10 lessons for doing business with base of the pyramid markets
In a recent online discussion
experts shared their views on how businesses could best serve the
lowest income populations - from business model adaption to the risk of
exploitation
A recent online chat asked how business can best operate in base of
the pyramid markets and what could be learnt from the success and
failures of those businesses
already serving the lowest income
communities. Here are 10 key findings:
1. Make it about core business
One
of the biggest errors companies can make is to treat base of the
pyramid (BoP) projects differently from their core business, according
to Cornell's Eric Simanis. Operating in very low income populations
presents enormous challenges from high operating costs and poor
economies of scale to sceptical consumers, "so if these projects aren't
being driven as rigorously and as laser-focused on meeting the numbers
as companies would with "traditional markets", they simply won't have a
shot at profitability."
A focus purely on social impact won't
work, companies need to see social impact as a byproduct of doing good
business. In many cases the impact will come through the product itself,
Simanis added, this means a focus on good quality products. "I think a
lot of the pulling back by companies from the BOP space happened because
projects were being run like CSR ventures but were expected to perform
on the profits/revenue side."
Business Call to Action's Tatiana
Bessarabova agreed that using core business was key. "Whereas CSR
typically takes place in the community investment sphere ... 'pro-poor'
business stems from the core of the business, where the company's
expertise lie". She gave the example of Santander Brazil which aims to
encourage financial literacy and growth in small business through
loaning to micro enterprises that traditionally find it hard to secure
funding.
Hystra's Oliver Kayser agreed but did point out the
benefits of setting up an internal joint venture between the CSR team
and the buisiness lines. He gave the example of Total's solar lantern Awango project which was initially set up in this way.
2. Scaling up a business model is challenging
Simanis
pointed to a difference between scalable and replicable. Every business
model is replicable, he said, given time and money. Scalable, however,
means it must hit a target return on investment within a certain time
frame. "So a break-even business isn't scalable; a single business unit
that is profitable may not even be scalable ... the profits have to be
high enough and fast enough at the business unit level for a project to
be scalable." This is not an easy task and businesses need a huge amount
of patience and the willingness to look beyond traditional short term
metrics.
3. It's vital to understand the needs, demands and constraints of the target market
Understanding
what BoP customers need and want requires a significant time
investment. Bessarabova advised working closely with communities,
adjusting the business model to the local context and understanding the
financial needs of customers. Introducing the idea of paying for a
product that prospective BoP customers may not be familiar with means a
lot of work on tailoring a companies' marketing, distribution and
financial approaches.
Havard's Jane Nelson agreed that companies
trying to serve the BoP market must take a comprehensive approach to
understanding the range of constraints that low-income producers or
consumers face. Companies should also think about partnering with others
to strengthen their understanding of systems within which low-income
producers and consumers are operating.
4. Work should be grounded in country offices
The
major challenge BoP units face is where they are based. Projects should
be grounded in country, said Eric Simanis. "You can't run a business in
Kenya out of the Paris office and have a standalone cell in the field
(one of the greatest values of being inside a corporation are the
economies of scale of leveraging operations). But if you run projects
that are aiming to make less than the target return or are diluting
margins, the country office will have no interest in it."
Construction
company Lafarge and brewing and beverage company SABMiller were given
as good examples of companies working within country offices to drive
business which fits with their overall objectives. Kayser praised the
Lafarge "toolkit" which has allowed country offices to design an
approach appropriate to the local context while leveraging global best
practice and experience.
5. There is a significant role for the public and development sector >>>
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