Bottomofthe pyramid

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<ol><li> 1. Bottom of the Pyramid:Implications for IndianConsumer Market LOGO </li><li> 2. Bottom of the Pyramid : Implications for Indian ConsumerMarket 1 Unrealized opportunity at the BOP 2Why BOP remain invisible 3Strategies for the BOP 4Hindustan Lever Limited CaseLOGO </li><li> 3. The World Pyramid and BOP 75~100 million people More than $20,000 Tier 1 $ 1500~ $20,000 Tier2 1,500~1750 million people $ 1500~ $20,000 Tier 3 4,000 million people Less than $1,500 Tier 4 Less than $1,500 Tier 5LOGO </li><li> 4. Bottom of the Pyramid Think of the global market as a pyramid(Figure-1). At the very top of the pyramidthere exists a small fraction of customers. Most MNCs originated in this affluent world.Most MNC managers views of business areconditioned by their knowledge and familiaritywith Tier 1 consumers. In the top 200 MNCs in the world, more than195 have their origins in the affluent,developed countries. LOGO </li><li> 5. Bottom of the Pyramid Now consider the vast emerging consumer base at thebottom of the pyramid, where 4 billion people reside.The per capita income in this tier is less than $1,500(PPP) per year. For well over a billion people, per capita income is lessthan a dollar per day. The vast majority of those in Tier4 live in rural villages and urban slums and shantytowns. Educational levels are low to non-existent. Thesemarkets are hard to reach-from the point of view ofdistribution, credit, or communications. LOGO </li><li> 6. Bottom of the Pyramid This market is often unorganized, local, and limited inquantity and quality of products and services available. Over the next 40 years, the numbers in Tier 4 couldswell to 6 billion or more, since the bulk of the worldspopulation growth is expected to come from thissegment. Yet, this massive tier of the World Pyramid has beenlargely invisible to the corporate sector. LOGO </li><li> 7. Argument 1.Our society have implicitly assumed that the rich will be served by the corporate sector (MNCs) and governments or NGOs will protect the poor and the environment. This implicit divide is stronger than most realize. 2.Managers in MNCs, public policy makers, and NGO activists all suffer from this historical division of roles. 3.A huge opportunity lies in breaking this code-linking the poor and the rich across the world in a seamless market organized around the concept of sustainable growth and development.LOGO </li><li> 8. Unrealized opportunity at the BOP Raising the 4 billion poor at the "bottom of thepyramid," will require radical innovations intechnologies and business models. It will require a reexamination of the "price-performance" relationships for products and services. It will demand a new level of capital efficiency.Companies will be forced to transform theirunderstanding of scale, from "bigger is better" to thecapability to match for highly distributed small-scaleoperations and world scale capabilities. The bottom of the pyramid presents a new managerialchallenge - one potentially as powerful as the challengeposed by the Internet and e-business. LOGO </li><li> 9. Why the BOP market opportunity remaininvisible? The perception of market opportunity is a function ofthe way many managers are socialized to think and theanalytical tools they use. If we looked at per capita incomes, the bottom of thepyramid will be automatically excluded fromconsideration in most MNCs. The same conclusions would be reached if the analysiswas done with the current portfolio of products andservices, geared to the developed world. Converting the poor into active consumers requiresmanagers in MNCs to come to terms with the core set ofassumptions and practices that are embedded in mostfirms. LOGO </li><li> 10. Misleading Assumptions Assumption #1. MNC cost structures are a given.The poor are not our target consumers because MNCs,with their current cost structures, cannot compete forthat market profitably. Assumption #2. Product is our focus, not functionality.The poor cannot afford and have no use for theproducts and services that are sold in the developedmarkets. Assumption #3. We focus on product and processinnovations and not business innovations. Innovationscome from Tier 1. Only the developed marketsappreciate and will pay for new technology. The poorcan use the last generation of technology. LOGO </li><li> 11. Misleading Assumptions Assumption #4. We do not see the bottom of thepyramid forcing us to innovate around sustainabledevelopment.The bottom of the pyramid is not important to the long-term viability of our business.We can focus on Tiers 1-2 and leave Tier 3 and 4 togovernments and non-profits. Assumption #5. Managers do not get excited withbusiness challenges that have a humanitarian elementto them. Intellectual excitement is in the developedmarkets. It would be hard to recruit, train, andmotivate managers who would want to spend time increating a commercial infrastructure at the bottom ofthe pyramid. Because of the prevalence of these key assumptions byMNCs, the market opportunity at the bottom of thepyramid has remained invisible. It represents a largeand unexplored territory for profitable growth. LOGO </li><li> 12. The challenge and Opportunity The challenge is clear: There are expectantconsumers and potential innovations that canno longer be systematically ignored. Yet this opportunity cannot be seized withoutfundamental innovations on the part of MNCs. We will argue here that it is possible to servethe bottom of the pyramid, developing theproducts and services required, in a culturallysensitive, environmentally sustainable, andeconomically profitable way. LOGO </li><li> 13. Strategies for the BOP Forces that point to the emergence of a market forgoods and services at the bottom of the pyramid.1)Increasing aspirations due to improved access to TV andinformation :Tier 4 aware of many products and services andeager to become consumers.2)Deregulation and diminishing role of governments andinternational aid: More hospitable investment climate forMNCs entering developing countries and more cooperationfrom NGOs.3)Global overcapacity combined with Intense rivalry in Tier 1and middle Markets: Tier 3 and 4 represent a huge untappedopportunity for profitable growth.4)Threat of migration to urban centers: MNCs must createproducts and services for rural populations. LOGO </li><li> 14. Hindustan Lever Limited Case An illustration of the successful execution of thisstrategy comes from Hindustan Lever Limited (HLL), asubsidiary of Unilever, widely considered the bestmanaged company in India. Like most MNCs, for over50 years it catered to the needs of the elite of India- thetop of the pyramid. A local firm, Nirma, challenged HLL in its detergentbusiness, by creating a new business system - a newproduct formulation, new manufacturing process,distribution, packaging, and pricing. HLL like mostMNCs, initially dismissed Nirma as a low end producer. As Nirma grew rapidly, HLL realized both its newopportunity as well as its vulnerability. Nirma wasattacking, in its detergent business, from the bottom ofthe pyramid. LOGO </li><li> 15. Hindustan Lever Limited Case HLL responded with its own offering for this market -drastically altering the traditional HLL business model. HLL created a new product formulation whichdramatically reduced the ratio of oil to water in thedetergent, thereby reducing significantly the pollutionassociated with washing cloths in rivers and otherpublic water systems. They decentralized the production, marketing, anddistribution of the product to take advantage of theabundant labor pool in rural India and quickly penetratethe thousands of small outlets where people at thebottom of the pyramid shop. They reinvented the cost structure of the business,enabling the introduction of the product at a pricepoint affordable to those at the bottom. LOGO </li><li> 16. Conclusion Contrary to popular assumptions, the poor can be avery profitable market- especially, if MNCs are willingand able to change their business models. The bottom of the pyramid is not a market that allowsfor traditional (high) margins. Like the Internet space,the game is about volume and capital efficiency. Margins are likely to be very low (by current norms) butunit sales extremely high. Managers who innovate andfocus on economic profit will be rewarded. To fully capture this opportunity, however, those at thebottom of the pyramid must become active marketparticipants. Opening Tier 4 means narrowing theglobal gap between rich and poor; it means liftingbillions of people out of poverty and desperation; and itmeans averting the social decay, political chaos, and soon. LOGO</li></ol>