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Challenges in Serving the BOP

Discuss About The Mirage Of Marketing Bottom Of The Pyramid?

The population at the bottom of the economic pyramid (BOP) is estimated at 4 billion people presenting a huge market for businesses. Most businesses have however opted to neglect this market focusing on the middle class and upper segments of the marketing (Anderson & Billou, 2007). Businesses should however not shy away from investing in the bottom of the pyramid as sometimes the returns are higher in these markets (Prahalad & Hammond, 2002). It is also cheaper to market to the world’s poor because most of them live in concentrated places in low cost housing or slums in most of the cities in the world. These people at the BOP continue to grow in numbers presenting an opportunity for new customers for companies that are willing to take advantage of this segment. Currently most of these people are served by informal economies yet they are actually a big business opportunity for the multinational companies that are ready to market to them by offering quality at cheaper prices and thus taking advantage of the economies of scale. This paper will agree with the notion that exploiting the opportunities at the BOP will lead to success for those businesses that are willing to get in to this market.

There are a number of reasons why businesses especially multi nationals leave out customers at the BOP and focus only on the other segments, the middle and upper class customers. Some of these include poor infrastructure in the areas where these people live. Another reason is the poor or nonexistent distribution channels making it difficult for them to deliver the goods to the customers. Another reason is conflict in these areas which could be religious, racial and ethnic or any other kind of war.  These customers also lack proper education on products and services and thus need to be informed about the benefits of products and services. The companies also need to adopt the local needs in their products and services to appeal to this segment. These and other reasons make the big companies leave it to the local businesses or government agencies to serve the poor people (Anderson & Billou, 2007).

Despite these challenges, there is still so much potential that can be tapped to become profitable while serving this segment. Business enterprises need to establish new and cheap ways to establish distribution channels in these areas, by using available technology or being innovative. These new innovations can be replicated across other markets with similar characteristics on other areas. The innovations might also become applicable even in other developed markets thus useful. The lessons learnt from these markets may also be useful to influence decisions by the big firms for their benefit (Prahalad, 2005).

Strategies for BOP Markets

While some companies have seen these challenges and shied away, there are those that have faced these challenges and ventured in to this segment to become successful. Some have implemented strategies in unique product development and service propositions to the poor people and served them successfully while also making business profits (Anderson & Billou, 2007). Demand for quality but low priced products and affordable services is high by this segment (Prahalad & Hammond, 2002).  It is definite that new business models and strategies need to be adopted to tap in to the potential of the BOP market. The numbers of customers are huge enough for companies to dedicate in serving this segment as per the figure below which shows the number of customers in the four consumer tiers of the economic pyramid and their incomes.

Figure 1: The Economic Pyramid

Source: Prahalad & Hammond (2002).  

There is a need to change the view that the poor are a problem in society and start viewing them as potential entrepreneurs and consumers who know and prefer value in their purchases. These poor people have a lot of potential for entrepreneurship and buying power. The poor need to be involved and engaged in innovative and sustainable products and services for them and for companies’ profitability. The BOP proposition therefore should not be about philanthropy or corporate social responsibility. Instead, companies should convert poverty in to creative business opportunities that benefit all the concerned parties. He further proposes a joint initiative between governments, NGOs, large domestic as well as multinational firms and the poor themselves in addressing the issue of poverty (Prahalad, 2005).

To target the BOP packaging in smaller quantities will encourage consumption and be affordable while giving choice to poor consumers. BOP customers opt to buy in smaller quantities despite the fact that per unit cost tends to be higher due to the affordability (Pitta, Guesalaga & Marshall, 2008). Smaller packages are also more convenient and help the poor in management of their cash flows. Smaller unit packaging however has the disadvantage of increased pollution to the environment which can be tackled by creative initiatives

According to Prahalad and Hart (2002), the MNCs need a proposition for the BOP market for the following reasons.  First, there is a huge untapped market and purchasing power at the bottom of the economic pyramid. Businesses can tap in to this market and sell their goods and services thus making profits. This also creates employment for the poor thus helping to reduce the poverty by empowering the poor people and allowing them live with dignity. This population accounts for about a third of the global population and the large Multinational companies should be at the forefront of commercializing this huge segment.

