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HOW TO …
DI is the voice of Danish industry – a strong voice which is listened
working with
SerViCe
DI
SerViCe
DI
working with
the bottom of
the pyramid
Success in
Low-income Markets
June 2007
Foreword
Over the past few years, business leaders and strategists around
3 Foreword
the world have increasingly been focusing their attention on the
challenges of intense competition and slowing growth in high in-
come markets. This has led many of them to reconsider the poten-
tial of emerging and low income markets. To remain competitive
and stay ahead of the curve, it is crucial for Danish companies to
also look abroad for new and unexplored possibilities in less com-
petitive markets.
DIBD wishes to thank all the people who have contributed to the
preparation of this handbook. Their kind participation and willing-
ness to dedicate time and share their experiences have made this
project possible.
5
Unlocking the Potential at the Bottom of the Pyramid 11
CONTENTS
The Commercial Advantages of the Bottom of the Pyramid 19
A Win-Win Scenario 24
Key Lessons 24
Innovative Products 29
Partnering 42
Key Lessons 51
Cases 65
Further Reading 68
Introduction to the
Bottom of the Pyramid
7
by the world’s poorest people, i.e. people living on less than $ 2 per
day mainly in Africa, Eastern Europe, Latin America, and Asia.
Introduction
tune at the Bottom of the Pyramid”. The idea behind BOP suggests
introduction
that the best way to meet the needs of the poor is through a profit
driven market-based approach. There are tremendous benefits for
companies if they choose to serve the highly underserved and less
competitive markets at the BOP. At the same time there are signif-
icant benefits for the poor in terms of poverty reduction, increased
productivity, and empowerment. Companies interested in explor-
ing the opportunities at the BOP should look for solutions in the
form of new products and new business models that can provide
products and services at affordable prices. The sustainability of the
approach lies in this inherent win-win situation.
Danish exports to the so-called BRIC-countries (Brazil, Russia, In- Each chapter of this book explores an important dimension of the
dia, and China) have increased by 140 percent since 2000. While BOP way of doing business. The next chapter provides a brief over-
this is certainly impressive, it falls short of the full potential. This view of the BOP market according to income, region and economic
is because imports from these countries have expanded at an even sector. The following chapter is dedicated to the ”BOP business
faster rate, meaning that the share of Danish goods and services model”. Insights into the modalities of engaging in partnerships
8
9 Success on the
in the imports of these countries has actually decreased over the with non-commercial partners and the opportunities of supplying
same period. One plausible reason for the lacklustre performance to humanitarian organisations are also covered extensively. The
may be the business strategy of Danish exporters. The majority of last chapter is dedicated to BOP tools and other resources that
Danish exporters have specialized their production and services, Danish exporters can make use of when they move from thinking
and as a result of traditional thinking, they are aimed exclusively about the BOP market to actively engaging it.
at the top income segments of these markets.
introduction
introduction
US market
The book is structured around a combination of insights drawn
This misses the critical mass of consumers who, because of their from the existing literature and good practice case studies taken
sheer numbers, hold tremendous collective purchasing power. The from Danish businesses in emerging markets. A balanced mix of
rewards may come in small droplets, but they add up to a signifi- these elements is sought so as to facilitate the understanding of
cant flow. The central question is: How do you sell to the lower tiers the BOP business model.
of the market?
Indeed, the central theme of the book revolves around the rele-
vance of the BOP market for Danish enterprises. While there is
little doubt that the potential is huge, central questions are: (i)
Are Danish companies geared to tap it? (ii) How can Danish busi-
nesses work with development and marketing of products for the
poor? (iii) What can we learn from those that have embraced BOP
Unlocking the
Potential at the Bottom
of the Pyramid
It is a common belief that the poor have no significant purchasing
10
11
power and therefore do not represent an attractive market. How-
There are 4 billion people living on less ever, this assumption ignores the volume of the market. Companies
unlocking the potential
As an example, one dollar will buy more in Kenya than in Den- BOP MARKET – $ 5,000 BILLION
mark. This means that holding one dollar in Kenya is worth more
than holding it in Denmark. Exactly how much more it is worth
depends on the prices of goods and services in Kenya relative to Income segments
Denmark. If prices in Kenya are four times lower than in Den-
mark, the value, or purchasing power, of the dollar is four times 3,000 The BOP can in itself be represented
12
2,500
13
higher in Kenya than in Denmark. as a pyramid. The size of each layer
2,000 represents the number of people in
1,500 the different income segments. The
unlocking the potential
There are large regional variations within the global BOP market.
