Welcome to class of Bottom of the Pyramid by Dr. Satyendra Singh University of Winnipeg Canada

1. Welcome to class ofBottom of the PyramidbyDr. Satyendra SinghUniversity of WinnipegCanada

2. Opportunity for growth • 7 b people • 2b can afford good products • 5b Bottom of Pyramid (BOP) • We need to cater BOP and develop market oriented products accordingly • Emerging markets • Developing countries • Moral responsibility to cater BOP! • Because they’re denied resources and opportunities 2

3. Bottom of the Pyramid BOP: 5 trillion worth of purchasing power 3

4. 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 4

5. 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 aerospece, Brazil • These firms have learned to make a profit at prices unheard of the developed countries  due to mass marketing at low $ 5

6. Successful firms from emerging markets • Acer • BhartiAirtel • Hailer • Lenovo • LG • QQ • Samsung • TATA •  move from OEM (1-5% margin) to leadership position (+40% margin) Successful industries: Telecommunications Fast-moving consumer goods Pharmaceuticals 6

7. 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 achieve 7

8. 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 8

9. 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 • Even daily payment in India to buy gold 9

10. Sachet distribution in BOP markets 10

11. Standardization and Specialization: Successful low-Cost providers to BOP Economy of scale, very basic 11

12. Innovation: Reverse engineering TATA Nano: $3,000 12

13. Serve maximum # of segments – multi-point pricing 13

14. Demand for luxury products is very High in BOP Make it affordable by making it small Create aspiration value 14

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17. Bundling: tooth brush, paste, soap 17

18. Not Free in BOP Yet But Will Be Soon 18

19. Multipoint Pricing for BOP -- Indonesia 19

20. How to add value? You must do something or have something new to say Commodity Goods Service Experience 1₡-2₡ 5₡-25₡ 75₡-$1.5 $2-$2.50 Then we do branding, positioning and communication around it 20

21. World’s slimmest watch 21

22. 18 hours of single craftsmanship 22

23. Creating value online is even more important for transaction Goal is to reduce abandoned carts with goods in it 23

24. IS BOP market suitable for your firm’s growth? 24 Source: Simanis (2012), HBR, June

25. 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 • Learning 25

26. 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 services 26

27. 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) 27

28. 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 28

29. 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 29

30. 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, Nigeria 30

31. 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, Mauritius Rwanda, Seychelles, Sudan, Swaziland Uganda, Zambia, Zimbabwe • HO: Lusaka, Zambia • Branding: Buy African, Build Africa • COMESA statistics 31

32. MERCOSUR • Free trade and people movement • Full member • Argentina, Brazil, Paraguay, Urguay Venezuela (Paraguay to ratify) • Associate member • Bolivia, Chile, Columbia, Ecuador Peru • Observer • Mexico • HO: Sao Paula, Brazil 32