The Bop- Explained

The BOP- Explained  BOP the acronym for “ Bottom of the Pyramid” was introduced by C.K. Prahald in his book “ The fortune at the bottom of the pyramid”.  In his book he has quoted “If we stop thinking of the poor as victims or as a burden and start recognizing them as resilient and creative entrepreneurs and value-conscious consumers, a whole new world of opportunity will open up”.  He suggests that 4 billion people living in less than 2$ a day are in the bottom of the pyramid. So this group can be the engine for the next round of global trade and prosperity.  Serving the bottom of the pyramid customers requires large firms work

The BOP- Framework

12 Principles of Innovation for BOP • Focus on the price performance.

• Hybrid solutions blending old and new technology. • Scalable and transportable operations across cultures. • Reduced resource intensity. Eco-friendly products. • Radical product redesign from the beginning. • Build logistical and manufacturing infrastructure. • Deskilling of Service work. • Educate semiliterate in product usage. • Product must work in the hostile environment. • Adaptable user interface to heterogeneous consumer base . • Distribution methods to be designed to reach the markets. • Focus on broad architectures enabling quick and easy features.

Price performanceChallenges Given below is the table comparing the purchase cost of some of the regular items used in rural and urban areas. Item

Dharavi(A)

Warden road(B)

Ratio(A/B)

Cost of Credit

6001000% 56 R.S

12-18%

75

1.5 R.S

37

Municipal water Phone Call(per minute) Diarrhea

2.5 R.S

1.25 R.S

2

1000 R.S

100 R.S

10

medication Rice per Kg

14 R.S

12 R.S

1.2

• Cost of servicing of the BOP market continues to be high as delivery model of the companies are predominantly costly. • The product/service pie is dominated by necessities and hence BOP customers are exploited with higher premium. • The BOP could be characterized as a section of the community that is living in a world of price slavery

Price performanceRecommendations • Prahalad has highlighted the need for creating a price performance envelope with quantum jumps as price is an important part of the basis for growth.

• Basic services like Telephony, banking, transportation infrastructure need to be planned and developed in BOP concentric markets. • Since the markets are maturing and the penetration in the affluent areas are relatively high, it would be a wise decision to concentrate in the rural areas where BOP customers are concentrated. • Margins will get shaved in this process as the companies would take a “ Customer acquisition approach” rather than just making a naïve presence. This brings competition in the untapped rural

Price performanceRecommendations • Another significant area of improvement could be introducing the “ value packs” alternatively known as paisa packs. These are the revelation in the FMCG market that plays a vital role in turn-over contribution. E.g. Unilever’s 3 Roses tea has 1 Rs. Sachets are the growth drivers in the rural and sub-urban segments. • “Value packs” converts the nascent desire to an effective demand by providing them value in small units that could cater to instant needs. Some Examples are given below for prospective value • segments model can be introduced all the basic services like •This Micro financing products with in lower interest. This could Banking create products, lot of entrepreneurs as in Bangladesh by Gramin and other essential commodities. bank. • telephony Chota Recharge coupons for pre-paid cards and ITC calling card of BSNL

Scalable and transportable operations • The hindrance of place is the major road block in reaching the BOP. • Most of them are in remote villages which is difficult to cover as the distribution becomes unviable for the distributors. Hence most of these markets are either disconnected or underserviced. • Even the markets that get serviced are affected by premium pricing as viability will be compromised otherwise.

• The hindrance of place can be removed by creating satellite markets through which scalable distribution can be achieved. This is done by MNC companies like Unilever, Nestle etc. These companies identify and nurture the distribution network that are meeting the distribution norms profitably by scalable operation. They cover the

Hybrid- Challenges •

Scalable, price-performance-enhancing solutions need advanced and emerging technologies creatively blended with existing and rapidly evolving infrastructures. • Technologies should be used to fulfill customer needs and at affordable price. • In case of Jaipur foot they are able to identify foot behavior of Indian people that very much differ from western people by using a traditional methods ( Bare foot Walking, Walking on uneven grounds etc) and new Technologies. Field of Quality : Size • Hybrid systems that can be local, economic and sustainable. Specializatio Outcomes n Jaipur Prosthetics As Good as US 16,000/year Foot Aravind Eye Hospital Escorts

Eye care

As Good as UK

2,50,000/ Year

Cardiac Care

As Good as US

7,000/Year

Scalable and transportable operations Gao Chalo- an example for using NGOs for reaching the horizon

• As an alternative for creating satellite markets, Tata tea has come up with a new and innovative value delivery system named as “ Gao Chalo”. • This system used the NGOs in the rural areas that were working for rural empowerment and elimination of poverty. • The NGOs identified unemployed youth who can distribute the stock in the nearby villages in less costlier modes of transportation. • This not only empowers the unemployed youth but also creates the presence of product in places that were unviable for the conventional system.

