Where is the world’s fastest-growing new market? It’s where you least expect it: At the bottom of the pyramid. If we stop thinking of the poor as victims or as a burden and start recognizing them as resilient and creative entrepreneurs and value-conscious consumers, a whole new world of opportunities will open up. The poor represent a “latent market” for goods and services. All of us are prisoners of our own civilization. The lenses through which we perceive the world are colored by our own ideology, experiences and established management practices. India is home to 400 million people who qualify as being very poor. There are as many rural rich as there are urban poor. Poverty knows no such boundaries. In the developing world more than one third of the population lives in shanty towns and slums. By virtue of their numbers, the poor represent a significant latent purchasing power that must be unlocked. For E.g.: often the poor tend to reside in high-cost ecosystems even within developing countries. The poverty penalty is the result of local monopolies, inadequate access, poor distribution and strong traditional intermediaries. For E.g. the poor in Dharavi, Mumbai pay 600 to 1000 % interest for credit from local moneylenders. A bank with access to this market can do well for itself by offering credit at 25%.
The dominant assumption that distribution access to the BOP markets is very difficult and therefore represents a major impediment for the participation of large firms and MNCs. This happened earlier as the rural markets were “media dark” but now the scene is changing. BOP market is connected. The BOP consumers are rapidly exploiting the benefit of information networks. The spread of good bargains and as well as bad news is very rapid by word of mouth. To convert the BOP into a consumer we have to create the capacity to consume by encouraging consumption and choice by making unit packages that are small and, therefore affordable. The logic is simple. The rich use cash to inventory convenience. The poor have unpredictable income streams. Many subsist on daily wages and have to use cash conservatively. They tend to make purchases only when they have cash and buy only what they need for that day. Single-serve packaging is well suited to this population. Creating capacity to consume is based on 3 simple principles, “3 A’s”.
Affordability: Single serve or novel purchasing, key is affordability without sacrificing quality or efficacy.
Access: BOP consumers must work full day before they can have enough cash to purchase the necessities for that day. Shops that close at 5:00 PM has no relevance for them as their shopping begins after 7:00 PM. Further, stores must be easy to reach often within a short walk as they cannot travel long distances. This calls for geographic intensity of distribution.
Availability: They cannot defer buying decisions and decision is based on the cash in hand.
ITC e-Choupal illustrates how farmers with internet and thereby access to the prices of the commodities can increase their incomes by 5 to 10%. By focusing on the BOP consumers capacity to consume, private-sector businesses can create a new market. The critical requirement is the ability to invent ways that take into account the variability in the cash flows of BOP consumers that makes it difficult for them to access the traditional market for goods and services oriented towards the top of the pyramid.
Trust is a prerequisite. Both sides - the large firms and the BOP consumers – have traditionally not trusted each other. The private-sector firms approaching the BOP market must focus on building trust between themselves and the consumers.
The BOP market potential is huge: 4 to 5 billion underserved people and an economy of 13 trillion PPP. The needs of poor are many. The case for growth opportunity in the BOP markets is easy to make. However innovation is indispensible. Traditional products, services and management processes will not work.
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