Transcript Bottom of the Pyramid - University of Winnipeg

Welcome to class of
Bottom of the Pyramid
by
Dr. Satyendra Singh
University of Winnipeg
Canada
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
opportunities
2
Bottom of the Pyramid
BOP: 5 trillion worth of purchasing power
3
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
that
• 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
4
 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
needed)
• 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 $
5
Successful firms from emerging markets
• Acer
• Bharti Airtel
• Hailer
Successful industries:
Telecommunications
• Lenovo
Fast-moving consumer goods
• LG
Pharmaceuticals
• QQ
• Samsung
• TATA
 move from OEM (1-5% margin) to
leadership position (+40% margin)
6
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
7
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
8
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
9
Sachet distribution in BOP markets
10
Standardization and Specialization:
Successful low-Cost providers to BOP
Economy of scale, very basic
11
Innovation: Reverse engineering
TATA Nano: $3,000
12
15
16
Bundling: tooth brush, paste, soap
17
Not Free in BOP Yet But Will Be Soon
18
Need to optimize value addition
Commodity
1₡-2₡
Goods
5₡-25₡
Service
75₡-$1.5
Experience
$2-$2.50
The BOP segment may not be brand conscious yet.
20
Is the BOP market suitable for you?
24
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
25
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
book
• 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)
27
ASEAN: Asso. Southeast Asian Nations
• Free Trade
• 10 countries
– Brunei, Cambodia,
Indonesia, Lao, Malaysia,
Mayamar, Philippines,
Singapore, Thailand, and
Vietnam
• HO: Jakarta
• ASEAN scholarship
• ASEAN Univ.Network
28
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
29
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
30
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
31
MERCOSUR
• Free trade and people movement
• Full member
– Argentina, Brazil, Paraguay, Uruguay
Venezuela (Paraguay to ratify)
• Associate member
– Bolivia, Chile, Columbia, Ecuador
Peru
• Observer members
– Mexico
– New Zealand
• HO: Montevideo, Paraguay
32