I came across this article from South Africa titled “Why companies should care about the low-income market” which has some excellent insights about this demographic and opportunity space. Also called the ‘BoP or Bottom of the Pyramid’, it is the mass majority segment in the emerging middle class in Sub Sahara today (per recent reports.) I’ve interspersed my observations in between snippets from the article which are in italics:
He notes that large firms are also becoming more secretive about their bottom of the pyramid (BoP) strategies, perhaps a sign that they are beginning to take this market seriously. “We see a very clear trend that companies are no longer asking what the bottom of the pyramid is.”
This is an interesting piece of news – BoP markets are now internationally recognized as a long term growth market opportunity, the secrecy implying that the strategy is less about CSR (and attendant goodwill via PR ) and more about competition.
“If you look at the upper-income segment in South Africa, those markets are mature, they are growing at perhaps 1% to 2% per year, whereas your low-income segments are growing at anything between 9% and 15% per year. You ignore such trends at your peril,” Coetzer explains.
Here’s why companies are taking it seriously – those are some significant growth figures, offering the kind of returns on investment that saturated, mature markets cannot.
Another point here is that BoP customers are very rarely formally employed with a regular paycheck. The BoP market is also mostly cash based and almost 70% of the lower income markets are rural. All of these mean that they have not felt the impact of the global recession (there are exceptions such as migrant worker remittances from the rich world for example).
The article gives an example of tapping into REculture – the informal market’s characteristic behaviours of recycle, reuse, repurpose, resell and repair.
Coetzer explains that bottom of the pyramid strategies do not always just comprise of selling products, but also purchasing from the low-income segment. An example of this is Collect-a-Can, a non-profit but self sustaining recycling business, with steel and tinplate producer ArcelorMittal and beverage can manufacturer Nampak as shareholders. Collect-a-Can pays people cash for collecting used beverage cans and provides tens of thousands of unemployed South Africans with the opportunity to earn a living.
“immediate untapped opportunities are present in the ﬁelds of ﬁnancial services (especially mobile money), home upgrading and repairs (plastering, tiling, electrical installations, insulation, energy‐saving light bulbs, solar panels) as well as the distribution and delivery of goods. ”
An earlier survey […] revealed that the majority of informal entrepreneurs in Cape Town townships are looking to grow their businesses, but are unable to do so because the type of credit, insurance, training and financial services available in the formal market are not adapted to their needs.
Catering for the low-income segment often calls for creative business models and product innovation.
While these unmet needs are the most visible, increasing competition will require a more strategic, customer-centric approach beginning with a greater understanding of this customer demographic. Opportunity spaces for new products and services that can add value and enhance lives, not simply plug the gaps of unmet needs. Needs and wants are so many at the BoP that every decision to spend money is a trade off on the risks of a return of maximum value.
“There is huge diversity within the bottom of the pyramid. People have different aspirations, different needs, and one of the biggest mistakes for any company would be to think of it as a single market segment. Not bothering to investigate just how diverse this segment is, is something we see quite often as a classical mistake,” says Coetzer.
Emerging Markets as a Source of Disruptive Innovation: 5 Case Studies – February 2010
The 5D’s of BoP Marketing: Touchpoints for a holistic, human-centered strategy – January 2009
The Fortune at the Bottom of the Pyramid Begins with Understanding : Targeting the BoP Customer (PDF) – Nov 2008
Design for the Next Billion Customers – April 2008