International Marketing At The Bottom Of The Pyramid

Richard Fletcher, University of Western Sydney

Abstract

International marketers have been turning increasingly to markets in developing

countries as markets in developed countries reach saturation point. Generally they
target the wealthy elite and the expanding middle class in such countries. Rarely do
they target the masses in these countries who account for 65% of the world’s
population. It will be argued that a different mindset will be necessary to tap the
potential offered by this group who are termed ‘Bottom of the Pyramid (BOP). A
standardised ‘western’ marketing mix offering will not work with this group whose
circumstances require a highly customised approach. Buyers at the BOP behave
differently not only from their counterparts in developed country markets but also
from the upper and middle-income customers in their own societies. This is illustrated
by a study undertaken in Thailand into the perceived need by local marketing
executives to modify their approach when directing communication to customers at
the lower income strata as compared with those at the upper and middle income
levels. The conclusion of the paper is that managers cannot tap the BOP sector by a
modified global approach and must create a totally new approach.

Introduction

As ‘western’ markets become saturated, international marketers have been turning

increasingly to markets in developing countries. In most cases they have been
targeting the wealthy elite at the top of the income scale in such countries and when
considering the future potential of such markets, the focus is on the expanding middle
class in such countries. Rarely do international marketers focus on the masses in these
countries be they the urban poor or occupants of rural towns and villages. Prahalad
and Lieberthal (1998) attribute this to firms having an ‘imperialist mindset’ which
drives firms to sell the same products as in the west in an unchanged form to
established upscale markets in developing countries. London and Hart (2004) claim
that this approach only captures the tip of the iceberg of commercial potential in such
markets and Prahalad (2005) illustrates this in Figure 1.

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 Purchasing power Population
parity in U.S. dollars In millions

> $20,000 75 - 100

Tier 1

$1,500 - $20,000 1,500 – 1,750

Tiers 2-3

$1,500 Tier 4
4,000

< $1,500
Tier 5

This figure shows that potential customers whose annual purchasing power parity is
less than US$1500 per year amount to 4 billion people (estimated to be 6 billion by
2045). This group at the bottom of the pyramid (BOP), accounts for 65% of the
world’s population and it is amongst this group that future growth prospects are
greatest. However, a different mindset will be necessary to tap this potential
particularly in the short term. A standardised ‘western’ marketing mix offering will
not cut it with this group whose circumstances will require a highly customised
approach. Furthermore, such a standardised offering is unable to cope with the
informal economy that accounts for between 30 and 60% of total economic activity in
a number of developing countries (de Soto, 2000). In this situation, those at the
bottom of the pyramid are likely to be heavily involved in the informal economy
which can extend from simple barter to smuggling and corruption.

Buyer behaviour

There are a number of ‘western’ derived models of buyer behaviour that research has
shown need to be modified when doing business in developing countries. Different
tastes, customs and habits are likely to result in different preferences. Also the
popularity of western luxury goods among non-western consumers may be due to
different factors such as saving or giving ‘face’ or peer pressure, rather than because
of perceptions of value. These factors explain why people at the BOP are brand
conscious, especially for aspirational reasons.

The model of innovation diffusion for example does not apply uniformly to all
international markets. In many respects this is due to differences in culture. Different
cultures have a different attitude towards the past, present and the future which in turn
impacts on degree of enthusiasm for adopting new technologies. Also different
cultures exhibit different degrees of individualism and collectivism which influence
readiness to adopt something new or preference to wait until many others have
adopted the technology. Bradley (2003, p.108) shows that in ‘eastern’ countries the

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 response pattern is different to that in the ‘west’ and the life cycle much shorter.
Another model is Maslow’s hierarchy of needs which show the order in which needs
are satisfied by buyers. Research by Schutte and Ciarlante (1998, p.93) shows that in
Asia not only is the order in which these needs are satisfied, different but also the
needs themselves vary compared to the ‘west’.

The problem with these models is that they view eastern or Asian markets as being
similar and do not differentiate between groups within such markets on socio
economic lines as buyer behaviour is likely to be markedly different between the
wealthy elite/growing urban middle class on the one hand and the urban poor/rural
masses on the other.

Marketing mix issues

Prahalad (2004) in his book “The Fortune at the Bottom of the Pyramid” (BOP), cites
cases of multinational firms such as Hindustan Lever Limited, who have been
successful in tapping this group by totally revamping one or more elements of the
marketing mix. London and Hart (2004) observe that tapping the BOP usually
involves a new product, targeted at a new set of customers and distributed via an
innovative distribution channel.

