Marketing to the Bottom of the Pyramid
Pros of selling to people with limited income
Large market for the companies
People who are at the bottom of the pyramid are the poorest people in the planet. These are people with limited disposable income, and they live under less than one dollar per day. Out of the six billion people in the world, these people are approximately four billion. This means that poor people have outnumbered the rich people (Hart & London, 2005). Companies often take advantage of these numbers. When a company wants to exploit the poor by selling them shampoos, soaps and personal computers the company will benefit from the large numbers of the poor people. There are always so many people in the market to serve.
Creation of health benefits for the poor people
Marketing these products at the bottom of the pyramid improves personal hygiene. If such products like soaps and shampoos are sold to the poor people, it saves the poor from the diseases that are related to diarrhoea, which murders approximately 1.8 million people annually (Hart & London, 2005). These people will be able to afford soap to wash their hands before eating. Even hands that may look clean may have hazardous germs; therefore, people ought to use more soap. This is a message that ought to be passed to the poor people in society, who have little or no have access to the media.
Affordable products for the poor
The poor people will be able to have quality products at affordable prices. They will also be able to bargain for the commodities before they purchase them. The poor people will have access to the cheap products at their own conveniences (Hart & London, 2005).
Cons of selling to people with limited income
Extra expenditure for advanced technologies
BOP marketing requires advanced technologies that has supportive infrastructure for the company. For instance, an Indian firm, ITC had to develop a network of PC kiosks in some remote villages. This company had a goal of making the farmers connect to information resources to check the offer price of products in ITC (Hart & London ,2005). This is a disadvantage to the company because the company will have to spend extra funds to develop this technology and distribution of personal computers. The company also had to offer equipment to manage power outages, satellite based telephone and solar panels for extra electricity.
Low pricing
For companies to sell these shampoos, soaps and personal computers, the company will have to reduce its costs. This is a disadvantage to the company because when it reduces its prices, it risks making losses (Hart & London, 2005).
Requirement of creative financing
Companies often have to device creative ways of assisting people at the bottom of the pyramid to finance larger purchases. These creative ways of creating awareness to the poor people comes at a price. Therefore, it means that besides spending money in advanced technologies, the company will have to spend addition money in creating awareness for the poor people.
Requirement of effective distribution
Companies often have to device low cost ways of distributing its products to people in the bottom of the pyramid. Companies often have to create dozens of networks to distribute its products to the poor people (Hart & London, 2005).
Cons for the poor
The poor people do not have self-control and are accustomed to temptations of spending. This is because the poor people earn too little cash that they cannot afford to keep the money in banks. This means that they always have to walk around with their money and may be tempted to spend it at any moment (Hart & London, 2005). The poor people are always ready to spend all they have with their friends and neighbours. The poor people do not always make choices while they purchases products and may end up spending a lot of money buying the personal computers rather than soaps or shampoos.
Offering loans to people at the bottom of the pyramid
The pros: Capital for the poor
First, it is beneficial for the poor people because the poor people will have an opportunity to get the money to buy televisions and cell phones. These are information technology devices that can keep the poor people informed in the society. The interest earned for this loan is affordable for the poor people because it may not accumulate to large sums (Hart & London, 2005). For someone who earns less than one hundred dollars in one month, it means she will have less than 1200 dollar per year. Twenty percent interest is quite cheap for the poor person. This loan can also help the people in the bottom of the pyramid to get capital to start their businesses (Hart & London, 2005). These people will be able to sell products to the poor people. They have easy accessibility to the poor people and can sell their products at affordable costs. With the large populations of the people in the bottom of the pyramid, they will be able to sell thousands of products at affordable prices.
Easy access of information for the poor people
With the mobile technologies, there are new communication channels amongst people. Mobile phones act as portable devices where the poor people can access information to places where they had little or no information. Cell phones have low infrastructure needs and can reach remote areas in affordable costs instead of ICT like fixed phones or the internet (Hart & London, 2005). In some places, the mobile phones are the only available options. The use of cell phones only requires necessary literacy.
Impact on the development
Mobile phones have a permanent impact on the human development. The poor people will also be able to access the hospitals in case of emergencies. Mobile phones also enhance employment opportunities for the poor people because employers will be capable of reaching them via the mobile phones (Hart & London, 2005). For the rural development and the poor people, cell phones and televisions can assist in reducing information gaps and restrictions in markets where producers and consumers have no means of comparing product prices for the distant markets. Business persons in the bottom of the pyramid can get market information from rural locations, and this reduces expenditures of travelling and increases the trading speed.
