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The Bottom of the Pyramid. A case study on marketing products and services

Research Paper (postgraduate) 2015 27 Pages

Business economics - Business Management, Corporate Governance

Excerpt

Table of Contents

Section-1: Background Context
1.1 Background Context
1.2 Problem Statement
1.3 Aims & Objectives
1.4 Motivation
1.5 Methodology

Section-2: Literature Review
2.1 What is meant by Bottom of the Pyramid (BOP) Market?
2.2 Potential in BOP Market
2.3 Marketing Mix
2.3.1 Product
2.3.2 Price
2.3.3 Promotion
2.3.4 Placement
2.4 Marketing Challenges faced in BOP Market
2.4.1 Acceptability
2.4.2 Affordability
2.4.3 Awareness
2.4.4 Availability

Section-3: Case Studies
3.1 Case Study on Tata Swach (Water Purifier)
3.1.1 Company Profite
3.1.2 Tata Swach
3.1.3 Product
3.1.4 Price
3.1.5 Promotion
3.1.6 Placement
3.1.7 Marketing Challenges
3.1.8 Social Issues
3.2 Case Study on Nestlé Brazil
3.2.1 Company Profile
3.2.2 Product
3.2.3 Price
3.2.4 Promotion
3.2.5 Placement
3.2.6 Marketing Challenges
3.2.7 Social Issues

Section-4: Analysis
4.1 Analysis of Literature Review & Case Studies

Section-5: Conclusion & Recommendations
5.1 Conclusion
5.2 Recommendations

Section-6: References

Section-1: Background Context

1.1 Background Context

It has been estimated that about 2,582 million world population has been living for below than $2/ day. This group forms the bottom of the economic pyramid (BOP). This market for this group is huge and diverse that several corporations around the globe have been trying to make their presence within this market through their marketing offerings (Kacou, 2010). Even though the purchasing of BOP consumers is seemed to be low in relation to the Western market but the potential of this market is appeared to be very attractive to the Multinational Corporations (MNCs) around the world (Tybout & Calder, 2010). As an outcomes, MNCs are trying to untapped the potential offered by this market through the implication of innovative marketing strategies (Peter , 2013). Prahalad (2009) contends that the distinctive aspect about BOP logic is to generate and not to do it for charity purposes (Prahalad, 2009). While, Karnani (2011) came up three severe conditions[1] to BOP logic.It has been observed, there are very few MNCs that meet all the three conditions outlined by Karnani (2011) in regard to the development and selling of product offerings in the BOP market.

It has been believed that the formulation of business model for the purpose of serving BOP market should have to begin with basic insight rather than making minor changes in the existing business model which has been successful in the affluent markets. Garrette & Karnani (2010) argued that the corporations should have to shift their focuse from creating needs in the current markets to the extend of creating markets for the unmet needs (Garrette & Karnani, 2010). On other side, marketing managers seemed to have different approaches for the purpose of preparing appropriate marketing strategy for BOP segment.

It has been intended the relationships between marketing mix elements (product, price, placement and promotion) and certain BOP marketing challenges or four A’s (awareness, availability, accessibility and affordability) would provide broad marketing framework and should needs to be explored. It has been determined that the understanding in regard to BOP market and the suitable marketing strategies still not much braod as it should have to be. This theory into practice would emphasise on the four A’s and would also come up with a theoretical framework for marketing products to BOP segment which could also support to meet three main conditions of BOP logic which has been articulated by Karnani (2011). All this would be accomplished through the certain case studies MNCs that have been operating successfully in BOP market.

1.2 Problem Statement

Bottom of the Pyramid (BOP) market is considered as challenging one for the companies seeking for profit generation. Traditionally, this market is categorized as a domain for non-profits organisations, NGOs and governments. Most companies have preferred to leave these consumer segments for the above previous mentioned groups and concerned only on targeting middle and upper classes. Major reason for this aspect is that consumers in the BOP markets have lack of income and that it has been seemed that the certain products or services that are of basic need only have a market. It has also been seen that if the cost for producing quality product is high then it would become hard for BOP consumer to buy that product and hence it would create not much financial benefit for the producing company. One more problem is that the factor of increasing consumption does not seems sustainable in relation to the BOP market. There are certain questions that are directly related to the BOP market that have been listed below:

- BOP consumers only buy products for their basic needs?
- What are the successful product categories of BOP markets?
- What sort of approach should be pursued by the marketing managers for targeting BOP consumers?

