Winter 2013-14

NIET
Journal of Management

Connecting the
‘Bottom
of the
Pyramid’
Socially Responsible
Distribution
Abstract
While interest and debate about the base of the pyramid (BoP) as a poverty alleviation perspective is growing,
most of the current research has focused on business strategies for organizations interested in exploring these
markets.
The majority comprising the bottom of the pyramid resides in hundreds of thousands of villages located beyond
most multinationals’ distribution networks. Its access to essential goods is limited not just by high prices, but also
by inadequate rural distribution, which also restricts the poor in distributing its produce.
We use the term socially responsible distribution to describe initiatives that provide poor producers and
consumers with market access for goods and services that they can benefit from buying or selling, by helping
neutralize the disadvantages they suffer from inadequate physical links to markets, information asymmetries, and
weak bargaining power.
This paper examines three socially responsible distribution case studies of multinational company, government
and NGO initiatives. It identifies how socially responsible distribution can be achieved by strategies that take cost
out, reinvent the distribution channel or take a long-term perspective that invests for the future. It summarizes
procedures and precautions for setting up distribution into the rural bottom of the pyramid, and the payoffs from
socially responsible distribution strategies.
The purpose of this study is to examine which changes companies need to implement in their transactional
marketing strategy to sell to the poor when launching a product innovation in low-income countries.
The paper confronts the literature on the “bottom of the pyramid” with the diffusion of innovations theory in order
to identify the country characteristics that call for marketing changes when entering low-income markets. Tapping
the potential of the BOP requires not only radically lowered priced products but also consumers with higher
income.
The lesson here is relevance, adaptability & tailoring products to suit specific BOP needs in an efficient manner.

Socially Responsible Distribution from inadequate physical links to markets,

Strategies
I refer to socially responsible distribution to describe
initiatives that provide poor producers and
consumers with market access for goods and
services that they can benefit from buying or selling,
by helping neutralize the disadvantages they suffer
information asymmetries, and weak bargaining
power. Governments, civil society and the private
sector can all play a role in providing socially
responsible distribution.
The market access disadvantages of the rural poor
could be addressed with massive spending on
roads. With a factor such as illiteracy, it might also be

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 CONNECTING THE BOTTOM OF THE PYRAMID: SOCIALLY RESPONSIBLE DISTRIBUTION
possible to find a solution in substantially increased
spending on education. Fortunately, there are three
creative market-based alternatives that I have
identified in my research:
• Taking cost out. This approach increases access
by lowering costs of distribution.
• Reinventing the distribution channel. This
approach increases access through innovation, by
identifying different routes for reaching rural
consumers and for rural producers to get their
products to market. New technologies provide one
type of solution. Other solutions come in business
process redesign.
• Taking the long-term view and investing for the
future. This approach entails increased private
sector investment anticipating a long-term payback
and/or as a social commitment.
To understand how socially responsible distribution
meets the challenge of distributing goods and
services we looked at the strategies of three
organizations drawn from different sectors:
government, the private sector and civil society. I
decided to focus the research on rural India because
of its high levels of poverty (though we believe our
study is generalizable to the rural BOP in other
countries).
ITC Limited
Small farmers suffer tremendous disadvantages
when selling their produce as well as when
purchasing goods. They lack accurate information
on market prices, which is necessary to enable them
82
to sell at the best prices. They are often bullied and
cheated by buyers when grading and weighing
produce at the point of sale. The productivity of Indian
farmers lags that of many other countries. For
example, India’s oilseed yield per acre is only 42% of
China’s and 33% of that in the US. This results partly
from farmers’ lack of knowledge of the best
agricultural techniques such as use of fertilizers and
high-productivity seeds (Government of India, 2010).
ITC Limited, a diversified multinational that trades in
agricultural commodities, has addressed some of the
critical challenges faced by farmers. ITC uses
information technology to empower small farmers by
providing them with real-time market information,
and has set up a direct procurement system that
gives farmers an alternative channel for selling their
produce. In a major strategic move begun in 2004,
ITC has committed to a significant enhancement of its
rural distribution by investing in a chain of mini-malls
to sell a range of goods and services. It has
succeeded by taking cost out and reinventing the
distribution channel and, arguably, invested by
taking a long-term view.
ITC’s beginnings
In 2007, ITC was 44% foreign-owned (ITC, 2007).
About 31% of its stock was owned by British
American Tobacco and a little fewer than 13% by
foreign institutional investors. The company had
started out in 1910 as the Imperial Tobacco Company
of India.
By diluting foreign equity to below 40% these
companies became classified as Indian companies
rather than multinationals and were as free to enter
new businesses as fully locally-owned companies.
Over the years, ITC diversified into businesses
unrelated to tobacco.
Agricultural trading
ITC capitalized on its agricultural sourcing capability
by setting up its International Business Division in
1990 to trade agricultural commodities, both
domestically and abroad. Export of agricultural
commodities has turned into one of ITC’s major
growth activities.

