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Bop marketing

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Bop marketing

  1. 1. Bottom of the Pyramid Marketing:
  2. 2. Overview Defining the ‘Bottom of the Pyramid’ The Great Debate Opportunities Risks & Challenges Guidelines and Leading Practices Conclusion Appendix
  3. 3. Defining the ‘Bottom of the Pyramid’: A Visual RepresentationSource: Prahalad, C.K. and Stuart L. Hart, “The Fortune at the Bottom of the Pyramid,” strategy+business, Issue 26, first quarter 2002
  4. 4.   The BoP is the largest, but poorest socio-economic group. In global terms, there are 3.7 billion people who are largely excluded from formal markets, the group earns less than $2 per day and 60% of the 3.7 billion people live in China and India. The Year 2010 saw many new innovations coming from corporations like Tata, Hindustan Unilever (Indian Subsidiary of Unilever), Godrej & Boyce, Narayana Hrudayalaya, and Vortex among others who have been working on innovative offerings to the BoP. 
  5. 5.  The most remarkable innovation of Tata Swach range of Water Purifiers from Tata Chemicals-A Tata Group Company satisfying the essential necessity of purified water for the BoP for as low as Rs.499 ($10). Another landmark innovation was in the area of refrigerator from Godrej & Boyce called ChotuKool. It provides all the functionality of a normal refrigerator but can run on a battery and doesn’t need continuous power supply unlike the traditional refrigerator. Priced at Rs.3250 ($69), weighing just 3-4Kgs and works on just 20 parts as compared to over 200 parts in a traditional refrigerator it is the ultimate game changer, not only for the BoP.
  6. 6. Defining the ‘Bottom of the Pyramid’: Changing Attitudes Modern View Incorporates Both }Historic View {
  7. 7. The Great Debate: Win-Win or Misguided Strategy? Win-Win Misguided Latent market for goods  Poor lack income and jobs; and services should produce before consume Large growth  Vulnerable to poor purchasing opportunity, due to size decisions; income should be spent of BOP on shelter not ice cream. Catalyst for economic  Sale of MNC products does not development through clearly improve social indicators providing affordable products and services  MNC profits flow abroad, do not help local economies
  8. 8. Case Study: BOP Strategy Gone Wrong at Nestle Project: In 1970’s, Nestle began marketing infant formula to mothers in the developing world, with the argument that bottled milk is “better” for infant children. Assumptions: Sterile water and bottles, no dilution. Impact: Babies using Nestle’s product in developing countries were 25X more likely to die of diarrhea, and mothers developed an addiction to the product after prolonged use stopped lactation.
  9. 9. Case Study: BOP Strategy GoneWrong at Nestle In addition to the incorrect assumption about sterile water, Nestle used questionable marketing tactics with BOP consumers:  Health agencies condemned Nestle for marketing instant infant formula in developing countries.  Nestle’s marketing implied that Western women substituted mothers’ milk with formula.  Promoting infants’ milk as a product that was more beneficial to both mother and child than natural breast milk.  Clearly violated the WHO/UNICEF’s International Code of Marketing Breast-Milk Substitutes.
  10. 10. The Great Debate: Conclusion Merely selling to the BOP does not solve poverty, it depends what you sell, how you sell it, and where it was produced. BOP strategies have the potential to bring positive benefits to companies and communities, but improper application can have devastating consequences. Understanding the local situation is crucial. The key to resolving the debate is a better understanding of both the risks/challenges and opportunities presented by the BOP market…
  11. 11. Risks & Challenges: Operating Environment Economics Exposure to new political  Market size unclear: estimates and economic risks range from $0.3 trillion to $13 Resources, capabilities and trillion. knowledge of the  Prahalad uses purchasing power parity and assumes 4 billion BOP spending $4/day to estimate $13 complexities and subtleties trillion. of sustainable  Aneel uses financial exchange rates (that MNCs would use to expatriate profits) and assumes 2.7 development are required. billion BOP spending $1.25/day¹ to estimate $0.3 trillion. Consumers can’t afford  Low margin; high fixed costs differentiated products Competing with local  Distribution challenges business can threaten the  High price sensitivity and per existing power structure. unit transaction costs ¹World Bank 2005 estimate
  12. 12. Opportunities BOP consumers suffer a  At the same time, BOP poverty penalty: consumers:  Lack of access to  Are brand-conscious competitively and  Have well-connected efficiently-provided communities (word-of- goods and services mouth)  Higher prices for some  Readily accept goods and services (i.e. advanced technology manufactured goods, credit)  Collectively have purchasing power  Poorer quality goods and services  Are always trying to upgrade from their existing condition
  13. 13. Opportunities BOP consumers get cheaper products, access to technology, and opportunities to become entrepreneurs, and educate themselves. BOP markets present companies with a new source of:  Top-line revenue growth  Cost-savings and innovations that can influence existing business models and management practices But selling into BOP markets is difficult and even harder to do responsibly. In order to market to the BOP in a way that brings real benefits to impacted communities, companies should follow some important guidelines and lessons from leaders in the industry.
