Sunday, July 5, 2009

Base of Pyramid Opportunities: Are You Missing the Bus?

Bottom of pyramid has come out of closed room management talk to out in open reality. Yesterday businesses talked about its potential, today its the mainstream business for some. 4 Billion people worldwide constitute the base of pyramid market. Out of that 800 Million are in rural India. According to a report, 2008 saw Indian rural market grow at the rate of 20-25%. 60% of sales of FMCG companies come from rural markets. They account for one-third of sales of India's largest automobile company. Telecommunication revolution in rural India is a thing of the past. How are some companies succeeding where so many have failed.

It was a surprising blow when I saw a list of push and pull products in rural market. Gold-coins, TVs, Cupboards are in big demand followed by fertilisers, livestock and two-wheelers. Insurance, water-filters and solar lanterns which carry a social value are push products. This awareness is a key factor as to understand where your product stands in rural market.

The other key success factor has been 'Co-creation'. Rural market has special needs and companies have been successful by involving locals in product design down to size, technology, material used and colour. Several rounds of feedback sessions, alterations and trial runs with the consumers have led to product design which is strikingly different from its urban counterpart. But Co-creation extends beyond physical design to the way its sold. One has to get the credit terms and the channel right. A recent visit to a company that sells solar panels shows that how a push product when adapted to the rural need becomes successful. Bajaj sells its insurance by modelling it more as a saving instrument.

The channel is another key factor. Its not the conventional distributors, but rural SHGs (Self Help Groups) and MFIs (Micro Finance Institutions) which form the channel. They are closest to the customers and have their trust. They have the market intelligence, the last mile approach and the distribution infrastructure. Customer acquisition costs are way low for them. Companies make a mistake of treating them like any other distributors. The rules of game are different as these are socially motivated micro-entrepreneurs.

Base of pyramid is a reality today. For companies not there yet, it is an opportunity slipping away, a blue ocean turning red slowly. The best part which I like is the corporate social responsibility inherent in it in form of empowerment of rural population, promotion of entrepreneurship, infrastructure development and improved living standards.

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