NIET
Journal of Management
Farmers’ plight
Typically, small Indian farmers bring their produce,
such as soya bean, to the “mandi,” a state-
sanctioned wholesale marketplace where traders
bid for it. Each farmer is offered a price for his soya
bean depending on moisture content, foreign matter
and broken seeds. Farmers’ bargaining position is
weak. They lack accurate information on prevailing
prices and trends at neighboring markets (having to
rely on word of mouth), and are unable to verify if
their produce is weighed and graded accurately
They are discouraged from turning down an offer
because they have already incurred the sunk cost of
bringing their produce to the market and would need
to spend more money to take it back and return
another day.
ITC’s commodity procurement system
ITC, which previously bought produce from
intermediaries (traders who procure from farmers),
set up an IT-enabled procurement system that
empowers farmers in two ways: by providing them
with real-time information on commodity prices so
that they can obtain better prices for their produce,
and giving them an alternative selling channel, direct
to ITC. The centerpiece of the system is the “e-
Choupal,” which is a gathering place built around a
computer located in the village to provide farmers
with information on commodity prices, weather
forecasts, farming practices and other important
topics in the local language (Choupal means village
gathering place in Hindi, so eChoupal stands for a
computer-enabled gathering place).
The e-Choupal is manned by a farmer who lives in
the village and is recruited by ITC to serve as its
representative (called “sanchalak”). These village
representatives are trained by ITC to use the
computer and access information via ITC’s web
portal.
Political issues
Historically, Indian Laws prohibited companies from
purchasing grain directly from farmers and required
that trade be conducted exclusively in the
government sanctioned mandi. However, ITC
lobbied the Government to amend the law and allow
direct purchase as this would benefit farmers.
Winter 2013-14
Problems in setting up the e-Choupal
network
ITC faced a number of problems in setting up the e-
Choupal network. The main hurdles were
infrastructural –unstable electricity supply,
inadequate telecommunications connectivity and
bandwidth.
Selling to farmers
ITC has enhanced the value of its procurement
system by turning it into a two-way distribution
channel. In addition to assisting procurement of
agricultural produce from farmers, its village
representatives sell a variety of products and
services to villagers, earning a commission on sales.
These range all the way from salt to motorcycles.
Some of these products are ITC brands; for example,
Ashirwaad flour and Candyman candy. While some
are bought from other companies; for example,
Philips light bulbs, Eveready batteries and Colgate
toothpaste.
Gyan Shala
Illiteracy is a significant barrier to enhancing welfare
at the bottom of the pyramid. The reach of public
education programs is severely limited by paucity of
resources, and thousands of children forgo the
opportunity to attend school because the closest
public school is too far. Gyan Shala (“school for
knowledge/wisdom”) is an example of a non-profit
entrepreneurial start-up that has developed a
scalable model to provide low-cost consistent quality
education to poor rural and urban children who are
inadequately served by existing public education
programs. Its model provides basic education using
especially-developed high-quality materials
delivered by low-wage but well-trained teachers at
locations close to the homes of under-privileged
children. In short, Gyan Shala addresses access to
education by redefining its goals (to focus on very-
low cost basic education) and the delivery model
(being conveniently located in the community),
thereby both reinventing the distribution channel and
lowering costs.
Gyan Shala is an Ahmedabad-based NGO that was
set up in 1999 to create a radical low cost design for
delivering effective education for poor children in
grades 1 to 3. In order to provide highly accessible
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 CONNECTING THE BOTTOM OF THE PYRAMID: SOCIALLY RESPONSIBLE DISTRIBUTION

