Executive summary and implications for managers and executives

Citation

(2008), "Executive summary and implications for managers and executives", Journal of Consumer Marketing, Vol. 25 No. 7. https://doi.org/10.1108/jcm.2008.07725gab.001

Executive summary and implications for managers and executives

Article Type: Executive summary and implications for managers and executives From: Journal of Consumer Marketing, Volume 25, Issue 7

This summary has been provided to allow managers and executives a rapid appreciation of the content of the issue. Those with a particular interest in the topic covered may then read the articles in toto to take advantage of the more comprehensive description of the research undertaken and their results to get the full benefit of the material present.The norm within Western organizations is to focus on profit rather than revenue. This typically means a concentration on consumer segments perceived as more lucrative and offering greater opportunities. Many such companies subscribe to the “consumer pyramid concept” that rates consumers in terms of their profitability and lifetime customer value (LCV). In terms of LCV, customers in the upper tiers of the pyramid can offer significantly more than their counterparts lower down.

Businesses are also reassured by the knowledge that identification of potential value and profit in the higher tiers is relatively straightforward and can be exploited using standard marketing practices. This consumer segment likewise meets the essential criteria of being identifiable, measurable, substantial and accessible. Out of these dimensions, substantiality and accessibility are often considered the most important. Markets must be large enough to generate profits while also meeting communication and distribution requirements.

In contrast, bottom of pyramid (BOP) consumers have been largely ignored by the majority of multi-national companies (MNCs). Several obstacles exist for those hoping to succeed within the BOP market including:

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  high costs of serving these consumers;

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  the geographically dispersed nature of the segment;

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  BOP consumers’ heterogeneity, making economies of scale difficult; and

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  price sensitivity within the market.

One school of thought regards the BOP as a “financial desert” with serious loss rather than profit the most likely outcome for organizations that get involved. BOP consumers admit to desiring the same products as the rich but by definition of being poor simply can’t afford them. Having to spend up to 80 percent of their income on basics like food, fuel and clothing leaves little for non-essentials. Consequently, many consider these consumers the domain of governments, charities and non-government organizations (NGOs).

Following the seminal work of Prahalad, however, growing attention has been paid to the BOP segment in recent years. As a result, many people are warming to suggestions that MNCs can play a key role in alleviating poverty and that social and business objectives need not be mutually exclusive.

Skeptics question the supposed size and wealth of the market. And even though it is accepted that the BOP wields collective spending power, consumer education is needed to ensure that people make informed choices on how to spend their limited income. This remains a significant challenge even in the face of any improved availability and distribution. It is therefore acknowledged that involvement from the likes of local and national governments, financial institutions and NGOs is also essential in order to find localized solutions.

Some analysts mistakenly believe that simply cutting costs to enable lower prices is the route to success. But as it stands most organizations remain unequipped to serve this market and they do not know what poor people want. Therefore, organizations must address cost along with other factors including product benefits, price, quality, promotion and distribution if such companies are to respond to BOP consumer needs. Serving the BOP market therefore demands a radically different business model and Pitta et al. discuss the aspects regarded as most crucial to the success of any strategy.

Empowering the poor to get involved in production or supply in addition to consumption provides a feasible market-oriented approach, according to some. By becoming entrepreneurs people can provide cost-effective products for other consumers and help to improve their own employment and economic situations.

One example of this occurred during the 1970s when Nestlé built refrigerated dairies within a district in India as part of a wider program to provide financial and other assistance and training to farmers. An improvement in production and quality enabled the farmers to charge higher prices to Nestlé and improve their living standards. The company gained by increasing the penetration of their other products in the area.

Lack of finance and the high cost of accessing formal credit are barriers to any goal of becoming self-sufficient. The authors point to the success of microfinance and suggest that obtaining funds through sources like the World Bank or other NGOs is one avenue to explore. Microfinance has emerged to allow low-income people access to credit facilities previously out of reach and has experienced significant cross-nation growth. This has inspired the involvement of commercial banks, further enticed by the opportunity to diversify, become more socially responsible and enter partnerships with institutions like governments and NGOs.

MNCs boast a wealth of resources but their inflexibility and top-down approach is perceived as considerable weakness. One suggestion is to create ancillaries free from the rigid structure of the parent company. This notion is supported by research in Latin America showing that smaller outlets are better at reaching emerging markets than multinationals. The formation of alliances is therefore accepted as being crucial to any scheme aiming to serve the BOP market. Scope exists for other players such as private companies and committees to get involved alongside the different organizations, bodies and institutions mentioned previously. Given their understanding of and closeness to the BOP, NGOs are considered especially important. The role of government in providing funding, training and other support to entrepreneurs is similarly regarded.

Pitta et al. emphasize that the difference in approach should extend to the marketing mix, which needs to be founded on affordability. Product modification that lowers prices is put forward but the authors are not convinced that reducing the product size would prove as effective with BOP consumers as it has with those in higher tiers. Others hold a contrasting opinion, believing that space and income constrictions increase the appeal of smaller sizes, in spite of the inevitable higher per-unit cost.

Creating a “bare-bones” product is one means of modification by removing features to reduce cost and thus improve affordability. One such example of adapting to meet local needs is Nirma detergent, manufactured in India as a budget alternative to costly market leader Surf. Nirma has proved successful despite been prone to causing skin irritations because ingredients found in Surf are absent.