BOP markets in Asia and Africa are primarily rural and concen- Africa Asia
trated in the lower segments of the economic pyramid, while the
70.5 % 41.7 %
same markets in Latin America and Eastern Europe are predomi-
nately urban and in the top tiers of the bottom of the pyramid.
Africa: The African BOP population Asia: The Asian BOP population consists of
consists of 486 million people (95 percent 2.86 billion people (83 percent of the total
of the total population) and constitutes a population) and constitutes a $ 3.47 trillion
$ 429 billion market representing 70 market representing 42 percent of the total
percent of the total market. The actual BOP market. The market is the largest of all the
market is smaller compared to the other different BOP markets and makes up a
14
15
regions but it is the dominant consumer significant share of the rapid growth in
market on the African continent. Asian consumer markets.
unlocking the potential
Energy
Food market
The food market (food and beverages) represents the largest BOP
market and the largest share of household expenditures. It is es-
Food
timated to have a value of $ 2.89 trillion. Though the spending on
food does not increase much with the rise in income, there are still
obvious business opportunities in the BOP food market – e.g. pro-
viding better low-priced food products, improving distribution and
Housing
availability, as well as inputs for the agricultural sector.
16
17
Energy market
unlocking the potential
Transportation market
The total BOP market for personal transportation is estimated at
$ 179 billion. There is also significant demand for more efficient
distribution channels for products and services through new or im-
proved transportation systems.
Health market water market is small compared to other BOP markets, the grow-
The total BOP health market (medicine, life-saving products and ing problems of polluted water sources due to industrialization and
health services) is estimated to be around $ 158 billion, with na- poor sanitation in urban areas continuously pushes up demand for
tional pharmaceutical markets as the most dominant. Spending purified water and purifying mechanisms.
on health care depends primarily on income level and access to
services and thus varies across regions. Financial services market
There are significant needs for financial services at the BOP.
ICT market By expanding access to financial services for BOP consumers, new
The total BOP market for information and communication technol- ways to promote economic growth are evolving. This is particularly
ogies (ICT) is estimated at about $ 51 billion. There is a significant through entrepreneurship and job creation, which generate higher
and rising demand for ICT solutions at the BOP – especially mobile incomes. The financial sector is undergoing profound changes these
telephony, internet services and other ICT equipment represent a years, and it is increasingly opening up towards the huge untapped
huge potential. Rapid market growth is expected to continue. Most market at the BOP.
BOP markets for ICT are urban and middle- or top heavy, indicat-
ing that the spending is an increasing function of income.
The Commercial Advantages of the BOP
The business potential at the BOP has five central advantages:
• Size
• Rapid growth
• Less competitive environment
• Opportunities for cost-saving
18
19
• Opportunities for innovation
unlocking the potential
21
company and its customers by avoiding rivalry and unleashing new demand. The Danish company Orana has successfully sought to profit from
the less competitive food market at the BOP estimated to represent
unlocking the potential
23
range of its potential customers, or if it is related to the wrong better corporate citizens. The most often noted dimensions of CSR relate to
set of values. the plight of employees, and the potential adverse impacts on the natural and
unlocking the potential
25
build successful business models for BOP markets by exploring
the advantages and preparing for the challenges.
unlocking the potential
All the elements of the value-chain are of critical importance. Securing High Quality Dairy Case
However, the following sections are dedicated to the two overall Production in a Difficult Environment
themes of ’operations and production’, and ‘distribution, sales and
FanMilk is a Danish owned dairy producer with five production plants in West
support’. This is because these are the elements that have been
Africa. FanMilk produces dairy products such as frozen yoghurt, ice cream,
found to represent the greatest challenges for Danish enterprises
milk, and fruit juices. The local production facilities are designed to minimise
seeking to penetrate BOP markets. the impact of the external environment.
FanMilk has met many challenges producing frozen products in African countries
where the supply of electricity and water is very unstable. Voltage variations
and black-outs are common. Likewise there can be significant seasonality in
the water supply. This has led FanMilk to explore alternative ways to guarantee
32 Successful business models
Direct Sales
This section addresses the challenges of reaching BOP consumers
by focusing on four key characteristics of BOP markets – namely
the urban and rural segments, credit as a sales factor, branding,
and partnering.
The Urban Segment The Rural Segment
When thinking about distribution it is important to distinguish The rural poor constitute a different challenge. Access to distribu-
between rural and urban areas. Not because markets can be seg- tion across rural areas continues to be problematic. While the low
mented by high and low incomes across areas, but because the quality of roads, ports and power supply make for a difficult busi-
population densities call for different approaches. ness environment, recent technological developments are bringing
rural areas in the developing world out of the ”information dark”.
