity wise there has been an increase in 7-9 times in the milk produced thus enabling the farmers to invest further in dairy farming which has resulted in a substantial increase in average income and revenues. The milk produced is collected by co-operatives fostered by ITC who channels the milk to larger diaries connecting farmers to the major milk markets of the country. Project Shakti It is a unique case in point.
HLL created a direct distribution network in hard-to-reach locales (markets without distribution coverage through traditional distributors and dealers).It seeks to empower the underprivileged rural women i. e.
the women at the bottom of the Pyramid. * They selected entrepreneurial women from these difficult-to-penetrate villages and trained them to become distributors, providing education, advice and access to their products in villages. * These village women entrepreneurs, called Shakti Amma (“empowered mother”), have unique knowledge about the village needs and products in demand. * They earn between Rs. 3000 and Rs.
7000 per month and therefore create a new capacity to consume for themselves and their families. generating opportunities for 45,000 rural impoverished women and has also helped to increase the rural distribution of the Company * More importantly, these entrepreneurial women are increasingly becoming the educators and access points for the rural BOP consumers in their communities. A typical Shakti distributor sells products worth Rs 10,000-15,000 a month, which provides an income of Rs 700-1000 per month on a sustainable basis. While this may not seem to be a high income, it makes an enormous difference to women who live in remote villages in dire poverty.In many cases, earnings from Shakti help them double their household income. Much of the additional income goes to educating children, and also to purchasing consumer durables such as television sets, which further expands the rural market for such products. Some Shakti distributors — whom the company calls “entrepreneurs” – invest the extra money in buying vehicles such as motor scooters that allow them to go into more villages. According to media reports, Shakti distributors now account for 15% of the company’s sales in rural India.
Meanwhile, the potential for growth is enormous, since studies have shown that just 15% of Indian consumers use products such as shampoo. According to Wharton’s Raju, there are behavioral reasons why rural consumers represent a sound bet for companies that are willing to invest in reaching them. “Affluent consumers demonstrate that they have ‘arrived’ by buying bigger houses or cars. People at lower income levels do so by buying premium brands. This means brand loyalty is very high among less affluent consumers.
That is why the rural market is critical for companies.The first-mover advantage is significant. An initiative which helps support Project Shakti is the Shakti Vani programme. Under this programme, trained communicators visit schools and village congregations to drive messages on sanitation, good hygiene practices and women empowerment. This serves as a rural communication vehicle and helps the SA in their sales. Project Shakti is needed: 1) To extend direct reach into untapped markets: one of the aims of the project is to help the company to penetrate in rural untapped areas in partnership with Self Help Groups.
) To build Brand through local influence: To overcome the problem of limited media coverage, the company appointed the Shakti Entrepreneurs as the brand ambassador of its products. They are not just brand ambassadors but also generate sales of HUL products. 3) To Empower underprivileged women: HUL as a company is also well aware of its social obligation towards the society. Hence, through partnership with village level Self Help Groups, it provided sustainable livelihood opportunity to its members. The main advantage of the Shakti programme for HUL is its ability to enter those areas which remain hidden from any communications.
Shakti Ammas are able to reach far flung areas, which were economically unviable for the company to tap on its own, besides being a brand ambassador for the company. Moreover, the company has ready consumers in the SAs who become users of the products besides selling them. Although the company has been successful in the initiative and has been scaling up, it faces problems from time to time for which it comes up with innovative solutions.
For example, a problem faced by HUL was that the SAs were more inclined to stay at home and sell rather than going from door to door since there is a stigma attached to direct selling.Moreover, men were not liable to go to a woman’s house and buy products. The company countered this problem by hosting Shakti Days. Here an artificial market place was created with music and promotion and the ladies were able to sell their products in a few hours without encountering any stigma or bias.
Other BOP Initiatives in India Amul made it possible for a farmer with one or two buffalo to connect with the national and global dairy markets and gave them a new identity. It receives milk collection at a centralized, efficient world class processing facility where it is pasteurized and packaged for retail consumption.It connected its practices and processes with Bottom of Pyramid, the villagers, maintained the local infrastructure and brought to them the most advanced facilities in their respective fields.
