Lecture 11: 09 February, 2009

We started with the dicussion on Bottom of the Pyramid (BOP) triangle, with over 4.5 billion people at the Bottom of the Economic Pyramid form the BOP market. They live on a daily earning of about US $ 2 (based on purchasing power parity). Prof. C.K. Prahalad and Prof. Stuart Hart brought out a theory in the late 1990s that the poor at the BOP can be a potential market for appropriate products that satisfy their needs. With business models appropriate for this market, multinational companies can expand their market to BOP and potentially to products that are not necessarily for the BOP. Later their ideas have been presented in the book "Fortune and Bottom of the Pyramid" by Prahalad and "Capitalism at the Crossroads" by Sutart Hart. While Prahald still considers BOP as a market (consumer), Stuart Hart considers the BOP not only as a consumer, but also as a producer and partner. Both the books have many examples of BOP Models successfully applied in developing countries. These examples include case studies on Arvind Eye Hospital, Hindustan Lever's Anna Poorna Salt, Velvetr Shampoo in small sachets etc.

Then I explained my own experience, as a member of the global team of Philips Lighting BOP project. We all know that in villages electricity is not available for most part of the day/night. Many houses do not have electricity connection. Poor in these villages use Kerosene lamps, called Dibri (an ink bottle with a hole in the cap through which a cotton wick is inserted into the bottle of kerosene). The light coming out of this dibri is too low to carry out any economic activity or for study. Poor villagers spend on an average about Rs.100/= per month for Kerosene for lighting these lamps (i.e. approximately Rs.3 per day) for a short period. Philips Lighting's project SMILE (Sustainable Method in Lighting Everyone) was to provide a product that could give sufficient lighting (say about 400 lux at the user's point of use) for about 5 hours a day (three hours in the evening and two hours in the morning, say from 6.30 pm to 9.30 p.m and 3.30 a.m to 5.30 a.m) beyond the Sun light hours, in an affordable way. We know that the poor can afford about Rs.100/= per month for kerosene for lamp. If we can provide better lighting at this price, then we will have a win-win-win situation, where the corporate body can sell its products for a long period with sufficient profits, the poor get to work for longer period on their vocation, thereby earning more than what they earn otherwise, kids can play till the Sun set and do their home work later and the house-wife can assist her husband till she goes for cooking (otherwise she has to complete cooking before Sunset); if the product is eco-designed, then environment also gets benefited. We came out with such a product and started pilots all over India. One of the pilots was in Madurai district of Tamil Nadu. In those days Tamil Nadu had plenty of electricity and critics told us that the project would be a failure in Tamil Nadu. To our surprise we found that Madurai sold the maximum number of products during the pilot. The products were sold through a NGO, through its network of Self-Help Groups and the buyers were, apart from normal households, mostly street vendors. They found that the lantern could be used to sell their produce much beyond the Sunset hours. They extended, with the help of the lantern, their sale period by at least three hours a day; in the bright light products looked attractive, bringing in more customers. In a way, the lantern (UDAY) helped the BOP customer to earn more to enable him to pay back the loan taken by him for buying the lantern.

Such approaches are not new to India. Way back in 1960s, V.G. Panneerdas & Co., used to sell Murphy transistors to Narikuravas (a type of nomads) at a very low daily EMI. Narikuravas used to earn their living by selling needle, beads and forest produce and their major assets used to be the tin vessel that they used to carry to pick up food, colourful beads around their neck and the loin cloth for the men and patched dress for the women. They used to live in temporary thatched mud huts and move from one place to another for selling their produce to customers. These are really those who are the bottom of the bottom of the economic pyramid. VGP & Co., could cater to this segment of the society with sufficient profits; in fact, their efforts made Murphy radios the number one brand among the audio products beating even Philips in Chennai. There may be many such examples from the past where the BOP was addressed by proactive entreprenuers. Recognition of their method as unique came in only after Prahalad and Huart "theorized" this model.

The late 1990s provided the right environment for proposing such models. The world had changed quite a lot with Globalization; the economic focus has turned towards the so called BRICA countries, which have more than 80 % of the population of the world - India and China alone account for more than 40 % of the population. More than 2.4 billion of this population is made of children and teens. 98 % of the population in the next twenty years will be in devleoping countries; 85 % of the population in 2025 will be in developing countires. 70 % of the population in developing countries in 2020 will be in their working age. This situation attracts more to understand issues related to developing countries and specially poverty; that explains the new enthusiasm and expectation on these so called Emerging Markets.
Businesses that support stable employment and supply people with products and services that meet their basic needs, that are affordable, accessible, are culturally appealing (aspirational) and are available are likely see that their business grow in these markets.