Price is invariably the fundamental issue but investigations have shown that the BOP segment recognizes that leading brands provide better quality and reliability and thus reduce the danger of incurring financial loss through underperformance. But aversion to unknown brands doesn’t make these consumers more loyal to others. Switching between several known brands is likelier behavior. Affordability also raises the issue of payment options. Companies able to provide some flexibility in this area might be able to secure an advantage over rivals. Payment via a “marketing exchange model” is an added possibility for those in the BOP segment who produce as well as consume.

Distribution is another key factor. Infrastructure is often woefully inadequate in poor areas and the cost of transportation can mean substantially higher prices for many consumers. In Chile, for instance, consumers in remote northern and southern areas face paying up to 25 percent more for consumer goods than those in more highly populated central zones. Close geographical proximity to stores is therefore a huge advantage. Emotional closeness is likewise valued, not least because the company in question is more likely to be responsive to the needs of BOP consumers.

Marketers seeking to serve the BOP must regard it as “unknown territory” that consequently requires a fundamentally different approach. Many analysts believe that three segments all determined by income levels exist within the BOP. Companies must therefore realize that differentiation should be at the core of any strategy. The need to understand the BOP consumer cannot be overstated and collaboration with those possessing intimate knowledge of the consumer group is essential.

Success is much likelier for organizations who accept that serving the BOP requires long-term commitment. Awareness of this might prevent early withdrawal and the concomitant disappointment and financial loss realized by such a decision. Pitta et al. likewise urge marketers to understand that certain products remain too expensive for the poorest customers, no matter what initiatives can be launched.

The authors reinforce the message that collaboration is vitally important. Drawing on the capabilities of various partners can deepen understanding of the challenges faced by any company aiming to serve the BOP. However, it must also be appreciated that those involved may have different motivations and objectives. Clear vision and shared focus are therefore needed to avoid any potentially harmful misunderstandings.

It is widely assumed that severe financial constraints means consumption within the BOP segment is largely restricted to products or services that satisfy basic needs. In the second article, Subrahmanyan and Gomez-Arias investigate this belief as part of an overall aim to explore levels and characteristics of BOP consumption within various product categories.

Quality and cost are often inextricably linked. Many therefore argue that BOP consumers are unable to afford quality products. However, studies have revealed that purchase of luxury products does occur in highly unlikely settings. When this has resulted in lower consumption of necessities, marketers have been accused of manipulative and unethical tactics. On other occasions, motivations behind the purchase of expensive goods or services are altogether different. Paying for children to be privately educated is one such example.

Comprehensive studies have shown the majority of BOP consumers live in Africa, South Asia, Eastern Europe, Latin America and the Caribbean. Markets are primarily rural, though the majority of BOP is urban within Eastern Europe and Latin America. Both are characterized by an unsystematic informal economy, inferior quality products and inflated prices. Yet statistics indicate total consumption within the segment to be around $5 trillion.

Subrahmanyan and Gomez-Arias believe that an understanding on BOP spending within different product categories can help identify areas of need and where innovation has occurred. The authors developed a set of 15 product categories subsequently organized into different sections broadly in line with Maslow’s hierarchy of needs model.

Basic needs

BOP consumers spend around 60 percent on their household income on food, buying mainly from neighborhood retailers where the cost is often much higher. Regular patronage with local stores does at least improve the chances of being allowed credit facilities. Access to clean, affordable energy is a serious problem. Consumers risk their health by using unsuitable devices for cooking and heating, while some admit to illegal tapping of power sources. There is a massive void with housing. The market is informal and few BOP consumers are able to obtain a mortgage. Water and sanitation poses another significant problem. Clean drinking water is difficult to access and this increases the threat of disease. Innovations in this area have helped:

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  educate consumers and provide nutritional food in smaller portions to lower cost. Packaging and distribution processes have also been improved;

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  provide integrated solutions with such as public lighting and pre-paid meters. Scope exists for business to partner with energy companies, aid agencies and communities to create energy efficient solutions;

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  progress group or community projects, such as one involving Mexican cement manufacturer CEMEX. The company helped with the design and formation of a small club where members engage in do-it-yourself building schemes and take collective responsibility for making payments; and

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  capitalize on consumer willingness to pay for treated water and purification techniques. Distribution has improved to meet consumer demand for home delivery but scope exists for innovations to help conserve, harvest and recycle water.

Essential services

Many urban BOP consumers travel a considerable distance to work. Much of their income is therefore swallowed by transportation costs and spending on education and medical care for children suffers as a result. Poor consumers often can’t afford health care so spending is low in this area. Rural inhabitants face the added problem of hospitals and clinics being far away. Job insecurity affects access to financial services and consumers are forced to use store credits and pay exorbitant interest on loans. Developing countries are spending more on education but the impact has not been substantial enough to help people get the caliber of job needed to escape the poverty trap. Advancements in this area include:

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  Transport innovations such as the Metrobus in Mexico. The system was developed in collaboration with several multinational partners and has been lauded as a sustainable form of city transportation. Similar solutions are needed in rural BOP areas.

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  Franchised health clinics and stores in Kenya where a network of providers offer education and prevention and high-demand medicines for several major illnesses. The stores exploit their combined buying power to obtain quality treatments at low cost.

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  Micro-financing to help groups start small businesses.

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  Use of community principles and information technology to develop prepaid cards that enforce payment and counter risks involved in carrying cash.

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  Entrepreneur-run budget schools. Comparable innovation opportunities exist for tele-education and affordable skills training.