Not all the poor live in rural areas. Over the coming six to seven All experience shows that BOP consumers take to new technology
years, the population of cities in the developing world will increase easily. The case of the Danish ITC company Inmobia, illustrates
to around 2 billion people. About 40 percent of these urban dwellers how a commercial deployment of the newest technologies can be
will be BOP consumers. With around 15,000 people per hectare, used to overcome rural constraints.
urban areas will allow for intense distribution opportunities. This
is important because the commercial rewards of working in BOP
markets are based on large volumes as a compensation for the
lower margins per unit sold. Distribution is the key to
Bringing Ice Cold Drinks Case
success at the BOP
to the Streets of West Africa
FanMilk is supplying frozen drinks and yoghurts to markets in West Africa.
From production points in Nigeria, Togo, Ghana and Côte d’Ivoire, frozen
drinks and yoghurts are hauled across West Africa in refrigerated trucks. From
widely scattered storage facilities products are repackaged and distributed in
smaller sizes to supermarkets, kiosks, gas stations, hotels, and restaurants. In
36 Successful business models
In many areas of rural Africa, the mobile network has far greater coverage than
radio and TV-signals. By providing low-cost mobile services for BOP consumers, Using Innovative Credit Schemes Case
Inmobia is profitably and effectively breaking the information isolation of rural to Access New Markets
Africa. For five Kenyan Shillings (the equivalent of $ 0.08) a Kenyan farmer can For more than 25 years, the Danish company B-K Medical has been producing
access national and world news, local weather forecasts, as well as the latest high quality diagnostic ultrasound systems. A few years back, the company
quotes for commodities and cash crops. Needless to say this is an invaluable started selling the product to smaller clinics in Ghana and Kenya. B-K Medical
service, which greatly empowers farmers in negotiations with commodity was able to penetrate these new markets through an innovative financing
buyers. model, which allows cash restricted clients to amortize the purchase of
state of the art equipment over a number of years.
B-K Medical uses Ghanaian and Kenyan banks and leasing companies to manage
the credit risk, while its local partners provide technical and logistic support.
Creating opportunities for poor people to consume by facilitating
access, and designing affordable products that can generate suf- This business model has to date resulted in more than 20 sales of scanning
ficient revenue combine to break the long held assumption that equipment to smaller clinics in the two countries. The daily number of patients
38 Successful business models
Different types of partners may help companies meet the five main • I nternational donors and development partners may help
challenges that companies generally come across when they enter companies overcome this challenge by supplying financing
BOP markets. These challenges were introduced in chapter two: for carrying out BOP projects and implementing BOP strate-
gies. Even so, companies may still need to work with longer
time horizons than in developed markets
1. Cash poor and very price sensitive BOP consumers
•H
umanitarian and non-governmental organisations (NGOs)
may help companies meet this challenge by contributing with The choice of partner(s) will depend on the challenges the company
non-profit services in distribution, provided the product or is trying to overcome. Potential partners can be divided into financ-
service helps the organisation achieve its own goals. This ing partners and implementing partners.
way, companies are better able to reach more potential con-
sumers without adding significantly to costs Financing Partners
2. G
eographic, economic, and cultural differences between the Financing partners can be both organizations and companies. Ei-
company’s high income customers (often in developed coun- ther way, these are the partners that are crucial in the early phases
tries) and potential customers in BOP markets of project development. They must have sufficient capital and pa-
tience to be able to cope with the ups and downs of establishing a
•L
ocal companies and organisations may help meet this chal-
presence in BOP markets. Typical financing partners for Danish
lenge by sharing their knowledge about the relevant BOP
companies include:
customers – what are their values, habits and tastes? Fur-
thermore, they have the local networks that may be neces-
• Danida • Companies with CSR programmes
sary to build successful distribution channels
42 Successful business models
•L
ocal non-profit organisations or international humanitar-
ian organisations may help companies meet this challenge
by education of consumers on the benefits of using certain
products, e.g. on the importance of good hygiene and clean
drinking water
• L
ocal companies and organisations may help companies
overcome the challenge related to institutional infrastruc-
ture by sharing knowledge about the informal institutions
that work in their particular BOP market. Informal institu-
tions such as relationships and networks may be needed in
addition to formal laws and regulations
A direct benefit of the generally increasing awareness of and focus Financing partners may also subsidize the product’s price in order
on the important role of the private sector in development is more to make it cheaper for the end user. BOP consumers generally have
available financing for projects and investments in developing low incomes and often unpredictable income streams. They there-
countries. This is beneficial for companies interested in BOP mar- fore want to make purchases whenever they have cash and buy
kets. Often financing partners do not only contribute capital, but only what they need for that day. For the group of consumers with
also knowledge about the local market and about similar projects the lowest income, it will typically take several weeks or months
that may be of great value to the BOP business model. Adding an to purchase a certain good or service. Financing partners can be
official or development finance partner may also, however, add a used to subsidise products in order to sell them in the market at a
degree of bureaucracy and rigidity to the process. There will most price that is within reach of these consumers.