Reasons for BOP Proposition

If MNCs refuse to sell to the poor, they disadvantage them and thus they have to keep buying for higher prices from local monopolies. MNCs with their huge operations and expertise should offer the poor with variety they can choose from (Prahalad, 2005). Poor people do in fact buy purchase luxury products and non items that are not very essential in order to keep up with society or satisfy some customs Subrahmanyan and Gomez-Arias (2008). According to Karnani (2007), the poor people desire quality products at an affordable price, they lack control and easily get in to temptation in their purchases. It is therefore important to sell high quality products at a cheaper price and take advantage of their numbers.

According to Jaiswal (2007), BOP consumers should be considered as producers and not just buyers of products. One way to reduce poverty is by raising their earnings and focusing more on buying from them rather than selling to them, for example buying milk which they produce from their small farms which can be processed in to other products for sale. Davidson (2009) argues that the focus should be incorporation of the social responsibility concepts in to the BOP strategy form the very beginning. BOP proposition improves the living standards of the poor by alleviating poverty while at the same time earning profits for firms.

Firms that want to target the over 4 billion customers at the bottom of the pyramid must depart from the conventional 4Ps (product, price, place and promotion) of marketing as it is not adequate while marketing to BOP customers because it focuses on internal firm management and not the needs of this segment of customers. The proposal is to shift focus to the 6 As namely availability, affordability, acceptability and awareness, adaptability and active absorption (Oodith & Parumasur, 2013).  The 6 As are shown in the framework in the figure below.

Figure 2: The 6As Framework. Source:  (Oodith & Parumasur, 2013).  

To be profitable, firms must cut on their costs, manufacture simpler products and be flexible in payments (Pitta et al., 2008). The firms must also employ low margins and high volumes for them to afford lowering of process and still make profits. The products must also deliver both tangible and non tangible benefits. The tangible benefits will include value for money while the non tangible include esteem and also independence. Products that can be used for many purposes will appeal more to this segment as they seek value for their money (Oodith & Parumasur, 2013).

Conclusion

In conclusion, marketing to the customers at the bottom segment of the economic pyramid can bring benefits to the firms that choose to venture in selling goods and services to this segment. The firms will make profits from the estimated over 4 billion consumers globally if they produce quality products at an affordable price and also benefit from advantages of economies of scale. They will also help to raise the standards of living of the poor people by giving them a means of livelihood as they engage them economically while at the same giving them choice of products and services. This further stops them from exploitation by monopoly of domestic companies. They can achieve this by reducing costs and by being innovative. Companies that have focused on the BOP segment have been successful and made profits as the number of people continue to grow for future markets. This paper has discussed ways in which firms that do business with the BOP segment can improve the lives of the many people living at the bottom of the pyramid by economic engagement and serve this segment profitably.

References

Anderson, J., & Billou, N. (2007). Serving the World's Poor: Innovation at the Base of the Economic Pyramid. Journal of Business Strategy, 28(2), 14-21.

Davidson, K. (2009). Ethical Concerns at the Bottom of the Pyramid: where CSR Meets BOP.  Journal of International Business Ethics.

Jaiswal, A. K. (2007). Fortune at the Bottom of the Pyramid: An Alternate Perspective. Indian Institute of Management. Retrieved Sept 21, 2017 from: https://core.ac.uk/download/pdf/6443728.pdf

Karnani, A. (2007). The Mirage of Marketing to the Bottom of the Pyramid: How the Private Sector can Help Alleviate Poverty. California Management Review, 49(4), 90-111.

Pitta, D., Guesalaga, R. & Marshall, P. (2008). The Quest for the Fortune at the Bottom of the Pyramid: Potential and Challenges. Journal of Consumer Marketing, 25(7), 393-401.  

Prahalad, C. K. (2005). The Fortune at the Bottom of the Pyramid: Eradicating Poverty through Profits. Vikalpa, 30(2), 149.

Prahalad, C. & Hammond, A. (2002). Serving the World's Poor, Profitably. Harvard Business Review, 80(9), 48-59.

Oodith, P.  & Parumasur, S. (2013). Tapping in to the Bottom of the Pyramid (Bop) Market in South Africa: Possible? And How?. Corporate Ownership and Control, 11(1), 280-294.

Subrahmanyan, S. & Tomas Gomez-Arias, J. (2008). Integrated Accounting to Understanding Consumer Behavior at Bottom of Pyramid. Journal of Consumer Marketing, 25(7), 402-412.

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