Engaging the Bottom of the Pyramid
There are two ways in which large firms tend to engage the BOP markets. The traditional approach of many MNCs is to start from the business models honed in the developed markets—the top of the pyramid and their zone of comfort. This approach to the BOP market inevitably results in fine-tuning current products and services and management practices. There is growing evidence that this approach is a recipe for failure. MNCs and large firms must start from a deep understanding of the nature and the requirements of the BOP, as outlined in Chapter 2, “Products and Services for the BOP,” and then architect the business models and the management processes around these requirements. This approach to the BOP market will not only allow large firms to succeed in local markets but will also provide the knowledge base to challenge the way they manage the developed markets. Let us consider some examples.
BOP consumers in Latin America are careful in their use of diapers. They use one or two changes per day compared to the five or six changes per day common among the top of the pyramid consumers. Because they can afford only one or two changes, they expect a higher level of absorbency in the diapers and an improved construction of the diaper that will accommodate additional load. This means that the firms have to technically upgrade the quality of their diapers for the BOP consumers compared to the products they currently sell to the rich in those markets. Needless to say, the new product built for the BOP market is higher in quality and provides a better price-performance proposition. Similarly, detergent soap, when used by BOP consumers in India washing their wares in running water, becomes mushy. About 20 to 25 percent of the detergent soap can be lost in the process. Therefore, HLL developed a soap with a coating on five sides, which makes it waterproof. The coated soap saves 20 percent wastage even in a hostile user environment. The innovation is of interest to the rich as well. Access to clean water is a major concern at the BOP. Polluted water (particulate, bacterial, and viral pollutants) is common. Boiling water is the only current alternative to eliminating the bacterial and viral pollutants. A focus on solving this problem has to start with a cost target that is no more than the cost of boiled water. Further, the system has to create a quality level that is better than boiled water (removing sediments). The process is of interest to the rich as well.
The quality, efficacy, potency, and usability of solutions developed for the BOP markets are very attractive for the top of the pyramid. The traditional MNC approach and the approach suggested here—top of the pyramid to BOP and from the BOP to the top of the pyramid—are shown in Figure 3.1.
As the foregoing examples illustrate, the demands of the BOP markets can lead MNCs to focus on next practices. The BOP can be a source of innovations for not only products and processes, but business models as well. Let us start with the growth opportunities in local, stand-alone BOP markets first.
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