Network development

Emergence of new technologies has significantly impacted on development in BOP areas and improved access to a range of services including banking and mobile health provision. The importance of the marketplace itself is also acknowledged and Subrahmanyan and Gomez-Arias regard it as another “product” that offers scope for innovation. They point out enterprise like:

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  telecommunications companies in different nations helping local entrepreneurs to open their own phone shops; and

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  creation of e-marketplaces to provide craftspeople with a global window for their products.

Luxury/non-essential purchases

Such purchases can be linked to sport, entertainment, cultural festivities or tradition. To many poorer consumers, even candy or ice-cream would be classed as luxury items. In order to afford these products, BOP consumers may have to reduce the amount spent on essentials, buy factory seconds or set up payment terms via installment or loan. Among the initiatives within this product category are:

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  retailer offer of cut-price electronic items and durable goods with favorable credit terms accessible even to consumers with informal incomes; and

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  growing consumption of TV within communal settings. It is believed that TV serves to aspire BOP consumers and the authors suggest that scope exists to provide a service offering sports or educational entertainment.

During the last decade, the largest consumption increase within the BOP segment has occurred in the communication and technology category. The increase in spending within such areas indicates that innovation opportunities are not limited to the provision of basic or essential needs as reflected by Maslow’s framework.

BOP desire to satisfy higher order needs may be motivated by:

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  belief that family needs are more important than individual wants;

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  the creation of social networks to provide collective strength in the fight to eradicate poverty and create sustainable development; and

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  cultural factors such as importance placed on group identity.

Moreover, people will often spend well beyond their means on non-essential items to indicate status, save face or conform to social expectations.

Subrahmanyan and Gomez-Arias recommend creating linkages across the different product categories. By integrating knowledge creation, product and service provision and marketplace development, companies can create a more sustainable approach through meeting multiple needs. They suggest marketplace and education as crucial to the chances of long-term sustainability and also cite examples where multiple linkages have helped BOP initiatives succeed.

BOP consumption within different product categories is likewise investigated by Guesalaga and Marshall. They additionally explore the influence on consumption habits by region and income and in doing so expose as a myth the assumption that the vast BOP segment is homogenous. In reality, differences among subsistence level consumers means that several sub-segments are likely.

A core aim of the study is to ascertain the level of buying power within the BOP market. Relative purchasing power of consumers is indicated through the buying power index (BPI) methodology that generates calculations based on income, expenditure and population. Results allow companies targeting the BOP to differentiate on the basis of these variables.

BPI is a proven technique that has been successfully employed in different geographical areas and other contexts. Although the formula suggests income as the chief component, the authors believe expenditure is more crucial if a precise picture of BOP purchasing power is to be obtained.

The study first measures the extent of BOP purchasing power compared to other income segments of the population. After that, the objective is to break down BOP findings to consider geographical regions, product categories and different income levels.

Statistics used in the study were obtained from surveys conducted in Africa, Asia, Eastern Europe and Latin America and the Caribbean. The authors also used established methodology to calculate income within the BOP segment, defined as consumers earning no more than $3,000 per annum. Data was then further divided to reflect three different income tiers with a respective ceiling of $1,000, $2,000 and $3,000. Adjustments were made to account for income variations in each country so that direct comparisons are possible. The expenditure data from each country is divided into different product categories that broadly correlate with those examined by Subrahmanyan and Gomez-Arias in their study.

Research carried out in 2007 estimated BOP population at almost four billion and income of nearly $5,000 billion. Subsequent calculations indicate $6,000 billion expenditure. The present study reveals that:

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  BOP accounts for over 50 percent of the buying power in these developing countries.

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  In Africa, the BPI is 76.9 percent, in Asia 50.9 percent, Eastern Europe 42.3 percent and Latin America and the Caribbean 37.1 percent.

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  Asia is responsible for 70 percent of global BOP buying power. The remaining 30 percent is shared almost equally between the other three geographical areas.

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  Purchasing power is greatest overall in the bottom income tier and next highest among consumers in the middle income tier, with 43.3 percent and 39.3 percent respectively. In Europe and Latin America and the Caribbean, however, the trend is reversed. Higher BOP earners have the lowest purchasing power in all areas.

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  The three most important product categories are respectively food, housing and household goods, although statistics reveal that the relative significance of each product category does vary by geographical area.

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  Patterns of expenditure are region-specific in some cases and evident across all geographical areas in others.

Guesalaga and Marshall claim that previous research into BOP purchasing power has only partial value since it omits expenditure from the equation. Measurements are based solely on population and income level. Furthermore, they also allege that these studies were unable to find ways to divide global BOP buying power geographically or by income level or spending within each product category. Many analysts believe that obtaining information relating to such as regional difference is crucial to businesses targeting the BOP market.

The present study uses the BPI methodology to address these earlier limitations and further increase knowledge of the BOP sector. As a result, knowledge of where BOP purchasing power is concentrated will prove invaluable to organizations planning to enter the market. Companies serving the BOP will also be able to formulate a more targeted approach to reach consumers in specific geographical areas and/or income brackets. Information relating to the extent of BOP buying power within different product categories is likewise highly valuable.

In their article, Wood et al. consider the impact of globalization with regard to the BOP market. They point to the continued success of globalized products and services during recent decades as support for Prahalad’s belief that multinationals have a key role to play in using commerce to help improve the quality of life for those in BOP areas.