Product

Prahalad argues that western entrepreneurs are caught up in form instead of

functionality. Washing clothes in an outdoor stream will require a different soap
product formulation to washing clothes in a washing machine that adjusts itself to
levels of soiling and for coloured vs white garments. Overcoming this and tapping
BOP markets may require making units of sale smaller and therefore affordable –
cigarettes sold by the stick instead of by the packet of 25 or 50; shampoo sold by the
single use sachet instead of by the bottle. Approaching the market in this way brings
the product into the consideration set of the poor for the first time - even if they only
buy the sachet once a month as a splurge when they have money, collectively these
purchases can result in a substantial volume of product. London and Hart (2004)
argue that products offered to BOP markets will need local content added to the
product design. Scaling down some products at the expense of quality can make the
difference between a pirated and an authentic version of the product minimal –
therefore as computer firms have found, the need is to offer cheap products but not
poor ones. The example of the Tata Group of India is informative. Its CEO, Rattan
Tata, plans to reach into the bottom of the pyramid (BOP), not by stripping down an
existing vehicle but designing a quality vehicle from scratch aligned to the cost
structure necessary to tap BOP markets. The infrastructure at the bottom of the
pyramid is often hostile and products may need to be adapted to withstand
shortcomings such as fluctuating voltage, impure and intermittent water and
movement over unsealed roads or tracks.

Pricing

Research by London and Hart (2004) found that MNC’s usually tried to impose their
pricing formulae on developing country markets with little success at the bottom of
the pyramid. The technique here is low margins and high volumes. Firms who have

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 been successful have recognised that millions of small sales can yield big profits and
that this is achieved by providing goods and services at a lower price point while still
maintaining margins. It involves ways of making the offering cheap enough to offer to
this larger, poorer market. According to Sanderson (2005), this requires low price
points, minimum marginal costs, de-skilling services so non-experts can deliver them
and the use of local entrepreneurs. Creating affordability may require repackaging and
recovery of cost so that the upfront cost of access is reduced. This might be achieved
by instead of selling the product outright, charge a small upfront payment and a
monthly usage fee. To achieve affordability in the face of smaller units of sale is
likely to require innovative financial techniques such as that adopted by the Grameen
Phone Operation in Bangladesh where the firm loans a female entrepreneur the price
of a phone so she can resell it in minute increments to individuals in the village. In
essence, it is availability, affordability and access that creates a new market by taking
advantage of the consumer’s capacity to consume at a particular point of time.

Distribution

Reaching the BOP is likely to involve breaking the economic and physical bottlenecks
created by traditional systems of distribution and extending the ‘break-bulk’ functions
of the distribution channel even further. Contrast the milk collection arrangements of
the Kaira District Coop in Anand in Gujerat, India (where for years at dawn ladies
deliver the milk of a single cow carried in a bowl on their head to the collection site),
with methods used in intensive dairy farming in countries like Australia. Research by
London and Hart showed that existing local partners in an overseas market often do
not have the knowledge and capabilities to reach customers on the BOP section of the
market. Such partners were unable to create sufficient incentives for current
distributors to promote the product because promoting to the BOP sector cannibalized
existing more lucrative product lines. This suggests for the BOP sector, a new
distribution channel is needed. Innovations in the distribution system are critical for
tapping the BOP market.

Promotion

Research to date including that by Prahalad (2005) has little to say about promotion at
the bottom of the pyramid. This will be the focus of this paper.

Communication with customers

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 Approaches to international marketing communication have traditionally been
grounded in ways of communicating with customers who are not dissimilar to
customers in one’s domestic market. Whilst these customers might be found at the
upper socio-economic levels in transition economies and amongst the upper and
middle classes in many developing economies, they do not inhabit the BOP. In order
to research this, a typical communications model was applied to a developing country
(Thailand) and each aspect of the model as shown in Figure 2 was analysed in terms
of its perceived importance to customers at the higher/middle socio-economic level
and customers at the lower socio-economic level to see whether the promotional
approach to the two groups should be different.