likely also be a requirement for proof of the beneficial social impact
of the project. Still, these may be small costs in view of the poten- Reaching Consumers through Case
tial market opportunities. Social Marketing
Vestergaard Frandsen divides its market for life-saving products into three
Small Scale Financing Case segments: sales to public agencies (NGOs, government agencies etc.), social
for Large Scale Impact marketing (subsidised sales), and commercial marketing (sales on commercial
The World Bank’s Development Marketplace is a competitive grant programme terms).
that funds creative small-scale development projects that have the potential
to be expanded or replicated. The projects must have a positive social and/or When targeting the poorest BOP consumers, Vestergaard Frandsen makes
environmental impact and at the same time be financially sustainable in the use of the social marketing approach. This means that they sell a mosquito
long term. net at approximately one third of the actual market price while a government
institution, humanitarian organisation or private fund pays the remaining two
In 2006, Kamworks, a company dedicated to installing and maintaining solar thirds of the market price. The mosquito nets are primarily sold in rural areas
energy systems for off-grid purposes, together with Khmer Foundation of Justice e.g. at gas stations. This means that the mosquito nets are made available to
44 Successful business models
The companies with the largest potential for purchasing BOP prod-
ucts for their employees are typically companies that have CSR
programmes in place, or at least the ones that have an interest in
CSR. They would often be members of local Global Compact Net-
works or companies with large groups of employees that cannot
be easily substituted on a daily basis. When targeting this group
of customers it is very important that there is a proven positive
impact on health and/or productivity.
Product and Value-chain Spill-overs A classic example of a BOP business model giving a company an
edge in a high-income market is that of the post-war Honda. After
In some respects the BOP market can act as an incubator of new the second World War, Honda started producing small and basic
technologies and solutions that for various reasons are not deemed motorized bicycles for the impoverished Japanese market. The
suitable for introduction in more developed markets. Thus, inno- business model could make money selling at very low prices. When
vative inventions for BOP markets can potentially have positive Honda entered the US market, the product’s simplicity and low
spill-overs on developed markets and existing products. price allowed it to capture a sizable share of the market. In other
words, the company’s base of Japanese BOP consumers gave it a
When companies start re-thinking their own products and tradi- huge competitive advantage in the high-income US market.
tional business models as part of the process of targeting the BOP
markets, new ideas for the home market can develop, whereby SPILL-OVERS BETWEEN MARKETS
innovations from the BOP markets find their way to developed
markets. The development of new technologies that are low-cost Product innovations
Innovation in Innovation in
because they target the BOP and energy effective because of the developed markets BOP markets
typically unstable supply of electricity in developing countries, Value-chain innovations
may well end up replacing unsustainable technologies in developed
countries and thereby increase the company’s competitiveness at
home.
Key Lessons
• Opportunities for intensive distribution exist in urban BOP
markets – these markets will continue to grow at high rates
• The needs of the rural poor can be served profitably if the prod-
50 Successul business models
• To meet the needs of the poor or rather meet market demand at
the BOP, it is often times necessary to apply new technologies
in new ways
Build sustainability
Building sustainability means achieving scale in all parts of the
value-chain from production to distribution so as to ensure the
long-term viability of the business model. It also means leverag-
Generating the idea
Stage 1:
• The first step in approaching the BOP market takes its outset
Initiating the Change
in the right idea
Approaching the BOP, businesses should go through a preliminary • Sustainable business ideas should be identified by thinking out
initiating stage to make sure they have come up with a realistic of the box
and sustainable idea. The goal of this stage is to start a learning
process – by engaging with partners – that leads to the realisation • By re-thinking the existing product and service solutions in the
of the ideas and identification of the possibilities and challenges. In light of the advantages and challenges at the BOP new ideas
this process the following questions should be considered: can blossom
• The assets and strengths of the company should be considered
• Have we overlooked market segments, where needs are un- and linked to the needs and resources in a different business
met and there is demand? environment like the BOP
• Do we have the right product/service to offer? Or how can it • Broad internal company support for the project should be
be customised? ensured in order to secure an engaged effort by everyone in-
• What are our motivations to engage at the BOP? volved
• How do we measure success? FanMilk limits its B-K Medical relied on a Vestergaard Frandsen
vulnerability to local pilot to finalise the design has scaled up to also sell
• How do we scale up or replicate? challenges and keeps its of its financing model to the CSR programmes of
business model flexible corporate clients
• An essential benefit from the pilot is that the experiences can
be used to assess the feasibility of the financial expectations,
and adapt the revenue model and the rest of the business plan
accordingly
Scaling-up
• A successful pilot should result in the establishment of a real
business. This involves scaling-up the targets and adapting the
production and distribution accordingly
Cases
Vestergaard Frandsen
Vestergaard Frandsen was established in 1957 as a textile company
developing and selling textiles and garments to Danish companies
and consumers. Over time the production has developed into more
specific technological solutions targeting developing countries.
