Fortune at the bottom of the pyramid

The economic pyramid:

Prasanna Perera Chartered Marketer

The concept of the “Fortune at the Bottom of the Pyramid” was coined by C. K. Prahalad, Professor of Corporate Strategy and International Business at the University of Michigan, USA.

The economic pyramid illustrates the concept really well.

According to this pyramid, more than 4 billion consumers constitute the BOP (Bottom of the Pyramid). This is indeed a massive, untapped opportunity.

(Source : C. K. Prahalad, The Fortune at the Bottom of the Pyramid)

The Sri Lankan perspective

Population

- 20 Million (2007)

Literacy Rate

- 90.7% (2005)

Unemployment Rate

- 6% (2007)

Number of individuals

per household

- 4.31 (2003/4)

Estimated number

of households

- 4.5 million (2007)

Mean Income

Per Month

Per Household

- Rs. 17,109.00

Per Person

- Rs. 3,968.00

Per Income Receiver

- Rs. 10,754.00

Based on these statistics provided by the Central Bank of Sri Lanka, we can easily observe that Sri Lanka is indeed a developing country, that carries the third World Status.

Hence, the market for most products, services and brands are indeed limited, if the traditional marketing thinking patterns are exercised. However, traditional marketing thinking patterns need to be challenged, if Sri Lankan Marketers are going to thrive or indeed survive the year 2009 and beyond.

The Nature of the Sri Lankan BOP Market

The traditional assumption is that the poor have no purchasing power and therefore do not present a viable market. Is this true? Not really, if you know how to convert the poor into consumers!

A second assumption is that the poor are not brand conscious. True?

Not really.

On the contrary, the poor are very brand conscious, together with being value conscious, by necessity.

Hence, brand consciousness needs to be combined with value consciousness i.e., great brands, great quality at prices they can afford.

A third assumption is that the BOP market is not very well connected by telecommunications, internet etc.

Is this true? Not really.

BOP consumers are getting connected and networked. The mobile subscriber base in Sri Lanka is nearing 10 mio and even consumers in rural areas are conversant in SMS, etc.

How Should the poor be converted into consumers?

The most critical aspect is to create the capacity to consume. Poor consumers have very limited money in the pocket - hence, the term used is “pocket economy.”

The way to create the capacity to consume amongst the poor, is by making unit packages that are small and affordable. (Low investment). Capacity to consume is based on three simple principles, i.e., affordability, accessibility, availability.

Therefore, marketers not only need to make their products affordable, but also available at the right place at the right time. (Distribution).

The practical application of this theory is sachet packs which have been introduced across product categories such as shampoo, cough syrup, hair gel, toothpaste, beverages, etc.

In addition, it can be observed in the Sri Lankan marketplace, the availability of smaller and cheaper pack sizes such as 10 g, 25 g, 50 g and 100 g. We also observe in the Sri Lankan marketplace that milk powder is sold by the “scoop” and cigarettes by the “stick”.

When it comes to branding, the poor are equally brand conscious and brand loyal. In fact, lower income consumers are possibly more brand loyal than higher income consumers.

Any consumer, rich or poor, has aspirations to own better products/brands and to live a better life.

Take the example of Nescafe in Sri Lanka. By making Nescafe affordable and marketing it through vending machines and mobile carts, the penetration of the brand has increased.

Hence, a cup of Nescafe now competes with a cup of tea, even in rural Sri Lanka! Another relevant example would be Tea Bags, which is really a urban concept.

However, through clever marketing initiatives tea bag consumption has increased in outstation areas. Stop at a wayside teashop and you will be served a branded tea bag of your choice.

Take the example of Bajaj Motorcycles. Bajaj is a household brand name in rural Sri Lanka, and a large population of Bajaj Motorcycles are available in the provinces.

Take the footwear market and the brand DSI or Bata. BOP consumers know these brands and have a high regard for them.

Sunlight would be another excellent example to illustrate how BOP consumers are brand loyal. Most BOP consumers ask for Sunlight by name. (Sunlight Kette)

In the telecommunication market Tigo and Dialog have penetrated the BOP market through prepaid cards. Reloading is now a very fashionable concept in rural areas! Lanka Bell pioneered CDMA phones by making the initial investment affordable and this opened the doors for their competitors as well.

Trust is a prerequisite

Traditionally large firms and BOP consumers have not trusted each other. However, we are seeing this situation changing, with the private firms focusing on building trust between themselves and the consumer.

If you can get BOP Consumers to trust your brand, they will remain loyal. Examples would be Elephant House (Aliya Beema), Nestomalt, Lux (Lux Katte), Sunlight, Samahan, Rainco, Panadol to name a few.

BOP consumers also look for new goods and services, as in the case of more affluent consumer segments. Many new brands of yoghurt, washing soaps, mosquito coils, herbal toothpastes, herbal remedies have been introduced into the market on a regular basis.

Whilst the affluent consumers purchase the bigger pack sizes, the BOP consumers settle for the smaller or cheaper pack sizes. Hence, as a marketer you have the best of both worlds.

Marketers traditionally neglect distribution and take it for granted. If you are serious about penetrating BOP markets, distribution is the key.

Traditional distribution channels may not suffice, to reach rural villages. Hence, a door-to-door distribution operation may need to be considered, using motorcycles, mopeds or even push cycles. There are excellent examples in India, about how rural marketing and distribution is done.

In this brief article, my main objective was to “open-up” the minds of Sri Lankan marketers, to the vast opportunities available at the Bottom-of-the-Pyramid.

With tough economic conditions prevailing in the foreseeable future, out-of-box marketing thinking and doing is required.

The real source of market promise is not the wealthy few in the developing world, or even the emerging middle-income consumers. It is the billions of aspiring poor who are joining the market economy for the first time.”

-C K Prahalad