Fighting of poverty
Mobile devices and televisions can be used to increase the delivery of services in education, agriculture and health care. Mobil phones improve the connections and transmission of information in the remote areas. These devices can be useful in establishing communication networks between organizations, citizens and governments. The television can be used to educate the poor people regarding climate changes, weather patterns, issues of energy and the environment (Hart & London, 2005).
The cons of giving loans to the poor
Failure of paying back the loan
Some people may not be incapable of paying the loan back with the interest within a year. When banks offer loans to the people in the bottom of the pyramid, they take risks because they are not sure whether the poor people may pay it back. This is because poor people have no investments, assets or property that the banks can use to regain the loan (Hart & London, 2005).
Pros of marketing at the bottom of the pyramid
It would not be ethical to deny poor people the services and products because there would little or no profit margins under this section compared to the middle class of the rich people. There can be ethical issues depending on the strategy used in the efforts to market in the BOP. For justice to prevail there must be efforts that serve the requirements of people in the BOP in a beneficial way (Hart & London ,2005). An example of a strategy where justice prevails is the Indian Hindustan lever. Hindustan changed methods of distribution and products to satisfy the requirements of the poor people. He decentralized distribution, marketing and production. Although he benefited from the labour that is profuse and cheap in India, he also employed the poor. There were products packaged in smaller sizes and they were all affordable for the poor.
These companies create products that will deliver cheap energy, clean water, better hygiene and better hygiene for the people in the BOP. However, there is insufficient distribution and development. It is critical for these companies to explain to the clients how they benefit from the services and products that they buy. These companies must ensure that these poor people should benefit from products despite their little income (Hart & London, 2005).
These examples portray the strategy used to market in the bottom of the pyramid. Companies must ensure that the products that it supplies to the poor people ought to improve these people’s lives. These companies ought to be ready to accept lower profit margins and should lower their prices. However, these companies should be aware that when they sell their products to a large market at lower prices, they should expect to attain large profits because of the numbers (Hart & London, 2005). While the markets in BOP develop, there will be more people who can shift to middle class, and the companies may get more profits from the middle class. Both parties achieve mutual benefits because, while the poor people rise to the middle class, the companies will be able to improve their profits.
Ethical issues may only arise when these companies try to exploit the BOP by passing the wrong message. For example, the company that sells fair and lovely preys on its consumers by lying to them that if they maintain using fair and lovely, they will have lighter skins, which make them more healthy (Hart & London, 2005).
The local government always participates in assisting companies to attain low prices for the market in BOP. The government does this by reducing tax rates and offering favorable tariffs. Therefore, the local government also has an impact in the products that companies supply to the BOP. The government achieves this by permitting favourable treatments. If companies fail to offer favourable treatments for the BOP, the government chips in to make policies that ensure that there are favourable treatments (Hart & London, 2005).
When companies do business at the BOP level, they create employments for the poor people. One of the chief objectives of the United Nations is empowering women the third world. In South East Asia, companies trained several women to assist in distributing products in this poverty stricken area. These women got jobs and their incomes improved as a result of this practice. These women got the chance to attain entrepreneurial skills. These women got the opportunity to get the skills necessary start their own businesses (Hart & London 2005).
The cons of BOP marketing
One of the negative effects of marketing in BOP is that multinational corporations will be able to exploit the market by supplying their products or services. This will mean that local firms will have tight competition from these multinationals and the local firms might shut down. When the local firms shut down, the local employees lose their jobs. These multinational may also exploit the cheap labour that is available amongst the BOP and use this to maximize their profits. People who lose their jobs because of intense competition from the multinationals often have to seek for jobs elsewhere where they might be of little or no significance (Hart & London, 2005). The people who lose their jobs might not even be able to afford the products sold by these multinational corporations despite the reduced costs. It is only the BOP society that will benefit from the reduced market costs.
Companies that aspire to start a business in the BOP market always have one goal, which is to maximize their profits at all costs. This is quite evident for companies in developed countries that have a goal of expanding their business, exploiting the market and making the highest profits possible.
Reference
Hart, S. L. & London, T. (2005). Developing native capability: What multinational corporations
can learn from the base of the pyramid. Stanford Social Innovation Review, 3(2): 28-33.