Methodology

A questionnaire was constructed based on various research findings as they related to

the application of the communications model in developing countries – sender issues;
medium issues; receiver issues; feedback issues; interference issues and
environmental issues (see attachment 1). None of this previous research focussed
separately on the BOP market. Respondents were asked to rate on a 10 point scale the
relative importance of statements for (a) upper/middle income customers and (b)
lower income customers. This questionnaire was sent by the Australia-Thai Chamber
of Commerce in Bangkok to its members and 25 usable responses were received.
Respondents were either Australians, other expatriates or Thais involved in either
marketing Australian products and services in Thailand or operating Australian joint
ventures in Thailand. For analysis, responses were categorised as positive (8-10),
indifferent (4-7) and negative (1-3).

Results

As far as ‘sender oriented’ aspects were concerned, lower income customers were
perceived as preferring local presenters of messages and liked messages containing
testimonials (especially from authority figures/glamorous persons). They preferred
appeals directed to the group rather than to the individual, had a preference for non-
verbal stimuli and for messages that offered short term satisfaction. The upper/middle
group were perceived as having a preference for foreign presenters, verbal stimuli and
appeals to long term goals. Concerning ‘medium’ issues, differences in media usage
are apparent between high/middle and lower income groups. The latter are heavier
users of radio, buy fewer magazines, rarely bother with trade shows but respond
positively to promotional offers compared to the upper/middle group. Their choice of
media is heavily influenced by their lower literacy and education levels. With
‘receiver’ oriented elements of the model, affordability of the equipment to receive
the message is a greater problem for the lower income group as is the reliability of
overall communications infrastructure, especially in rural areas. Also for this group it
is more common to receive the message in a communal situation (eg around the
village TV set) and messages couched in terms of group norms rather than individual
preferences have greatest appeal. This group is also likely to respond to emotional
appeals. Sources of ‘interference’ in the interpretation of the message, such as group
influence, local and regional loyalties and government wishes had more impact on the
lower income group compared with the upper/middle group. With ‘feedback’, the
lower income group were perceived as being more reluctant to provide
information/express opinion and this has implications for conducting market research.

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 Some of the more general ‘environment’ concerns surrounding communication were
that compared with the upper/middle group, the lower income group were less
concerned with protection of their privacy, placed more importance on contextual
references in responding to the messages received, and had a greater focus on
unofficial markets.

Implications for international marketers

From this above research into communication, it appears necessary for managers
wishing to do business in BOP markets to develop separate marketing strategies for
these markets. To successfully access such markets will require approaches tailored to
such markets rather than a global approach because the BOP markets have not had the
exposure to ‘western’ influences as they do not have the same media exposure as the
upper and middle income groups in developing countries. Appeals to those at the BOP
will need to be tailored to their cultural differences and take into account local
conditions. Offerings to the BOP segment will require a deep understanding of the
local environment and involve a ‘bottom-up’ approach resulting from identifying,
leveraging and shoring up the existing social infrastructure. Strategies need to be
culturally sensitive and relationship based. They might include:
• Creation of a unique business model tailored to the local market that is both
culturally sensitive and economically feasible;
• Identification of the real needs of the consumer and product adaptation to
meet these needs in a way that creates opportunity for local participation;
• Development of tactics to overcome the infrastructure problems faced by
BOP consumers;
• Detailed research into the BOP market, its needs and characteristics;
• Collaboration with non-traditional partners in the market so as to gain expert
knowledge of the existing social infrastructure, and
• A conscious and publicised plan to develop local talent.

References

Anderson, C. 2005. Long Tail vs Bottom of Pyramid,

http://longtail.typepad.com/the_long_tail/2005/03/
Bradley, F. 2003. International Marketing Strategy, 4th Edition, Financial Times
Prentice Hall, Harlow, UK.
De Soto, H. 2002. The Mystery of Capital: Why Capitalism Triumphs in the West and
Fails Everywhere Else, Basic Books, New York.
Griffin, T., 1994. International Marketing Communications, Butterworth Heinemann,
Oxford, UK.
Hart, T. and London, S.L., 2004. Reinventing strategies for emerging markets: beyond
the transitional model. Journal of International Business Studies. 35, 350-370.
Prahalad, C.K., 2005 . The Fortune at the Bottom of the Pyramid. Wharton School
Publishing, New Jersey.
Prahalad, C.K. and Hart, S. 2002, The fortune at the bottom of the pyramid, Strategy
Business, 26.
Schutte, H. and Ciarlante, D., 1998. Consumer Behaviour in Asia. Macmillan
Business Press, London.

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