Some other notable Indian businesses which have successfully tapped the fortune hidden at the bottom of the pyramid are Aravind Eye care systems and Jaipur foot. Aravind is the largest eye care facility in the world and it provides free eye treatment to nearly 60% of its patients who are poor. Still it has managed to remain profitable.Similarly, Jaipur Foot has successfully understood the requirements at BoP level and is one of the well-known prosthetics manufacturers in the world. Citigroup found an innovative way to bring basic financial services to the poor.
By using an ATM, networked, 24/7 model, Citigroup was the first global bank to offer a $25 deposit option to start an account. In its first year, 150,000 customers took advantage of the offer. Other Side of the Coin Stories of well-meaning commercial ventures that couldn’t make sustainable profits are also too common in low-income markets.Despite achieving healthy penetration rates of 5% to 10% in four test markets, for instance, Procter ;amp; Gamble couldn’t generate a competitive return on its Pur water-purification powder after launching the product on a large scale in 2001.
Although the price—equivalent to 10 U. S. cents a sachet—provided a margin of about 50%, on par with that of the company’s products worldwide, P;amp;G gave up on Pur as a business in 2005 and announced that the sachets would be sold only to humanitarian organizations at cost.DuPont ran into similar problems with a venture piloted from 2006 to 2008 in Andhra Pradesh, India, by its subsidiary Solae, a global manufacturer of soy protein. Intended to alleviate malnutrition and open a new market for the company, the venture aimed to get mothers in rural areas and urban slums to cook with soy protein as part of their daily routine.
The product mix consisted of small packets of protein isolate, which provided about half of woman’s average daily protein needs, and a range of packaged, soy-fortified snack foods all priced below 30 U. S. cents.The isolate’s margins were on a level with those of Solae’s core business-to-business products, but sales proved to be inconsistent. Sales were stronger for the snack foods, but the margins were significantly lower—so low, in fact, that the company would have had to sell quantities much higher than could have been absorbed by the communities within reach of the business. Unable to see a path to profitability, Solae closed the pilot.
As these and other ventures suggest, cost structures in low-income markets are daunting: Operational expenses, such as distribution, are frequently much higher than those that companies face in developed markets.In addition, customer acquisition and retention for new products often demand unusually intense—and costly—levels of high-touch engagement. To cover those high costs, much greater volumes are needed for break-even. However, selling to customers in rural villages and in slums scattered across urban centers is difficult and inefficient. Each local business unit is forced to generate its sales volumes from the consumer base living in a narrow geographical range—often just a small cluster of villages in rural areas, or several neighborhoods in the case of larger slums.
Research Methodology and Data Collection We have conducted primary and secondary research for an accurate understanding of the market and consumers at the bottom of the pyramid. As a part of our primary research, we conducted surveys in the rural areas around Delhi, so that we can get a clear picture of the market present at the bottom of the pyramid and how the BoP consumers behave. This has helped us draw a clear picture of the BoP market scenarios and how organizations across different sectors are implementing BoP products sales strategies to boost their sales volumes.The data for our analysis and inference was firsthand information that we got from the local ‘Kirana Stores’ about bottom of the pyramid products.
We identified a number of issues and strategies that distributors and sellers tend to follow for the consumers at BoP, then we prepared a series of questionnaire to determine the following things:- 1. ) Demand of BoP products in the market. 2. ) Activities that companies undertake to make consumers more aware about their products and offerings. 3. ) Analysis of offers/discounts given by various brands/distributors to attract the consumers at BoP.
. ) Purchasing pattern of the consumers present at BoP and how companies adopt measures such as packaging and offers to affect this pattern. 5. ) Behavior of consumers at BoP with respect to new products, brands, pricing, offers, packaging, advertisements etc. We split our survey in two parts: survey at the small ‘Kirana Stores’ and survey done among the consumers present at the BoP. We went to two different rural areas representing the population at BoP, namely Gopalpura village and Daya Basti and asked our questions. We intereacted with around 25 Kirana stores and 30 BoP consumers.