Companies responsible for global brands have extended their reach beyond their country of origin and in the process of doing so have proven their capacity to adapt to unfamiliar market conditions and meet the needs of customers with different or even unique demands.

The authors also note that globalization is not universally acclaimed and is often held responsible for the “destruction of cultural identities” and the “economic, political and social subjugation of underdeveloped nations to more dominant counterparts”. Opponents perceive MNCs as self-appointed economic powerhouses that mercilessly crush the smaller opposition.

Wood et al. believe that if BOP consumers buy into the notion of globalization being a destructive force, they will lose out in respect of the benefits and advantages that MNC involvement in the segment can realize. To counter this threat, the authors advise marketers to focus on four important and interrelated ideas in order to successfully reach this sizeable consumer group

Understanding the BOP market

The ideal for many companies marketing to the BOP is to realize a profit by addressing the income and opportunity inequalities that prevent the growth of prosperity on a global scale. As others have noted above, marketers must understand the unique characteristics of the market and accordingly modify existing strategies or develop relevant business models in order to meet the requirements of the BOP consumer. They also need to accept that, at least initially, their considerable efforts will yield little or no return. In essence, those targeting the BOP should be prepared to commit long-term. Education is especially important. Many of those at subsistence level have a limited knowledge of the wider world and are consequently suspicious of global brands and organizations. For instance, the farmers in the Nestlé example previously quoted were highly skeptical at first and difficult to convince that company motives were altruistic.

Share of the heart

Nestlé succeeded by involving local agents in the scheme and creating a cooperative-like marketing channel in preference to a more conventional format. Wood et al. praise this “responsible marketing” and suggest such efforts can ultimately lead to a “positive emotional connection” between customer and product, brand or organization. It is believed that the level of so-called “share of the heart” will correlate to the amount of market share captured. Analysts believe that emotional attachment is “something of higher value” that encourages repeat purchase and helps to sustain competitiveness. Other consumers seek more instant gratification in the shape of discounts or deals. And while these consumers are easier to attract, new buyers enticed by such incentives are more prone to be subsequently tempted by similar offers elsewhere. The authors point out that brands are more vulnerable when market share relies too heavily on these “deal-prone” consumers.

Extant literature acknowledges the inherent difficulty in measuring share of heart, which can be viewed as a scale indicating positive feelings and affinity at one end and negative feelings and animosity at the other. Many observers believe that share of heart in its positive form is the most influential factor in the consumer decision-making process and can act as a “powerful bond” that repels competitor challenge.

Share of heart influences consumer attitude and behavior towards brands, organizations and even countries or whole regions. Direct experience is considered a major influence on consumer feelings towards a particular nation, although other factors relating to such as culture, politics, history and religion also help shape these perceptions.

Global umbrella brands

Whether or not a consumer is willing to buy from a company with roots in a particular nation is determined considerably by share of heart levels towards that nation. Wood et al. put forward the idea that consumers perceive nations or even larger entities like the European Union or Middle East, for instance, as the true brand powerhouses. Brand America is perceived as leader in today’s global marketplace and the success of US organizations is directly linked to the success of their umbrella brand. This has implications for MNCs in BOP markets because of low consumer education and the prevalent mistrust of outsiders. Links between company and global umbrella brand are more readily assumed in this context.

Supporters of the umbrella brand are categorized in terms of being “heavy”, “light” or “potential” users. The challenge to marketers is to persuade light and potential users that the brand is able to meet their needs and desires. Attracting new users is essential to uphold the prominence of both brand and its associated organizations. A failure to do so may increase the appeal of alternative global brands seeking to seize the initiative. Marketers and others closely involved should therefore exploit all consumer touch points as part of a coordinated and sustained effort to induce positive feelings and increase collective affinity with the nation brand. On the contrary, widespread animosity towards a global brand can prove a formidable barrier to organizational success in that particular market.

Responsible marketing

Likelihood of success in BOP areas can be significantly increased through a responsible approach to marketing and advertising. Marketers are often made scapegoats for society’s ills and sustained negative publicity inevitably leaves its mark on organizations concerned. The perceived impact of fast-food marketing on US obesity levels perfectly illustrates the point.

Companies should nurture twin aspirations to deliver customer satisfaction and positively impact on wider issues involving society and the environment. In the BOP context, socially responsible marketing additionally involves displaying sensitivity towards local customs and practices. Likewise, building partnerships, developing cooperatives and providing empowerment and trust are other aspects of a responsible approach to marketing within the BOP segment. A boost to brand image and fewer negative feelings towards the company or brand are valuable rewards that can be anticipated in return. The goodwill directed at the brand will be invaluable in the quest to prosper in a market where the long-term potential is considered huge.

Ireland’s premise is that large companies should focus on urban rather than rural BOP as this rapidly growing segment is likely to be considerably more profitable. In contrast, many countries report a shrinking in the number of rural BOP inhabitants.

The author conducts research into urban consumers in Venezuela, where the BOP market’s large, violent and informal nature is characteristic of other Latin American nations. The study includes an examination of BOP cases reported in a variety of media, government and private sources. Findings are supported with interviews conducted over several years with key marketing figures of large organizations from the service and fast-moving consumer goods sectors.

