Over the last decade, there has been an increasing discourse on how marketing to the “Bottom of Pyramid” (BOP) could be a profitable endeavor for companies, as well as a major source for future organizational growth.
The current size of the BOP market segment, composed of individuals earning approximately $2 per day, is estimated at four billion people or about two-thirds of the world’s population. This number is expected to grow to six billion with $5 trillion in purchasing power over the next 40 years (Karamchandani, Kubzansky, & Lalwani 2011). In the Philippines, poverty incidence in 2015 was estimated at 26.3 percent. On the other hand, the Philippine Statistical Authority estimated subsistence incidence among Filipinos, or the proportion of Filipinos whose incomes fall below the food threshold, at 12.1 percent. These figures provide compelling reasons for companies to target this segment.
The idea seems simple; if a company offers products at extremely low prices and manages very low costs, margins may be low but adequate, and selling enormous quantities of the products will generate decent profits (Payaud, 2014). However, Payaud further notes that sincere BOP strategies imply the development of genuinely new products and services with the formal and planned participation of local communities in their design, production, and distribution. These products are designed to dramatically cut consumer price (by a factor of ten and up to a factor of a hundred), compared with comparable items sold in developed countries. Innovations in product design, distribution methods, employee training, production, distribution, and delivery create a totally new system, which is the basis of a corporate social responsibility (CSR) initiative and which also becomes profitable even in the context of low purchasing power, lack of infrastructures, lack of organization, and even corruption.
Combining social virtue with profitability, while achieving scale, is a major challenge as there would be ethical implications. There were cases of companies that profit by specifically exploiting the poor through practices such as misleading sales promotion tactics, lack of fair pricing, deceptive advertising, and the appropriateness and utility of the marketed products. The social impact of this type of targeting is aggravated in the BOP consumer segment, as poor consumers can be more vulnerable due to lower levels of education, lack of information availability, and/or other economic, cultural, and social deprivations (Garrette & Karnani, 2010).
While many companies and industries engaged in areas such as telecommunications, fast moving consumer goods, and pharmaceuticals have been successful in gaining market share within this population (Karamchandani et al. 2011), there are few examples of profitable businesses that offer socially useful goods in the BOP market.
In the study conducted by Garrette and Karnani (2010), they analyzed cases of multinational companies—Procter & Gamble, Essilor, and Danone—that launched BOP initiatives with aspirations of creating large-scale profitable businesses by marketing socially useful goods to the poor. To date, Procter & Gamble (P&G) and Danone have not been able to generate profits. Essilor’s initiative is now profitable, but it remains marginal in terms of size and growth. All three companies have significantly downsized their initial plans and converted their efforts into small experimental operations.
In the case of P&G, to solve the problem of limited access to safe and affordable drinking water, it launch in 2000 “PuR: Purifier of Water,” a powder that, when mixed with water, produced clean drinking water. Following positive test marketing in Guatemala, P&G rolled out the product on a larger scale in 2001. These larger-scale tests, however, yielded market penetration rates of only about 15 percent in the Philippines and 5 percent in Guatemala. In 2004, P&G launched PuR on a mass scale in Pakistan. However, repeat purchase rates hovered around 5 percent; the scale-up in Pakistan had failed. This forced P&G to abandon attempts to commercialize PuR in 2005.
The central lesson drawn from the case studies is that developing BOP strategies requires firms to get back to the basic principles and logic of economics and business: focused objectives, understanding the customers, and appreciating the role of economies of scope and scale. The major difference between BOP and affluent markets is the obvious but under-emphasized fact that the poor have very low purchasing power. Designing the business model to serve BOP markets has to start with this basic insight rather than mere adaptation of a business model successful in affluent markets (Garrette & Karnani, 2010).
Reynaldo A. Bautista Jr., DBA is an assistant professor at the Ramon V. del Rosario College of Business of De La Salle University. He teaches marketing research and methods of research subjects. The views expressed above are the author’s and do not necessarily reflect the official position of De La Salle University and its faculty and administrators.