It has been seen that above all questions frequently raise concerns for the Multinational Corporations (MNCs) and many of them realised it as major threats or barriers for them. Alternatively, very few of them have adopted the approach of developing distinctive product and service propositions for the BOP consumers.

1.3 Aims & Objectives

Main aim of this theory into practice report is to explore that to how much extent different MNCs have managed to target BOP consumers with their pursued marketing strategies. In addition, this report has certain objectives that have been mentioned below:

- To learn about the concept of BOP and its potential.
- To critically evaluate the significance of company’s marketing mix aspect.
- To examine the relationship between company’s marketing mix strategies and the four BOP marketing challenges (awareness, availability, accessibility and affordability.
- To discover the link between the marketing mix theory and the case studies.

1.4 Motivation

Main motive behind this topic is the nostalgic attachment with aspect of poverty. Our forefathers had begun the tradition of taking active part in the charity activity. Although we doesn’t own any charity institution but we used to do it secretly. Secondly I’m from India, the poverty is determined that major problem. Political Parties have adopted the approach of working mostly for the interest of rich people that is reason why a great inequality has been evident between rich and poor. With the increasing inflation, it is becoming tough for poor people to survive and basic necessities are also seems to be getting out from their reach. In India, several MNCs have initiated different campaigns for helping poor with the way of distributing some proportion of their profits to these peoples. While, I think MNCs should also have to adopt the approach of producing different product categories that would be available at minimum possible prices.

1.5 Methodology

This research will be based entirely on secondary data. For literature review section, different sources (Journals, Case Studies, Digital Library, Books and Research Papers) will be explored. However for the case study section, the cases of three companies (Tata, SC Johnson and Nestlé) will be illustrated. These cases have been preferred in accordance with the three conditions of BOP logic. Link between the major findings of literature review and case study will be created in the Discussion section. This link is compulsory to develop as it will permit the accomplishment of all assigned objectives of this research project.

Section-2: Literature Review

2.1 What is meant by Bottom of the Pyramid (BOP) Market?

It has been discovered that the concept of BOP has been defined numerous times by different authors. It has been observed that this untapped market has managed to grab the attention of various MNCs across the globe due to its vast opportunities (Karnani, 2007). But the low purchasing power of consumers within this segment has provoked these MNCs to stay away from it (Matta, 2012). It has been predicted that the sheer size of this market would likely to lead towards profit and product innovation in coming years. By reflecting to the past, Prahalad was the first researcher who analysed the potential of BOP market. In accordance with that potential he came up 12 principles that would guide towards innovation in the BOP market. According to Prahalad (2006), all of these principles are helpful for MNCs to enter and operate in the BOP market. Moreover, Prahalad (2006) also argued that there principle are also useful from the perspective of marketing. He contended that instead of offering existing products to the poor consumers, MNCs should have to realised the needs of BOP consumers, so instead of pushing irrelevant products on them they would have to innovate (Simanis, 2011). Moreover, it does not essential to look for cheap innovation as BOP consumers are also value conscious and would seemed to pay willing for the products that relevant for them and in this way it would generate profits for MNCs as an outcome of aggretated buying power.

In relation to Hammond et al. (2007) research report, BOP estimated to have about 4 billion people whose income is less than $3,000 per annum. BOP markets are mainly rural with mainstream located in South Asia, Africa, Latin America, Eastern Europe and the Caribbean (Hammond et al., 2007). Relatedly, it has been examined that BOP itself is categorised as homogenous segment become the income of BOP consumers could vary across communities and regions. A figure below illustrates the economic pyramid of estimated BOP market:

Abbildung in dieser Leseprobe nicht enthalten

Figure 1 World's Economic Pyramid (Based on Purchasing Power Parity in US Dollars), adopted from Hammond et al. (2007)

It has been demonstrated from the above figure that market opportunity does not only limited to few wealthy people located in the developed countries and it has been intended that massive number of aspirimg people are seeming to join market economy for very first time (Hammond et al., 2007). On the top of the pyramid, there is a small proportion of affulent market consumers residing in the developed countries and it is also determine a region from where most of the MNCs have been originated (Prahalad & Hart, 1999). It has been observed the business approach of most of the MNCs’ managers have been accustomed through their familiarity and knowledge about the Tier 1 consumers. The bottom of the pyramid reflects the emerging BOP consumers and great percentage of them have been located in the rural areas of different regions and countries (Prahalad & Hart, 1999).