Rural poverty is the focus of much BOP research. But statistics show that in Africa and Asia nearly two-fifths of poor consumers reside in cities. This figure rises above 75 percent in Latin America. The Venezuela BOP is regarded as ideal for investigation, as over 80 percent of the nation’s poor live in urban shantytowns. Most of these “barrios” are unplanned and illegally constructed and subsequently deprived of satisfactory infrastructure and public services.

Surveys indicate that the bulk of Venezuelan people are in the lowest two social class tiers. In 1998, 45 percent of families had to survive on $2 per day or less. Poverty figures have remained constant since then and have shown that city income is higher than average. But the cost of living is likewise. Latin Americans spend up to three-quarters of their income on manufactured consumer goods and processed food makes up around half of the urban Venezuelan diet.

Many experts deem that greater scope exists for further segmenting the urban BOP. This consumer group largely shares language and culture but Ireland argues that the level of heterogeneity in such as education and lifestyle renders a one-cap-fits-all approach unsuitable. He believes the BOP can be segmented on the basis of factors such as:

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  Working in large cities allows some urban BOP consumers to enjoy considerable exposure to different advertising media, customs and fashions. These consumers therefore desire the same products as those who reside in formal areas of these cities.

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  Employment. A few BOP consumers work in the formal areas of Venezuelan cities and enjoy direct exposure to different retail outlets and financial services. Evidence suggests a possibility of these consumers acting as intermediaries to allow workers from the informal sector to access the same services.

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  Education. Virtually one fifth of the readership of Venezuela’s most prestigious newspaper is from the lowest social class. Many, however, are highly-educated professional people whose poverty was caused by wages lagging behind inflation. These educated poor often also express different political views to the remainder of the BP segment.

As previously mentioned above, shopping for the majority who reside in rural BOP areas is restricted to a few neighborhood stores. But the close proximity of shantytowns to formal city districts enables urban BOP consumers to visit formal areas and buy from supermarkets or shopping malls. Having this greater freedom allows purchases to be planned and best prices obtained.

The difference in these shopping experiences has implications for marketers and suppliers. Take, for instance, sachets. In rural BOP areas sachets of health and beauty products are popular impulse purchases as they are inexpensive and therefore appealing to consumers with little money. An overwhelming percentage of health and beauty products sold in rural Africa and Asia are packaged in sachet form.

But single-use packaging has less appeal within urban BOP areas. Shampoo, for instance, is a planned purchase and consumers visit supermarkets to buy the product in larger quantities that are thus more cost effective and convenient. Targeting urban BOP consumers with sachets is therefore a risky strategy, as Procter & Gamble discovered. The company launched a short-lived initiative upon noticing that cigarettes are bought individually within urban BOP districts. What P & G failed to appreciate was the unplanned nature of these purchases and the fact that buying single cigarettes removes from the equation any obligation to share.

Although the overall issue of cost is more complex than previously assumed, the poor pay more for their products when shopping in their own neighborhoods. Prices for certain goods can be almost double in shantytowns compared to planned city areas. Ireland points out the opportunity for urban BOP consumers to “stockpile” manufactured items and research indicates evidence of this practice among Latin American women.

Statistics show that the Venezuelan public must pay higher than average prices for leading-brand fast-moving consumer goods. Despite the cost, even the poor purchase them as it is believed that cheap products are inferior. Significant price differences have helped inexpensive products enjoy some limited success, although effective distribution in BOP areas may be at least partly responsible. Ultimately, using superior product quality as a differentiation tool is a useful strategy to adopt.

Technology-based differentiation has also proved effective as Bellsouth Telcel showed when launching prepaid cellular phones in Venezuela and achieving significant sales in BOP areas. Fixed lines and post-paid cell phones were cheaper but out of reach of 78 percent of the adult population who didn’t own homes, have bank accounts or access to credit facilities. In many instances, telephone lines did not serve shantytowns anyway. Bellsouth identified the void and used appropriate technology to provide a service.

The challenges posed by distribution provide further opportunity for innovative approaches. Criminal activity within shantytowns already blighted by access and infrastructure problems adds to the difficulty. Efforts in this area have concentrated on reducing transportation costs by localizing production, removing intermediaries from the loop and using social mechanisms to group clients in preparation for direct marketing campaigns. Companies have addressed distribution challenges and managed to reach the barrios through:

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  Use of specialists willing to distribute within shantytown districts. This strategy enabled P&G to achieve widespread diffusion of its Pampers diapers throughout Venezuelan barrios and counter the threat posed by an emerging rival.

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  Multilevel distribution channels as illustrated by Avon. The organization initially targeted wealthier clients with its cosmetics until it realized that its personalized credit, delivery and selling were more appropriate for BOP. The Avon example also shows the potential benefits of exploiting the “social skills and energy” of BOP residents.

Ireland believes that companies do not need to specially adapt their products to succeed with the urban BOP. He also notes how success has come to those organizations astute enough to improve BOP access to desired-for middle class products and services. Likewise, findings indicate that the best strategy for targeting this consumer segment should be founded on:

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  offering products or service that are middle-market brand leaders;

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  differentiated products or services;

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  minimal attention given to price; and

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  improving access by addressing issues that hamper distribution.

The focus in the next article is on disruptive product innovation in the BOP segment. It is accepted that launching new products in new markets demands that companies focus closely on product design, pricing, promotion and place (the four Ps). Van den waeyenberg and Hens’ aim is to explore these aspects and determine what marketing strategy is needed when targeting poor consumers. The article investigates plans by Tata Motors to launch its low-cost Tata Nano car in India, where the overwhelming majority of consumers fall into the BOP category. For Tata Motors, the BOP is unchartered territory and the case study focus is on “bridging the economic distance” that exists “between the company and the customer base”.

