Welcome to class of

Bottom of the Pyramid

byDr. Satyendra Singh

University of WinnipegCanada

Opportunity for growth

• 7 b people• 2b can afford good products• 5b Bottom of Pyramid (BOP)

o We need to cater BOP and develop market oriented products accordingly

o Emerging marketso Developing countrieso Moral responsibility to cater BOP!o Because they’re denied resources and

opportunities

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Bottom of the Pyramid

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BOP: 5 trillion worth of purchasing power

Marketing Strategies for EMs…

• Need 2 strategies– Urban Global strategy is applicable

• Consumers prefer global brands to local brand• Global brand equates to quality and prestige• Communicates sophistication and modernity• Admire HIG lifestyle and the products that symbolize

that• Large cities have advanced distribution channels• HIG customers are less price sensitive• Serves as social distinction• Firms do not need to be based in developed countries• Concept of 3rd world countries multinationals

– E.g. Nando’s fast food from Africa Now in +30 countries

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Marketing Strategies for EMs

• Bottom of the pyramid strategy– LIG radically different

• Low price/value focused segment Tata Nano– Less features, toothbrush with no angles (i.e new design

is needed)• No need to focus western markets in the beginning• Satisfy needs of the mass markets

– Mahindra and Mahindra tractors, India– Ranbaxy pharmaceuticals, India– Orascom telecom, Egypt– Embraer aerospace, Brazil

• These firms have learned to make a profit at prices unheard of the developed countries due to mass marketing at low $

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Successful firms from emerging markets

• Acer

• Bharti Airtel

• Hailer

• Lenovo

• LG• QQ• Samsung• TATA

move from OEM (1-5% margin) to leadership position (+40% margin)

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Successful industries:TelecommunicationsFast-moving consumer goodsPharmaceuticals

Barriers in BOP markets

• Distribution costs ↑• Scattered villages service cost is high for durables• Difficult to penetrate (+5%) remote villages• Small scale growers are decentralized• Uncertain cash flow BOP cannot pay upfront/poor• Local knowledge and local trust• Mismatched priorities clean water vs cell phone• Difficult to predict demand China/child education• Local knowledge and Trust microfinance

Low margin and high volume difficult to achieve7

How to ↓ distribution costs

• Get local input (raw material…)• Organize the suppliers in groups• Coca-Cola in Uganda and Kenya for its juice

organizes small farmers, gives them training• Wal-mart in India to make cold storage• Use technology for delivery, if possible• Use existing network of distribution post office

and Western Union

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How to ↑ cash flow

• It is ok to borrow (credit) to pay western culture• University fee, car loan, house mortgages…

• ↓ upfront payment• Use sachet retail strategy • Even 50-kg fertilizer bag is sold in 5kg, eg.• Pay-per-use Cell phone pay-as-go, irrigation

pumps in India, clean drinking water in Philippines • Installment payment in India to buy gold

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Sachet distribution in BOP markets

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Standardization and Specialization: Successful low-Cost providers to BOP

Economy of scale, very basic

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Innovation: Reverse engineeringTATA Nano: $3,000

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Bundling: tooth brush, paste, soap

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Not Free in BOP Yet But Will Be Soon

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Need to optimize value addition

The BOP segment may not be brand conscious yet.

Commodity Goods Service Experience 1₡-2₡ 5₡-25₡ 75₡-$1.5 $2-$2.50

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Is the BOP market suitable for you?

Source: Simanis (2012), HBR, June24

Strategy implementation in EMs• Leadership more involved

– Socioeconomic• Low formal education and high unemployment

– Culture• Highly embedded and hierarchical, risk avoidance

• Organizational structure– More centralized and formalized is appropriate– Small team, and group reward, collective society

• Intraorganizational relations– Social and relational identities

• Rank, status, self esteem, well being > relations• Top managers available physically for guidance

• Learning25

Five myths about EM!• EM are technology backwaters

– I.e. Use outdated technologies; may not be true in case of cell phones

• EM consumers won’t pay premium for brands– Brands affect preferences

• EM cannot afford technology purchases– May not true in case of BRIC countries

• Tech. from mature markets will succeed in EM– Develop new product with relevant feature– Nokia phone in India flashlight, individual call

tracking for shared use of phones, multiple address book

• EM consumers focus on products, not services26

Where are Emerging Markets?Emerging Markets Trading Blocks

• Asia– Association of SouthEast Asian Nations (ASEAN)– Asia Pacific Economic Cooperation (APEC)

• Africa– Economic Council of West African States (ECOWAS)– Common Market for Eastern and Southern Africa (COMESA)

• South America– Mercosur (Mercosul)

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ASEAN: Asso. Southeast Asian Nations

• Free Trade• 10 countries

– Brunei, Cambodia, Indonesia, Lao, Malaysia, Mayamar, Philippines, Singapore, Thailand, and Vietnam

• HO: Jakarta• ASEAN scholarship• ASEAN Univ.Network

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APEC: Asia Pacific Economic Cooperation

• Eco. Growth & prosperity – Trade/invst Liberalization– Business Facilitation– Economic/tech cooperation

• Important– 40% of world’s pop– 50% of world’s GDP– 40% of world’s trade

• 21 countries– Australia, Brunei, Canada, Indonesia, Japan, Korea, Malaysia, NZ,

Phil, Singapore, Thai, US, Taipei, HK, china, Mexico, PNG, Chile, Peru, USSR, Vietnam

• HO: Singapore

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ECOWAS: Economic Council West African States

• Economic integration – Mutual defense, court of justice – Ecowas rail, common currency 2015– Gambia, Ghana, Guinea, Nigeria, Sierra L

• 15 countries– Benin, Burkina Faso, Cape Verde Cote d’lvoire, Gambia, Ghana, Guinea-

Bissau, Liberia, Mali, Nigeria, Senegal, Sierra Leone, Togo

– Niger – suspended 2009– election problem– Guinea – suspended 2008 – coup attempt– Liberia wants to join Ecowas

• HO: Abuja, Nigeria30

COMESA: Common Mkt for Eastern Southern Africa

• Regional economic integration – Trade and investment

• 19 countries– Burundi, Comoros, Congo, Djibouti,

Egypt, Eretria, Ethiopia, Kenya,Libya, Madagascar, Malawi, MauritiusRwanda, Seychelles, Sudan, SwazilandUganda, Zambia, Zimbabwe

• HO: Lusaka, Zambia• Branding: Buy African, Build Africa • COMESA statistics

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MERCOSUR

• Free trade and people movement • Full member

– Argentina, Brazil, Paraguay, Uruguay Venezuela (Paraguay to ratify)

• Associate member– Bolivia, Chile, Columbia, Ecuador

Peru

• Observer members– Mexico– New Zealand

• HO: Montevideo, Paraguay

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