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

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

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

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 3 rd world countries multinationals –E.g. Nando’s fast food from Africa  Now in +30 countries 4

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

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

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

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

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 Installment payment in India to buy gold 9

Sachet distribution in BOP markets 10

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

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

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Bundling: tooth brush, paste, soap 17

Not Free in BOP Yet But Will Be Soon 18

Need to optimize value addition The BOP segment may not be brand conscious yet. Commodity Goods Service Experience 1 ₡-2₡ 5 ₡-25₡ 75 ₡-$1.5 $2-$

Is the BOP market suitable for you? Source: Simanis (2012), HBR, June 24

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

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

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

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

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

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

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 AfricaBuy African, Build Africa COMESA statistics 31

MERCOSUR Free trade and people movement Full member –Argentina, Brazil, Paraguay, Uruguay Venezuela (Paraguay to ratify) Associate member –Bolivia, Chile, Columbia, Ecuador Peru Observer members –Mexico –New Zealand HO: Montevideo, Paraguay 32