education at low cost in a scalable format, Gyan links. The Indian Postal System provides the widest
Shala relies on several key design elements: communications reach into rural India. It has 155,516
(i) Classes are located in the village, or in the urban post offices (POs) of which 89%, or 139,120, serve
slum, so that young children can easily walk to them. rural areas, giving it the widest physical reach of any
Indian organization. At independence, in 1947, India
(ii) Costs are contained by hiring teachers who live in had 23,344 post offices, of which 82% were rural.
the community, or close by, have a tenth-grade high Access has been increased through reinventing the
school education, and are willing to work at low distribution channel.
wages because they are either unemployed or are
looking for supplementary income from part-time Financial and Other Services
employment. The Department has a strategy of enhancing the
(iii) Teachers are given solid training and are economic viability of its investment in the postal
continually and closely monitored and assisted to network by offering a wide range of services. In
ensure that they deliver quality instruction. addition to normal services such as delivering mail
and money orders, it offers basic financial services
Nearly 70%-80% of the mothers of Gyan Shala’s
such as savings accounts and life insurance, some of
students are illiterate. If it can demonstrate the
which are also available in other countries, like
effectiveness of its model in these conditions, the
Japan. The Post Office Savings Bank is the largest
chances of success in other settings are higher.
and oldest Indian banking institution.
Curriculum
A service that is proving to be extremely valuable in
Gyan Shala’s design team puts together the rural areas is mobile telephone calls, introduced in
curriculum and the schedule for daily classroom 2002. Referred to as the Gramin Sanchar Sewa (Rural
activities to translate its goals into the educational Communications Service), this program brings
program and class experience. telephone service to areas not covered by
The design team is also responsible for recruiting conventional land-line or cellular service.
and training teachers and overall program
implementation.
Physical setting
A unique aspect of Gyan Shala classes is that they
are physically located within the village or slum
where children live so that they can easily, and safely,
walk from home to class.
Financing
Gyan Shala started with $18,500 from the Ratan Tata
Trust (affiliated with the Tata group, one of India’s
largest conglomerates). It began operations with five
program designers and then hired eleven teachers to
launch classes in nine Ahmedabad slums in June
2000. In 2001, it ran forty-five classes, twenty urban
classes with funds from the Tata Trust and twenty-five
rural classes funded by VIDE, a USA based non-
profit organization.
Department of Posts
The rural population’s ability to benefit from India’s
growth, industrialization and development is
seriously compromised by poor communications