The general advice to companies extending into the BOP market is to adapt their products and every aspect of their business models, form non-traditional partnerships and “adopt a native capability”. Multinational companies that work with unconventional partners like local government, non-profit organizations and local entrepreneurs can secure several advantages including:

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  better access to resources and information;

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  local input into product development to ensure suitability;

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  greater efficiency in infrastructure use;

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  reduced risk; and

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  increased respect and credibility.

It has been suggested, however, that economic and educational differences or conflicting agendas could prove significant barriers to the chance of any partnership succeeding.

Some researchers also recommend that organization should engage in a “two-way information exchange” with fringe stakeholders like the poor, who are typically perceived as irrelevant and thus ignored. By becoming what some authors have termed “radically transactive” companies will thus engage with such stakeholders and acquire the knowledge needed to develop the capabilities necessary to properly meet local market demands.

While many transnational companies boast the capability to combine global and local strengths, researchers argue that few products are tailored to properly meet the needs of consumers in low and middle-income nations. Lack of native capability is cited for this shortcoming. Only those who acquire knowledge of BOP consumers and co-invent products with them can hope to become indigenous to this market segment.

A common strategy for some companies is to bring disruptive product innovations to low and middle-income countries before launching in high-income countries later. Analysts argue that launching an early version of the product in BOP areas is more beneficial to the company than continuing with research and development. The maneuver:

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  aids product diffusion and sales; and

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  generates important feedback that can be used to make subsequent improvements in terms of such as quality, reliability and cost.

In India, BOP consumers are responsible for about 71 percent of the money spent on transportation. Tata Motors believes that this justifies launching a low-cost car to compete with the popular two and three-wheel forms of transport. The Tata Nano is priced at around $2,350 and is aimed at consumers who can afford a motorcycle but not a car. The product’s low price identifies it as a disruptive innovation. Growing urbanization and inadequate public transport has convinced Tata that sufficient demand will exist for the Nano and ensure high sales volumes. This is important if a venture to create a low-cost car with low margins is to prove profitable. It is anticipated, however, that upgraded versions of the car will generate much greater profit when launched in higher-income markets in the future.

The authors believe the present study reveals that company decisions relating to product and price are determined by different innovation features. It is likewise claimed that stages of the innovation-decision process influence the promotion and place components of the four Ps structure.

Products

A key feature of product innovation is its “relative advantage” compared to other offerings. Where intense competition exists, better quality products that include additional features are likelier to be perceived as superior. This scenario prevails in high-income nations where consumer expectations in terms of product quality and features are higher. Consumers lower down the income scale have fewer demands in this respect as low quality products usually provide the competition. Either that or it is non-existent. Consequently, organizations able to offer inexpensive new products that are basic but function well are ideally positioned. Such market conditions inspired the idea for Tata to launch a product that is:

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  better than the competition, especially in terms of safety;

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  able to satisfy consumer needs; and

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  affordable.

Companies that ensure products are highly compatible with consumer needs can expect more sales. Identifying these needs is therefore a must. That BOP consumers are primarily concerned with fulfilling basic needs is well documented but evidence also suggests that these consumers do spent a limited portion of their income on products deemed as luxuries.

Product development should also consider the consumer’s product knowledge, experience of similar products and level of education. BOP consumers are likely to score low in these areas, so new products aimed at this market must be less complex and easy to use. Potential Nano customers already have experience of transportation in the shape of two-wheelers and this removes one potential barrier. Some researchers also warn that expectations are rising in the BOP segment as consumers now enjoy better access to information and are more acquainted with technology.

Consumers are more likely to choose a product they can test beforehand as this lessens the perceived functional, physical and financial risks associated with the purchase. Allowing cheap or even free tests lowers these barriers to adoption. Tata also strived to reduce the financial risk by using cheap materials and eliminating features to lower production costs. The company likewise incorporated other innovative design features to keep the price low but without any compromise on safety and comfort.

Price

According to some authors, products that are cheaper to purchase or operate can be perceived as superior. Tata made the car smaller, thus reducing costs by using less steel. It also included a fuel efficient engine to make the car more economical to run. Price is important since it can affect:

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  cost advantage over competing products; and

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  level of financial risk to the consumer who buys the product.

Announcing a specific price tag for the Nana also helped better align the twin objectives of innovation and cost control.

Promotion

To a considerable extent, product diffusion relies on effective promotion strategies. The norm would be to use mass media channels soon after launch but mass media is less pervasive in BOP areas where access to electricity is often limited. High rates of illiteracy compound the problem further. Channeling information is therefore more effort intensive and costly for companies targeting these markets.

Word-of-mouth (WOM) is important in such areas and is more effective when the population is homogenous in terms of income and ethnicity as this “facilitates interpersonal communication”. Ethnic heterogeneity, on the other hand, is a potential obstacle to diffusion and more costly since different marketing messages are needed for each individual group.

The need to build relationships and trust within the BOP has been documented above. Tata is part of group of companies with a proven reputation in a range of different markets. That the organization boasts a track record for socio-economic contribution helps raise its profile further among potential customers.