Infrastructure- Challenges •

• • •

Just as critical as product innovations. The logistics system for accessing potential consumers, selling to them, and servicing products cannot be assumed. Should not be disruptive to consumers’ lives and improve their quality of life profitably. Careful consideration of process innovations to achieve the requirements. Companies like Amul has used a path breaking logistics process that match with day to day rural India lives.

Infrastructure- Example Milk Collection Centers: Twice a Day Ritual in Rural India

Eco Friendly Products • A lot of health hazards are possible in effluents of the industrial waste being dumped in the arid lands of the villages. • India especially being utilized as the backyard of the western countries like UK for dumping the waste that can’t be recycled. • Effluents from the industries that are properly regulated by the environment board can jeopardize the harmony of the inhabitants including its workers.

ll the industries that are prone for environmental pollution such as Chemical, extile, dying, tanning industries need to be strictly assessed for pollution contro norms compliance before issuing license. he local body need to take an active role in enforcing this. In case of coke bottlin plant in Kerala, the local body has shut down the plant by conducting a agitation rivate companies need to develop indigenous technology for conservation of the environmental resources. Pepsi has taken a stand that it would implement measu o save power, water and energy by setting measurable objectives.

Identifying Functionality • Product development must start from a deep understanding of the functionality, not just the form; marginal changes to the product does not appeal to the customer. • Innovation should be a completely different set of value which is perceived by the prospect in the market. It is delivered to them in such a way to create practical value as well. • There are so many examples for that in the real market scenario: • 1) Jaipur foot is advanced in functionality, for 1/200th of the cost, can be custom-fitted by semi-skilled paramedics in one visit, and last for 4-5 years. • 2) ITC too has excelled in functional competence by running the e-choupal program that gives the farmers an edge to understand the market scenario with the help of the inputs from the company. The formers can log into the net and read about the latest trends in the market with the help of a sanchalk. • 3) United Insurance introduced accident coverage policies that costs less than 1 re. a day for the family members of the insurer. By paying 249 R.s the insurer and two dependents get the

Identifying Functionality

• Functional competence can be achieved by the companies that are already present in the BOP market by integration of operation and developing in-house solutions for the product development.

Process Innovation • Just as critical as product innovations are, the logistics system for accessing the potential customers, selling to them and servicing the product cannot be compromised. • Supply chain model of the companies are getting redefined to fit the changes in the need of the customers in the urban market. The same importance need to be given for the BOP markets. • A product not available in the shelf when a customer enquires it is a potential loss of sales. So the companies have to make sure they estimate the sales properly and fix up delivery schedules in concordance with the off take. • Over supply also will turn the customer away as slower off take means product will be in the shelf for a long time before it’s getting purchased. • Efficient fleet management and meeting the delivery window will soon be the important thing for capitalizing the sale in any market.

Project Shakthi- an example of process innovation • Project Shakthi is a distribution program run by Unilever in India by hiring women from the backward communities as “Shakthi ammas” to cater to the untapped market. They cover the markets in the nearby locality often door to door and sell

De-skilling of the work • Companies when developing products must take in to account the complexities in the customer segment in terms of skill level to use the product or service, difficulty in accessing the product etc. • For example using the VAS in the mobile/ or accessing the internet needs technological skills and literacy. • Introducing a product for the BOP segment needs to be thoroughly assessed for complications in usage. • Products customized for simple usage will go great miles especially technology based products. • Services that require more understanding and effort will fail eventually to entice the common man.

A model campaign- Marg Darshan- Campaign for MVAS • Their rustic life does not allow them to break the barrier and look for more value out of the cell phone. • It’s not only a staunch indifference to services beyond basic voice calls, they also lack skills to use services like SMS, and other VAS offers. • Operators need to identify CATALYST for each village, by running this MargDharshan Campaign. • MArgDharshan, through its Facilitators educate the use of VAS to learn Farming Trends and techniques. • Domain of Farming tips to be created with the help of Agricultural Ministry. • Operator can sensitize enrollments for this campaign by highlighting the fact that being MargDharshak is an opportunity to serve the farmers in the village.

Marg Dharshan

•Media Campaign, flashing the Toll Free number. • On registration Margdharshak will be trained and licensed for free lancing. •Any farmers subscribing for the Mobile Farming service will be through a conventional channel partners. •Margdharshak will get a fixed + subscription based pay • highest performer will be felicitated.

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Broad ArchitectureChallenges BOP markets allow (and force) us to challenge existing

paradigms and conventional wisdom. Gaining scale, speed, extremely high quality, and unbelievably low costs. BOP markets accept the most advanced technology easily. Enabling people to buy by accessing markets creatively and designing affordable products for them breaks the longheld assumption that BOP markets are not viable. BOP markets break our traditional ways of thinking and acting – their biggest allure and challenge alike. Unless we are willing to discard our biases, this opportunity will remain invisible and “unattractive”