  14. 14. 4 Keys to Unlocking BOP Markets toCorporate Products Source: Prahalad, C.K. and Stuart L. Hart, “The Fortune at the Bottom of the Pyramid,” strategy+business, Issue 26, first quarter 2002
  15. 15. Shape Aspirations:Engage the BOP as Joint Problem Solvers Focus on the poor as producers, not just consumers. Upgrade skills and productivity to improve lives and increase purchasing power. Channel resources back into local communities to improve standards of living.
  16. 16. Case Study: ITCEnables Market Pricing Geography: Rural India Industry: Agricultural trading Product: E-Choupals; internet-connected computers Background:  Farmers sold grain to middlemen at below market prices.  Lack of information led to exploitation of farmers.
  17. 17. Case Study: ITC Enables Market Pricing Innovation:  ITC developed E-choupals; network of computers which provided web access in rural farming villages, each manned by a literate host farmer to support illiterate farmers.  Farmers check trading price of their produce and sell directly to ITC.  Farmers also order raw material at an aggregate level, thereby saving money (economies of scale) Impact: Farmers receive 2.5% higher price ($6/ton).
  18. 18. Tailor Local Solutions:Innovate from the BOP up Reorient R&D efforts to create appropriate technologies and new products and services that consider the unique needs of the poor, by region and by country. Nurture local markets and cultures and leverage both local solutions and global best practices to meet identified needs. At the BOP, capital – not labor – is the scarce resource, and focusing on that difference can lead to greater productivity and higher returns.
  19. 19. Tailor Local Solutions:Reevaluate Price-Performance-Process Matrix Incorporate local know-how. Rethink the entire business process – from product development to production to logistics – with a focus on meeting functionality needs. By Prahalad’s estimates, BOP innovations must achieve a drastic price reduction (30 – 100x) in order to be locally competitive.
  20. 20. Improve Access: Identify InnovativeDistribution & Communication Strategies BOP communities are often physically and economically isolated. Create direct distribution and word-of- mouth mechanisms to educate consumers and expand access and availability. Add value by finishing product manufacturing within the community.
  21. 21. Improve Access:Create a Scalable Model Design solutions for adaptability across markets. Scalability is key to profitability since BOP products tend to be low margin. BOP profits are driven by volume and capital efficiency.
  22. 22. Create Buying Power:Identify Innovative Financing Schemes  Provide financial services that focus not only on access but building financial literacy and encouraging a habit of savings.  Do not provide credit for luxury purchases (note: definition of luxury items is controversial.)  Encourage investment in productive assets (tools, agricultural materials, preventative health).  Community credit pooling with a revolving loan fund is one successful strategy proven to reduce default risk.
  23. 23. Build the Commercial Infrastructure:Develop Partnerships A company’s product or service offerings are its core competency, but BOP strategies require a higher BOP level of engagement. Develop partnerships with NGOs, local governments, financial institutions and local entrepreneurs to expand training, development, micro-finance and other expertise. NGO’s & MNC’s Gov’ts Building a base of local support can also help to establish credibility within local communities, gain insight into a country’s culture, increase local knowledge and overcome opposition when entering a new market.
  24. 24. Conclusion:For those combating poverty IF corporations can…  without causing the very poor to divert income from pressing needs,  sell products that make people more productive,  that are produced in a way that create local jobs and increase local human capital,  without driving out local industries,  and reinvest locally instead of repatriating profits, THEN, they can be an important part of the solution to poverty, which is excellent CSR.
  25. 25. Conclusion: For corporations interested in BOP IF corporations can…  create low price, quality products,  that can be scaled across many BOP markets and achieve high volume,  while creating means for the capital constrained poor to buy,  and building relationships and infrastructure that allow them to reach poor consumers,  and finally, follow the directives on the previous slide (at least enough to avoid becoming a publicized “bad” example) THEN, they can serve BOP markets profitably.