The Bottom of the Pyramid (BoP) or Base of the Pyramyd is a fast growing market. An underutilized productive segment and a source of untapped entrepreneurial energy, this massive economic sector demands huge amounts of products, services and technology. How are the contemporary business and economic models giving the BoP its much needed access to mainstream economy? We find out.
The BoP is estimated to be comprised of four billion people who earn less than USD 1,500 a year. These people have difficulty in accessing global markets, and traditional product and service distribution and delivery networks. As big as this economic segment is, traditional companies, big and small alike, do not see it as a viable market, and is oftentimes ignored during product or service development and delivery.
Just how big is the BoP? According to studies, today’s market can be subdivided into three strata: The top tier, composed of those earning more than USD 20,000 a year; the middle tier, those receiving exactly or less than USD 20,000 but more than USD 1,500; and the bottom tier. Based on demographic studies, only 20% of the market can be classified in the top tier, while only 1.5 billion people fall under the middle tier. Four billion people comprise the bottom tier, and most of them are living in the developing countries.
Today, a gradually growing number of thought-leaders, social entrepreneurs, co-operatives and small and medium enterprises are training their eyes on the BoP. And why not? Though it is counter-intuitive at the surface to think of a sector dominated by poor people as a viable market, it is not improbable that the extremely minute attention and importance given to this segment over the course of decades has created an overwhelming demand for mainstream products and services, including transportation, healthcare, housing, communication, energy and financing. The poor has limited or no access to these products and services, and even less to its use and maintenance.
BoP proponents maintain that access to the global economy is the only chance for the poor to experience sustainable development. But, how encouraging is the prospect of extending the economy to the BoP? Are there revenues to be made in marketing and selling to poor people? If the observation and recommendation of industry thought-leaders are any indication, the answer is an overwhelming ‘yes’.
The existing business and economic models, however, will not work when applied to the BoP. In dealing with this segment, the proponents advise that companies should shift to lower-cost production, gain profits through big volumes and aim for mass adoption. Business entities need to modify business models, products and services aimed at the up-market to suit the low-tier demographic. They should also tap local networks so their products and services can be extended till the farthest-reaching rural communities. For products and services to thrive in such a segment, they should be scalable and easily localized. And this is where marketers’ creativity, ingenuity and imagination come into test – How to market to the BoP segment? Marketers should ask these questions: Which business model should we use? What marketing communications can be used to reach this segment? Which distribution channels are available? And most importantly, what is our pricing strategy?
As an illustration, let us take a close look at the so-called “sachet economy”. This business model involves the practice, particularly in underprivileged communities and remote villages, of selling consumer products, like detergent, shampoo, milk or beverages, in single-use packages. The products are packaged in small, disposable plastic bags, called sachets – hence the nomenclature. Through the years, this model has worked in communities belonging to the BoP, because the segment’s low and irregular income encouraged the purchase of goods in small quantities, rather than in bulk. Another factor that has been driving the success of this model is the fact that residents of rural villages and urban informal settlements prefer to keep as few valuable assets as possible, because their homes and communities are oftentimes unsecured and unstable. In recent years, the model has been adopted by other industries as well, including telecommunication (pay-as-you-go), banking (micro-savings) and media (pay-per-view), to name a few.
While “sachet economy” (and its derivatives) minimizes the barrier to economic participation and allows low-income consumers to have access to more products and services, it is oftentimes criticized for cancelling consumer benefits from economies of scale. To resolve this conundrum and bridge the gaps, other services, such as micro-financing and credit, which would give mass consumers more purchasing power, have been introduced.
As a benchmark, marketing and selling products in sachets ticks almost every box laid out by BoP proponents. The cost for every product is marginal, and the quality is up to par with that of what is being sold in bigger quantities. The products were scaled in proportion to their prices, and they are distributed through local community stores. Owing to these characteristics, the products are easily adopted by the sector and, therefore, become popularly demanded. When the requirement for the products is high, the profits will be driven by the volume, albeit the price is low.
The BoP and its untapped entrepreneurial potential
In addition to bringing a potentially large consumer base, the BoP represents a rich pool of prospective entrepreneurs. Exposed to an appropriate funding and financing mechanism, and acquainted with entities that understand the tenets of sustainable development, people at the BoP have the capacity to lead their own enterprises and further enhance their market participation. They may act as the local channel through which goods and services will be distributed to the rural areas. With their knowledge of local customs and practices, people at the BoP can partner with companies, civil society groups and non-governmental organizations (NGOs) to develop viable and sustainable businesses. Their familiarity with the local environment will prove to be a valuable element in developing innovative products and services. So what’s the major obstacle? Mainly funding. If only the banking sector will open its doors, provide funding to social businesses and social entrepreneurs in general – then we will surely witness an unimaginable magnitude of social & economic improvement that we have been all dreaming of.
What better time than now
Industry thought-leaders, social entrepreneurs, and disruptive business thinkers believe that now is the time to consider re-orienting market and economic models towards the BoP. If the results of several market studies are any indication, the top-tier market is gradually saturating and the emerging middle class market is being flooded with a barrage of goods and services traditionally only intended for the wealthy. That leaves an enormous void at the BoP, which is largely poorly served and often starved of market access. In order to take advantage of the opportunity, entities need to embrace a paradigm that involves restructuring of existing industries and the creation of new ones. After all, it may be the only way to create meaningful, fruitful and mutually beneficial business and social business partnerships at the BoP.
Want to target the BoP segment? Email us at ems @ lincolnmartin.com