84

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Journal of Management
Strategies
As the cases illustrate, challenges to socially
responsible distribution have been addressed by all
three sectors - government, civil society and private
companies. Below, we discuss some of the learning
about specific strategies that can enable
organizations to design and implement socially
responsible distribution
Selectively bridge the infrastructure gap
Managers who are used to taking infrastructure for
granted may shy away from entering the rural
bottom of the pyramid. Organizations such as the
Department of Posts and ITC those are willing to
bridge the infrastructure gaps, such as lack of
internet access and reliable electric power, have
successfully extended distribution channels into
the BOP.
Aggressively control cost through
differential, or layered, distribution
As organizations extend distribution networks
outward to remote areas, transportation cost rises
and population becomes sparse, rapidly inflating
distribution cost. All three organizations run village-
level operations with low fixed operating costs and
very low variable operating costs.
Leverage distribution
Challenges of physical access and fragmented
demand deter investment in distribution
infrastructure reaching into the rural parts of the
bottom of the pyramid. Both the private sector (e.g.,
ITC) and the government (e.g., the Department of
Posts) provide examples of enhancing the value of
investment in rural distribution and improving its
economic feasibility by, first, converting it into a
bidirectional network and, second, by broadening
the distribution network’s scope by sharing it.
Bidirectional distribution
The feasibility of distribution can be improved by
creating two-way flow of products and services. The
distribution strategy of the Department of Posts and
ITC creatively enhances the value of its logistics
system by turning it into a two-way distribution
chain.
Winter 2013-14
Empower the BOP with education &
information
Gyan Shala directly addresses a key determinant of
poverty, illiteracy arising from inaccessibility of basic
education. By teaching children to read, write and
perform basic arithmetic functions by the end of
grade 3, all at a very low annual cost of $40 per child,
it presents a viable model for lifting future generations
out of poverty.
Collaborate across sectors
Each organization we studied drew value from cross-
sectoral collaboration. Gyan Shala receives some of
its funds from the private sector and government, and
is working with the government to disseminate its
model as a public good. The Department of Posts is
providing private companies, universities and
government agencies access to its vast rural
network. ITC is using information feeds from
government agencies to provide focused
knowledge, such as agricultural methods, and also
assists NGOs in providing services to rural
cooperatives.
Government flexibility
The government, recognizing the value that poor
farmers could derive from greater competition
among traders, showed considerable flexibility in
allowing ITC to set up a direct channel for commodity
procurement, which essentially competes with the
channel that the government itself oversees. The
Gyan Shala and ITC cases demonstrate that the
government is willing to trust and facilitate initiatives
by civil society and the private sector that appear to
be carefully designed to enhance welfare at the
bottom of the pyramid. They also show that
government intervention to assist the BOP does not
always entail massive financial investments.
Ensure scalability
The challenge of socially responsible distribution is
to serve an enormous population at the bottom of the
pyramid in need of goods and services. This calls for
solutions that can be fueled with less rich, but more
abundant, resources than normally used.
In their decision to use BOP entrepreneurs to
manage distribution’s last mile, the Departments of
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 CONNECTING THE BOTTOM OF THE PYRAMID: SOCIALLY RESPONSIBLE DISTRIBUTION
Posts, Gyan Shala and ITC have all opted for scalable
models as these human resources are abundantly
available. The use of technology platforms also helps
in this regard.
Precautions
There are some precautions that are suggested by
our cases as being especially important:
a. Engage the community to facilitate entry.
Preempt local suspicion when entering a new
community by getting to know the environment,
building relations with local leaders, sharing plans
and getting buy-in for them.
b. Select trustworthy retail representatives. A
critical element in success is to recruit village
representatives who are respected by the
community. So take care to identify people who are
seen as successful and trustworthy.
c. Carefully adjust price and features. Large
companies have faced off against small “cottage
firms” in developing-country cities for decades.
Cottage firms typically compete by selectively
enhancing the perceived value of their products
while pricing at a fraction of large companies’ prices
so as to woo customers of differentiated products.
Payoff
The analysis suggests that involvement in rural
distribution helps players from all three sectors,
private companies, NGOs and government, achieve
various objectives while benefiting those living at the
bottom of the pyramid.
86
Payoff for the bottom of the pyramid
Socially responsible distribution by organizations in
all three sectors can deliver valuable payoff for the
people at the BOP. They are better informed and, with
assistance on how to use information, can raise their
incomes and derive higher value from purchases of
agricultural inputs and consumer goods. Some of
these benefits are the direct result of entrepreneurial
opportunities, services and products provided by
organizations.
Knowledge of better agricultural practices raises
productivity and income, and appreciation of health
and hygiene factors improves quality of life.
Entrepreneurship opportunities build self-esteem
and loosen cultural constraints. Better communica-
tions with urban areas create stronger awareness of
rights and opportunities. Education provides
children with greater career opportunities.
Conclusion
Management scholars and development economists
have provided a compelling case for greater attention
to the bottom of the pyramid. However, few contribu-
tions have examined specific strategies for reaching
the bottom of the pyramid or given much attention to
the BOP as producers.
The term socially responsible distribution to describe
initiatives that provide poor producers and consum-
ers with market access for goods and services that
they can benefit from buying or selling, by helping
neutralize the disadvantages they suffer from
inadequate physical links to markets, information
asymmetries, and weak bargaining power.
The paper highlighted the obstacles to higher
earning potential and access to cheaper goods for
poor consumers. Organizations tackled these
obstacles by bridging the infrastructure gap,
aggressively controlling costs, leveraging distribu-
tion, empowering the BOP with education & informa-
tion, harnessing technological advantages, collabo-
rating across sectors and ensuring scalability.
Managers who are interested in reaching into the
BOP could well learn from the strategies adopted by
the organizations discussed here, which are in many
respects at the forefront of efforts to serve and
engage with the BOP.

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Journal of Management
Given that the cases were drawn from a single
country, India, one must naturally be cautious in
extending the lessons to other countries. However,
there are strong similarities in the conditions
surrounding rural poverty across developing
countries.
The lessons drawn in this article will help organiza-
tions in other countries enhance the income of
people at the bottom of the pyramid and present
them with wider and more valuable alternatives for
accessing goods and services.
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