Brands have a future focusing on billions at foot of pyramid

The real source of market promise is not the wealthy few in the developing world, or even the emerging middle-income consumers but the billions of aspiring poor coming into the market economy for the first time.

Prospective rewards for companies competing in this segment, universally known as the Bottom of the Pyramid, include growth, profits, and incalculable contributions to humankind.

The Bottom of the Pyramid (BoP) is the largest, poorest socio-economic group in the world, consisting of four billion people who live off less than $4 (about Sh400) a day.

The concept of the fortune at the Bottom of the Pyramid is found in a book by C. K. Prahalad and Stuart L. Hart that making a case for the fastest growing new markets and entrepreneurial opportunities found among the billions of poor people ‘at the bottom of the financial pyramid’.

According to Prahalad and Hart, the bottom of the pyramid represents the largest market opportunity in the world through which companies get to meet the needs of the world’s poorest by focusing on inclusive capitalism. This means not seeing the poor as victims but as value-driven consumers.

Until the poor can access the global economy, they will not have any real chance for sustainable development.

One of the targets of the UN Sustainable Development Goals is to ensure that all men and women have equal rights to economic resources as well as access to basic services, ownership and control over land and other forms of property, inheritance, natural resources, appropriate new technology and financial services by 2030.

To access opportunities at the bottom of the pyramid, companies have to combine low-cost, quality, sustainability, profitability and re-think how they go to market.

Companies like Unilever have achieved more than $6 billion annually from these markets and in the process helped to create millions of small-scale entrepreneurs providing people with affordable world-class products.

Central to the success is these institutions are their ability to focus on local solutions and networks. Big brands are not good at accessing local markets and rural areas but there are creative local companies that are building distribution models to reach these areas.

For example Kenyans noticed that sending money to friends and relatives using Western Union, MoneyGram, and the national postal service was costly.

They skirted around this issue and bought phone credit instead, then sent it to the receiver who would convert the credit into cash from the nearest shopkeeper, who earned a small commission.

This is how the world’s first and most successful mobile money transfer system, MPesa, was born.

To generate wealth at the bottom of the pyramid, companies cannot rely on the same products and business models that they used in developed markets.

Small amounts

They need products specifically for the poor with profits based on big volumes and not big margins. This means the new business and production models have to be scalable and easily localised.

For example, many manufacturers realised that the poor don’t buy in bulk from supermarkets so they created single-use packets for local markets; what is commonly known as the ‘kadogo economy’.

Manufacturers have taken note of the ‘kadogo economy’ and these days even retailers in middle-class neighbourhoods stock products in medium, large, and tiny packs. Because they are buying smaller amounts on a daily basis, products have to be high quality to be successful.

Generally, the poor lack capital and cannot access traditional routes like banks because they do not have any collateral.

This means they pay huge amounts of interest to local moneylenders, making it almost impossible to generate opportunities to create wealth. If lenders are able to consider local customs and networks, they can provide cost-effective opportunities for the poor to generate sustainable incomes.

The Grameen Bank is a Nobel Peace Prize-winning microfinance organisation that makes small loans to the impoverished without requiring collateral.

Grameen attributes its 99 per cent repayment rate in large part to the self-imposed discipline and mutual learning induced by the peer-group approach. Locally, the Equity Bank group is touted as having grown using the same model.

The overall success of big brands targeting the poor is based on mutually beneficial partnerships founded on trust, respect, dignity and choice.

Brands have to create real value, and not just fortune, at the bottom of the pyramid.

Kanyana is the CEO of MK-Africa, a sustainability and brand communications firm.