Place

Reaching a large, mainly rural population that is widely dispersed poses a distribution challenge with significant cost implications. Tata plans to use a system of open distribution and has built a designated production plant in West Bengal for the purpose. The choice of location was influenced by potential incentives that will help lower costs. Parts will then be transported to assembly units that will help eliminate intermediaries by also selling the Nano direct to the local population. Van den waeyenberg and Hens assume that the company’s experience within the truck industry will enable any transportation issues to be overcome.

Tata aims to hire young engineers and will provide training to help them run the assembly units. Strengthening the links between company and customer in this way positively impacts on trust levels and improves the credibility of the organization within the BOP area.

Social enterprise development is examined in the next article. Nielsen and Samia carry out research to increase knowledge of such initiatives in the Philippines, where relevant previous study barely exists despite the fact that 30 percent of the population are BOP consumers. The authors analyze case studies in the country using a systems approach.

Many experts take the view that traditional social enterprise programs are inadequate and tend to perceive the market context as key to finding a solution to the poverty problem. Some urge multinationals to become leading figures and put forward the notion of “inclusive capitalism” as being the way forward. Others have taken this idea even further by insisting that enabling the poor to become producers will better integrate them into the market system.

In the light of this, the authors suggest defining social enterprise as cooperation between a community of workers and owners to improve their quality of life by generating and distributing profit through profit-sharing mechanisms. Governments, NGOs, cooperatives and private companies may be part of this system.

As noted earlier, social enterprise is not solely about profit. Equally important are aims to empower deprived people and develop human capability. Any changes must, however, be financially sustainable. Individual cases previously examined have established that connections do exist between economic development and social transformation. However, this has not yet led to the formation of a conceptual model. Part of the aim here is therefore to move beyond the analysis of independent examples and fill this void.

Knowledge, finance, tools and different methods work alongside the growth of human capability with the output being social enterprise development. It is argued that a systems perspective allows identification of the elements that comprise the underlying system and a wider understanding of the relations between them. In the present study, Nielsen and Samia consider social enterprise development in relation to these system characteristics:

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  objectives, such as generating opportunities and income, and community development;

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  actors within the development process that might include individual entrepreneurs, employees and various bodies and organizations;

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  system inputs essential for actors to perform. Human resources, know-how, finance and training and education are examples;

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  outputs measured in qualitative or quantitative terms and preferably comparable to initial objectives;

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  the flow of inputs through the system that indicate the degree of inter-connectivity among the actors;

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  influence of socioeconomic and political factors within the macro-environment where the system exists;

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  the progression of the social enterprise development; and

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  feedback mechanisms to compare results with objectives and generate the information needed to improve system performance.

The authors examine two case studies from the Philippines to develop a social enterprise development model that includes the above system characteristics.

Nelly Nacino invested around the equivalent of $2 to open a small store selling a variety of products among which were the children’s clothes and ponytail holders she had sewn. Demand grew and Nelly began subcontracting pattern-making and cutting work to her neighbors and she received a second sewing machine as payment for goods from one of her customers. On the advice of a community organizer she started making rags and shoe-coverings to sell to schools. The business later expanded to include more children’s clothing, doormats and potholders. Six employees were hired to perform a range of duties. Rag-making was outsourced to a mother and child development group formed to help community women help themselves. She sometimes pays in advance for completed work so the mothers can meet the cost of medicines or schooling. Nelly encourages the women to become entrepreneurs themselves by buying their own materials and increasing their earnings. Some of her subcontractors end up starting their own businesses that Nelly can eventually source from. She prides herself on customer satisfaction and boasts loyal clients from within a range of different sectors.

The key contributing factors to Nelly’s success include:

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  her entrepreneurial skills;

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  widespread involvement within the community to establish contacts and build a customer base;

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  human resources. She increased the number of women involved and through positive interaction has grown and sustained both business and personal relationships;

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  increasing her supply base through ongoing training; and

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  initial input from a number of different individuals and organizations to help establish her enterprise.

Entrepreneurial spirit is also behind the success of a cooperative launched by 25 fisherfolk after a natural disaster wiped out their livelihood. It too received invaluable assistance, especially from a long established NGO that provided extensive training in a range of business functions. The initiative also began by opening a small store and from similarly humble origins has expanded its operations and branched out into other areas.

Nielsen and Samia believe that the case studies confirm that a systems approach can aid social enterprise development and:

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  emphasize that entrepreneurialism and a desire for an improved quality of life are crucial factors to success;

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  highlight the importance of other relevant actors within the system;

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  provide a clearer understanding of the interconnections between major system players; and

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  increase awareness of key system inputs.

Success could be measured in both cases and the outcomes related to initial goals and marketing strategies. The authors note, however, the absence of feedback systems that could facilitate improvement.

The potential of social enterprise is evident in the fact that the original recipients in both examples became the “instigators of their own social enterprise programs” fairly quickly. This study likewise substantiates Vandenwaeyenberg’s conclusion by providing further proof that companies hoping to succeed within the BOP market must adopt an innovative approach to the four Ps.

Sridharan and Viswanathan also adopt the premise that consumer and producer roles are inextricably linked within the BOP. They offer a case study analysis of business enterprises in Southern India with the aim being to obtain broad insights about marketplace exchange behavior within subsistence-level contexts.

Research was conducted in both urban and rural BOP communities with data being obtained through unstructured interviews and observations.

It has often been stated that the life of poor consumers is characterized by “uncertainty and lack of control”. But the present study revealed a vibrant marketplace with “intense social relationships” between buyers and sellers within this consumer segment. The low literacy and economic status prevalent among these consumers is put forward by the authors as a possible explanation for their high dependency on each other.