Sectors and Products: We focused mainly on the FMCG goods and products offered by the small kirana stores in these areas. We asked our questions about various products such as Wheat flour, Incense Sticks, Soaps, Toothpaste and shampoos. We asked various questions pertaining to these products to the consumers as well as to the Kirana Stores. Questionnaire In the following portion we will give a brief about the questions that we asked from the Kirana stores for our research study.
1st question How old is your shop? Consumer trust and faith on a shopkeeper largely depends on how long has he been operating.This also affects the sales volume of that particular shop. 2nd question How often do consumers come to buy different products such as shampoo, biscuits, soap, toothpaste, hairoil etc This question given an important insight into the consumers present at BoP, as it tells us about the purchasing pattern of consumers and also of the demand of various products existing at BoP. 3rd question How do they react to different packaging of these products? Do they demand more for small packets/packing as compared to regular sized packing? This was a very important question, as it helps a lot in understanding the consumer behavior at BoP.Most of the consumers at BoP tend to buy products in small quantities and for lesser price , as they have either low incomes or are daily wage earners. 4th question What types of schemes/discounts/offers do companies and distributors offer for their product and what is the impact of these schemes on the sales of these products? This question was required to look into the details of how Indian FMCG firms are making their way into the BoP markets, by using lucrative discounts and offers for the these consumers. 5th question How is the distribution network/supply of various products of different FMCG brands?What are the profit margins present with each of these brands? This information was required to have an understanding about the supply chain network existing at the BoP for different brands and manufacturers, and the efficiency of these supply chain systems.
We expected to gain insight about the number of visits by the distributor in a month, and the profit margins given by the distributors at these small kirana stores. 6th question How do the consumers ask for a product they want to buy? Do they ask for a specific brand or are satisfied with any local brands?We wanted to gauge the awareness among the consumers at BoP about various brands and whether they were aware about the positioning carried by the individual brands. 7th question How do the consumers react to the introduction of a new brand in the market? Are they keen to use it? How do the shopkeepers push that brand to the consumers? Does having a better profit margin motivate him to push or force a sale of one brand over the other? Shopkeepers have a big influence on the buying decision of consumers at BoP, as consumers are typically less informed about various brands and tend to put their faith on more knowledgeable shopkeeper.Also the motivation for selling one brand over other stems from better profit margin. 8th question Who are the regular customers for the products? Do people who look rich also come and buy smaller sized products? This question was asked to determine if there is a spill-over effect or not. We had some indications from where we comprehend that the BoP boundaries are getting extended to the upper class as well.
9th question What other factors contribute towards the sale of a product of a brand, like banners, posters, shelf space etc.?How important do these factors become in the light of consumers asking for smaller sized packages? Companies keep on coming with regular offers, campaigns and other schemes to lure consumers, especially at BoP. How much effective are these schemes and how they affect the behavior pattern of consumers, was something we intended to know. Questions from Consumers: We also put forward the following questions to some of the consumers we found in the villages we targeted. This was done, basically to have an understanding of the same concepts, but from the point of view of a BoP consumer. How often do you go to buy a product (toothpaste, soap, biscuits) * Do you always prefer a smaller sized product over a medium or large size? * Do you prefer to buy a branded product or local product? * Are you willing to try a new product introduced in the market? * How much is your purchase decision affected by the shopkeeper/offers/advertisement of that product? Based on the answers to the above mentioned extensive questionnaires and the analysis of data gathered from them, we were able to understand the expectation and behavior of customers at Bottom of the Pyramid.We also got an insight about how the Indian companies are faring at bottom of Pyramid. Results and Data Analysis: Some facts about the rural market that were observed during the research: * People in rural areas are aware of most of the brands like Fair and Lovely, Vivel, Sunfeast, Pepsodent, Sunsilk etc.
