Business Strategies at the Base of Pyramid World Economic Congress – May 16, 2008 Arlington. Virginia Sean Collins – University of Alberta

Overview Future Research Returns to scale Poverty Premium Consumer Challenges Case Studies Definition

Base of Pyramid - Definition Collection of individuals living at income levels of $3,000 or less. Estimated total the market size of over 4 billion people. Concentrated in developing nations with nearly have of BoP consumers living in India and China

Base of Pyramid - Size BOP Population (millions) BOP Share of total Population (%) BOP Income (millions) PPP BOP Income (millions) US$ BOP Share of Total Income Africa ,000120, Asia2, ,470,000742,00041,7 Eastern Europe ,000135, Latin Amer. Caribbean ,000229,

Case Studies Grameen Phone Micro Financing enabled Operate on village phone concept Grameen Bank became the first company to win the Nobel Peace Prize for their work on micro financing Cemex – Patrimonio Hoy Selling cement on micro-finance basis 70 week purchase with $14 payments Allow impoverished people to have stable dwellings. Bundled cement w/ architectural and safety consultation services Hindustan Lever Subsidiary of global consumer giant Unilever “Shakti” program - self help groups which operate mini- enterprises often from ones on home to sell HL products. Created an incredible amount of new sales locations and allowed new products to capture huge market share (Nirma brand with 1/3 of detergent market)

Consumer Challenges Infrastructure Road ways severely damaged or non-existent in some areas Communication infrastructure also severely limited, little internet access and phone usage Signs of change with India being the world’s fastest growing cell phone market with 6 million customers a month. Financial Services Very little access to banking and credit services Stems from a lack of proven identity management systems. Some organizations like Citi in India have taken matters into their own hands with biometric scanning systems. Groundbreaking new industries like aforementioned micro-financing Economic Outlets Typical markets are often inefficient or corrupt – E- Choupal in India eliminated countless non- value added intermediaries. Relates to Freeman’s talk on Wednesday’s lunch about the size of the informal economy. Prices often same as in formal economy

Poverty Premium Demonstrates difficulty in using average prices for economic purposes

Returns to Scale Modification of business models have the potential to open up huge new markets ◦Likened to Henry Ford and the Model T  New Market  New production method  New business model High costs to overcome barriers to entry ◦Lack of infrastructure ◦Significant efforts required to establish brand and corporate reputation – Aguas del Tunari’s privatization of Cochabamba’s water show drastic consequences of not establishing a reputation in a developing nation. ◦Language and cultural barriers exist from region to region.

Cemex – Patrimonio Hoy Returns to scale Initial costs Geographically clustered customers Not a profitable venture with small customer base Year long research project, marketing costs and creation of logistics network necessitate high fixed up front costs Allowed for small incremental cost for additional customers Bundled consulting services allows for reduced average labour and transportation costs

Future Research Potential Topics Consumer Behaviour Barriers to entry Returns to scale Branding at the BoP Business and life cycle effects on spending Premium effect on quality of life

Contact Information Name Sean Collins Phone