Nevertheless BOP market is large and it has been implied from the BOP approach that MNCs could manage to make their fortune by selling their marketing offerings to the BOP consumers that have been neglected from the category of potential consumers. It has been intended that the consumption choices of BOP consumers could be enhanced by targeting various products and services and also by reducing the prices of specified marketing offerings only not their quality. BOP market could provides a new growth opportunities to the private sector and could also be emerged as a venue for innovation (Landrum, 2007). While, the bottom line is that old business practices won’t work. Penetrating into BOP market would provide an opportunity to MNCs to have access over fastest growing segment (in term of population) which is determined as most thrilling grow opportunity for the future (London & Hart, 2004). Significantly, it has been implied that serving to BOP consumers would demand for innovation in various aspects (products, services, technologies and business models).

2.2 Potential in BOP Market

It has been estimated BOP consumers used to spend major proportion of their income on housing, food, beverage, transportation and tobacco. However, it has been projected that BOP consumers’ spending on food, beverage and tobacco will decrease by 2025 due to increase in their disposable income. Meanwhile, their spending on healthcare, transportation, personal products & services, education and recreational activities are likely to increase steadily (Ozegovic, 2012). It has been expected that the size of BOP market will expant at more intensity than the market size of top of the pyramid consumers. It has been realised that such varing spending pattern requires a proactive change in marketing strategies which would enable MNCs to unlock the complete (full) potential of BOP market (Ozegovic, 2012). BOP market is seems as neglected market which would provide great growth opportunities in comparison to the saturated and developed markets. Consequently, the opportunities and the potential BOP market are massive not only for the private sector but also for the public sector. It has been contended the marketing strategies for BOP market has not only to rely on aspect on reducing the prices of existing marketing offerings but also need to be based on the creation and offering of customised products for the purpose of addressing the BOP consumers’ unmet needs. On the basis of 4 billion people living at the BOP, one could contends that collective BOP consumers have significant purchasing power as BOP consumers constitute a global market of $5 trillion (Hammond et al., 2007).

2.3 Marketing Mix

The concept of marketing mix had been originated in 1960s when Borden (1964) discovered 12 controllable marketing aspects that would outcome in to a profitable business if managed properly. While, later McCarthy (1964) has reformed it as a framework based on four elements[2] which is now termed as four P’s framework. This framwork is still considered as a crucial concept of marketing theory and also for the operational marketing management (Constantinides, 2006). Additionally, Constantinides (2006) contended that identification of four P’s would likely have an influence on the consumers’ purchase process and decisions and could be regarded as first initiative towards the formulation of BOP marketing strategy.There are several ways for satisfying the target market consumers’ needs. It has been inclined that the marketing mix framework could support in organising and simplifying all possible variables. All elements of marketing mix are tied together and are equally significant. It has been believed that when a consumer makes a buying, he/she respond not only to the product aspect as it constitutes a range of variables present in a given offer. Consequently, marketing mix framework is formed of companies’ demand influencing variables.

2.3.1 Product

Basically the development of right product for the target market is based on physical goods, services or a combination of both (Perreault et al., 2009). Majority companies view product as a heart of their marketing efforts. According to Armstrong et al. (2000), major factor which could lead towards product’s marketing success is its differentiation. Another factor which is vital in regard to this element is the demand for the quixk development of new marketing offerings (products or services), this is because of the fact that the product should not be remained as an unchanging entity. Pace at which marketplace runs need firms to be flexible and fluid. It has been determined that the companies should have to view its output as flexible in relation to the devlopment and adaption similar to the other marketing mix elements (Meldrum & McDonald, 1995).

There are certain questions that require to be answered when it comes to defining the product. All of these questions have been listed below:

- What sort of & range of product should the company have to provide?
- What does consumers expect from the particular product (in terms of characteristics, color, size and use)?
- How should it be branded?
- How is it distinctive from the rivals?
- Would this product provide desired and relevant advantages for today’s consumers’ needs?

[...]


[1] a) It basically about serving the poor. b) It is profitable. c) It is wrathful for the poor.

[2] Product, Price, Price and Placement.

Details

Pages
27
Year
2015
ISBN (eBook)
9783668032033
ISBN (Book)
9783668032040
File size
445 KB
Language
English
Catalog Number
v304688
Institution / College
University of Bedfordshire
Grade
B-
Tags
bottom pyramid

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Title: The Bottom of the Pyramid. A case study on marketing products and services