This seeming interdependency has inspired the term “1-to-1 marketplace” where interactions spawn “social capital” in the shape of “reciprocal obligations and private information conduits”. Some authors claim that individuals within these social structures can receive tangible benefits from these social capital resources. Benefits are primarily social but can lead to indirect economic advantages such as receiving consumer advice.

Subsistence consumers are further disadvantaged when their literacy is low. The social stigma prompts many individuals to avoid consumption scenarios involving unknown products, unfamiliar stores and complicated pricing structures. By exploiting interdependent relations with such as family, friends, neighbors and economic partners, these consumers develop techniques for coping and are able to safely participate in many marketplace activities. Interactions are conducted orally in line with tradition and this makes low literacy less of a barrier to social interaction.

The present investigation revealed that some poor consumers are themselves experienced in running small businesses. Sridharan and Viswanathan argue therefore that many of the skills and behaviors linked to consumers and operators of micro businesses are “two sides of the same coin” and “mutually reinforcing”. For instance, ability to bargain and count improves performance in both buying and selling scenarios. The authors conclude that consumer marketers should acknowledge three important principles of operating within BOP marketplaces:

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  thorough understanding of consumer psychology;

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  social embeddedness; and

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  entrepreneurial empowerment.

An Indian subsidiary of Unilever sells health and hygiene products within rural BOP areas. Its distinctive method involves recruiting poor, rural women as its sales force. The saleswomen sell the products direct to rural consumers and are supported by other rural women acting as a communications team to educate consumers about the benefits of using the Hindustan-Lever Ltd (HLL) brand.

The organization recruits its sales force from self-help groups characterized by interdependent relationships described earlier. Recruiting from within tight-knit communities helps the project to become “socially embedded”. According to Sridharan and Viswanathan, this is essential since success depends on the product’s “communicability” within this personalized environment. They also note the importance of exploiting the seemingly innate entrepreneurial spirit of BOP inhabitants.

This example demonstrates the importance of fusing consumer education with product marketing. Offering quality products at affordable prices may not be sufficient within an environment where low literacy levels prevent consumers from understanding product benefits. But employing local women in the communication role meant that the company ensured that interactions were carried out verbally.

HLL developed a multifaceted approach and innovated in terms of product, communication, education and distribution, while also acknowledging the need to “implement the solution in a socially embedded manner”.

Social embeddedness also affords the opportunity to link products and services to current socio-cultural norms. Gram Mooligai achieved this when targeting the rural BOP in South India with a brand of herbal medicine. Herbal remedies are traditionally favored and the NGO offshoot organization exploited this knowledge to engender trust and loyalty among its consumers. And by sourcing herbs from rural growers, Gram Mooligai actively furthers the entrepreneurial cause.

Sridharan and Viswanathan conclude by suggesting acceptability, affordability, availability and awareness as more suitable to subsistence level marketing than the four Ps structure. Using the four As as a framework instead, the authors recommend the marketing strategy should focus on four key areas.

Marketplace research

Companies need to recognize consumer uniqueness and lack of market research participation. Market researchers must thoroughly understand the BOP marketplace and the focus should be on:

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  using concrete, visual stimuli for product testing;

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  testing the product in as close to its usage situation as possible;

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  studying communities and other groups for test marketing; and

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  monitoring WOM and the views of local opinion leaders.

Developing solutions

The onus here should be on fulfilling consumer needs through developing creative solutions rather than products. Where resources are extremely scarce, spending must be fully justified. The authors also suggest:

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  developing products for use in a variety of situations;

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  using a grounded approach to the development process; and

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  collaboration to share knowledge with relevant organizations, groups and individuals.

Designing value propositions

Companies need to be aware that BOP consumers rarely look beyond price as a measure of value. A willingness to pay more for solutions that enhance daily life has, nonetheless, been noted many times. But careful communication is vital if consumers are to appreciate that longer-term advantages can compensate for the initial outlay involved.

Social interaction

Informational flow is invariably impeded by subsistence conditions. This makes appropriate communication strategies even more imperative. The authors recommend:

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  avoiding the use of abstract information;

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  personification of the brand through characters or spokespeople. That spokespeople help create two-way communication is likewise significant; and

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  employing members of social networks as brand communicators.

In addition, Sridharan and Viswanathan urge marketers to recognize the importance of building partnerships, especially with key players trusted by the community. Partnerships promote learning through information exchange and shared focus that invariably generates a broader perspective.

A decentralized approach to marketing is likewise urged and the authors recommend heavy involvement of local managers in research design and implementation. Similarly, firms need to delegate marketing responsibilities to local entrepreneurs as well as across all organizational levels.

Like others, the authors believe that succeeding within subsistence contexts demands a change of mindset. Believing that the BOP is an extension of familiar markets is dangerous, as are notions of assuming knowledge of what poor consumers require. It is also important to realize that buyer-seller exchanges are not the sole domain of business entities in the BOP segment. Business-type exchanges also occur routinely within family, neighborhood and village settings with varying degrees of complexity involved. Finally, it is supposed that those who suspend preconceived ideas about subsistence contexts will be best positioned to learn and potentially even adapt innovative processes to serve markets where resources are more abundant.(A précis of the special issue “Marketing challenges in serving the bottom of the pyramid”. Supplied by Marketing Consultants for Emerald.)