Vestergaard Frandsen has developed different life-saving products
like PermaNet (mosquito net) and LifeStraw (water filtered straw)
adapted to the needs of consumers at the BOP. Vestergaard Frand-
sen sells its products to humanitarian organizations as well as
governments in developing countries in large volumes, and directly
in BOP markets through local offices in smaller volumes. Today
Vestergaard Frandsen is a medium-sized well-established company
with operation in Africa and Asia.
64 cases
65 cases
Emunio
Emunio was established as a start-up company in 2004 specialized
in safe injection technologies. Emunio develops, manufactures and
supplies auto destructible syringes for immunization purposes, and
syringes with reuse prevention features for curative purposes to
Ministries of Health, NGOs, private hospitals and clinics as well as
to UN organizations. Emunio has set up production in Bangladesh,
Tanzania and Malaysia from where the syringes are produced and
distributed to regional customers.
Southern Trident
Southern Trident is a Danish start-up company. Southern Trident
manufactures and sells AquaSafe, a cheap and simple household
water purification device which uses solar energy to purify water.
AquaSafe is manufactured in South Africa in cooperation with a
Black Empowerment partner and is made available to poor people
in both rural and urban areas through a mix of innovative strate- Orana
gies involving partnerships with humanitarian organizations and
other companies. Orana is one of the largest Danish suppliers of fruit based raw
materials and semi-manufactures for the beverage industry, dair-
ies, and other food producers. Since the late 1990s Orana has been
Inmobia
working with Dairiboard Zimbabwe in producing a whey drink cus-
Inmobia was founded in 1998 as a wireless media company pro- tomized to the BOP market in terms of high quality product at an
viding mobile portals as well as news and entertainment content affordable price. Sales of the product took off once the packaging
(e.g. text, music, video etc.) to mobile operators. Inmobia has estab- of the drink was changed from the expensive high-end Tetra Pak
lished an African Regional office in Nairobi, with Project managers, to a much more affordable plastic sachet.
technical and editorial staff. The company has plans to aid mobile
operators developing the African market for mobile content which
is the fastest growing media in Africa. In addition, Inmobia works
with Danida on a B2B project that uses mobile phones to reach
young people between the age of 15 and 30 with information about
myths, protection and treatment in the fight against HIV/AIDS in
Kenya. Today Inmobia is a well-established company, providing
mobile portals for operators in all regions of the world.
B-K Medical
For more than 25 years, B-K Medical has been producing high
quality diagnostic ultrasound systems. A few years back, the com-
66 cases
67 cases
pany started selling the product to smaller clinics in Kenya and
Ghana. This new market has come about through a financing mod-
el, which allows cash restricted clients to amortize the purchase
of very sophisticated state of the art equipment over a number of
years. B-K Medical uses local finance companies and banks to do
risk assessments, and their local partners provide technical and
logistic support.
FanMilk
FanMilk is a Danish owned dairy product company with several
local production plants in West Africa. The aim is to provide high
quality nutritious products made with high hygiene standards and
make it available to the local public. The FanMilk cool box is the es-
sential part of the distributing network and part of the equipment
made available for self employed private vendors distributing the
FanMilk dairy products. This gives locals a chance to make a better
living and a key to many more jobs in the community.
Further Reading
”The Fortune at the Bottom of the Pyramid”, Strategy + Business, Issue 26.
Internet Resources
The BOP Protocol (2006). Available at: http://www.bop-protocol.org/
Photos are by Lone Søndergaard, Lars Møller Holmegaard, DI, IFU, Vestergaard Frand-
sen, FanMilk, BK-Medical, Southern Trident and Inmobia.