* The common strategy used by most of the brands to reach the household of rural areas are: 1) Small packaging: * Aashirwad Aata- Pack of Rs 240/10kg, 125/5kg * Colgate- Rs 10/35g, Rs 35/100g, Rs 44/200g, * Mangaldeep Incense stics: pack of Rs 5 and Rs 10 Clinic Plus- small sachet of Rs1, Rs3 and Rs5 * Vivel- Rs 5/10g, Rs 10/25g, 2) Adding extra quantity at the same price: Quantity Scheme * Colgate: 20% extra * Wheel: 30% extra * Vaseline: 20% more 3) Discounts: Done on almost every product in every 2 months. 4) Bundle Offers: * Buy 1 Mangaldeep Incense stick and get an AIM matchbox free. (both brands of ITC). * Incesnse stick stand free with Mangaldeep Sticks. * Buy 3 get 1 free offer on Breeze 5) Attractive Packaging: Colgate distributes a pack at Rs 38 and another at Rs44.The interesting fact is that the weight of both the packs are the same, just the packaging size is different.
The pack for Rs 44 is slightly bigger than the other one which tricks the consumers. 6) Promotion: Posters and banners of the product on the shops. * Profit Margin: For new brands, the profit margin to the shopkeeper is more since people are not aware of brands which holds true for not only rural market, but urban retailers too. For eg, ITC is relatively a new brand compared to HUL and most of the shopkeeper get higher profit margin for it, 8-10% for ITC and 5% for HUL.
Although local products offer much higher profits , about 25-50%, but they are one time sale in most of the places. * Consumer Awareness In rural area, sales of a branded product majorly depend upon consumer awareness about it. If the consumer is aware, he directly asks for the particular brand, if not the shopkeeper can easily trick him and give a duplicate or local product. Brands must keep in mind that they are selling the products to rural consumers who are price and quantity focused and do not get much attracted by the brand name. ence product which fulfils their immediate need is purchased by them.
This can be illustrated by the example of Surf and Wheel. Both of them come at a price for Rs 10, but wheel is sold more since its pack has 150g of detergent powder compared to 70 g of Surf. Observation 1 The above chart clearly indicates the preference of consumers at BoP towards the products with smaller size packing. This is the primary reason that nearly every brand and manufacturer has now started coming out with small packages of its products available in small denomination, generally single digit.This is an attractive feature for the BoP market. Obeservation 2 Would you like to try a new product? Would you like to try a new product? Would you prefer to buy a brand over a local product? Which factor affected your purchase decision the most? Which factor affected your purchase decision the most? The above two pie charts contain very useful information. The consumers at BoP do not hesitate to buy the new products in the market. This could be attributed to increased awareness due to the mass media.
Also, they are more willing to buy a branded product as compared to a local product. The third pie chart shows the relevance that the shopkeepers carry in the BoP market. They are the biggest decision makers for around 50% of the sample. Conclusion and recommendations: After a thorough research into the working of HUL Shakti and ITC e-choupal, we were very much impressed by the real fortune that lies at the broad base of the pyramid, which had been neglected by most of the companies as rightly explained in the book by CK Prahalad.Also, our primary research also gave us a new insight into the markets at BoP, the forces that exists there and how do the consumers behave and make their purchasing decisions. We also learnt about the spillover effect of the products. We also realized the importance of small Kirana stores in the functioning of the entire BoP market and how they affect the decisions of the consumers.
BoP consumers, though poor, but are increasingly becoming aware of their options and making informed decisions.It is also concluded that initially a company provides a higher margin for its product, when it is newly launched. But with time, it becomes normalized across the different variants of the same company. Our interaction with the retailers and the end consumers was a very good learning experience.
We got a glimpse as to how does a retailer decides which product he has to push more. Also, how do the end consumers make their final decision, which is based on variety of factors.Though we also met people who said that they would buy any product which costs less, their number was far lesser than those claiming to use only branded products but mostly the one in smaller packing. Our primary recommendation from this market research is that companies do need to realize the bottom of the pyramid importance in their business profits. To tap the wealth present at BoP, they need to make some sustained, motivated efforts. But successful marketing measures would open a whole new dimension for such companies which would provide them with a continuous source of revenues.