The following trends do help multinational companies to look at the BOP differently than before:

Many companies see a need to break out of mature market sectors - Most attractive growth opportunities in emerging markets with young, dynamic populations and economies

Framework conditions in many developing countries are improving - Many countries are improving their governance, legal structure and investment infrastructure – the average risk score has improved

Communications are faster and cheaper, making the world a smaller place - Most geographically dispersed production to lower the labour and material cost…should help equitable development and maximize reciprocal benefits to the society

New and better partners are available - Not-for-profit, foundations, citizen’s groups, and multilateral organizations understand that companies can help them to realize their goals of improved sanitation, water supply, health-care, housing and business opportunities in the developing world

Aid and investment are beginning to reinforce one another - FDI flow to developing countries in increasing and bilateral and multilateral agencies adjust their aid to improve the FDI flow.

Public expectations of corporations are changing - Communities and civil society expect companies to become involved in social issues

The opportunity then is: Companies can stimulate local markets and enable the poor to become active participants in these markets as customers and entrepreneurs.

BOP models are different from Rural Marketing in the sense that the BOP models do have a social performance component, either economic, environmental or social improvement along with profits for the seller. BOP model is about improving the lives of people while improving both the top line and the bottom line.

Three main recommendations for BOP projects are:

1) Focus on your Core Competencies when adapting your Business Model (Innovate around key strengths; Re-examine your product line or service – to adapt to the emerging markets; Focus on what the company does well)

2) Partner with local resources that offer complimentary expertise (companies can benefit from the on-the-ground expertise and additional resources; create partner network that off-sets potential risks; involve partners at the very beginning; let them help you to decide on products and process changes; work together to align goals, defining the agenda between company and partners; ensure that expectations on both sides is clearly set, understood and managed over time; design strategies holistically and bring in each others strength; ensure that managers stay at sites long enough to foster good relationships, partnerships and trust)

3) Localize the value creating by harnessing the local intelligence and capabilities (local network and local knowledge to get marketing intelligence, manufacturing capabilities and distribution channels; think of ways to harness local capabilities;
consider how local entrepreneurs and SME can add value to the Company’s value chain; assessment of demand for the new product and service is a key area; franchising is an attractive way of involving local people – grass-root marketing; invest some time and effort in building the capacity of local partners)

The following questions may be asked before embarking on a BOP projecet:

1) What are our drivers and motivation ?
2) How do we shift the mindset ?
3) Do we understand the real needs of the market ?
4) Do we have the right product/service to offer ?
5) How do we finance the investment ?
6) How do we ensure demand for our products and services ?
7) How do we ensure that our customers can afford it ?
8) How do we reach our customers ?
9) How do we collect revenues ?
10) How can we improve our supply chain ?
11) How do we stimulate related economic activities downstream ?
12) How do we scale up or replicate ?
13) How do we measure success ?

We can also build up the project on the work done so far; for example, the following are a few areas where BOP projects my be set up.been identified for work at the BOP:

1) Photo-voltaic generators and renewable energy for small scale applications
2) Fuel efficient stoves
3) Water sanitation and personal hygiene products
4) Mobile communications
5) Internet access in low income country markets
6) Improving access to health-care
7) Improving health education and family planning services
8) Providing Clean Water and widespread immunizations

ITC's e-choupal is an excellent example of how (5) above (ICT Kiosks) has been fulfilled which has reduced the risk taken by Indian farmers. We could not project the Video; we will try tomorrow if time permits.

In the passing, I also mentioned about NGOs like PRADHAN and DHAN Foundation and the work they do with Self-help groups in villages. We also touched upon as to how these self-help groups help village women to be economically independent.

I also informed you that your examination is on 2 March, 2009. Quite a few of you were quite upset and decided to leave the class. At least about ten of you had downloaded the folder on Codes and Standards from my Lap top. Hopefully you share that with those who did not have access to this folder.

The second hour was almost a disaster, with only six attending the Paper Reading. We did read the paper up to page 131 last para starting with "How can..."