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Acara Challenge 2011 Business Models for Emerging Markets.

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Presentation on theme: "Acara Challenge 2011 Business Models for Emerging Markets."— Presentation transcript:

1 Acara Challenge 2011 Business Models for Emerging Markets

2 Learning Objectives To understand who/what the Base or Bottom of the Pyramid (BOP) is To understand how marketing and selling at the BOP is different To understand existing and proven BOP business models

3 Bottom of the Pyramid Imagine a pyramid made up of the world’s population and arranged by income The Bottom (or Base) of the Pyramid has the least per capita income and the most people in it Income Number of people Bottom of the Pyramid $$ $$$$ $$

4 BOP by Numbers Definitions vary, but we don’t need to be exact in order to understand the concept – Over 3 billion people living on less than $2.50 per day, nearly half the world’s population – 880 million people living on less than $1 per day, more than 10% of the world’s population * 2010 figures. Source: http://www.globalissues.org/article/26/poverty-facts-and-stats

5 Importance of Primary Research Although we can make some generalizations in order to think about selling to the BoP, they should not be seen as one homogeneous group – For comparison, would you say that all people who make $20-30K USD per year are the same? We probably hold false assumptions about people at the BOP and how they spend their money It is important to put aside preconceived ideas and find out wants and needs from the people themselves

6 Some Challenges Though these will vary, some possible challenges in selling to the BOP include: – Low rates of formal education & literacy – Lack of access to information/media – Lack of access to capital, savings – Lack of infrastructure: electricity, sanitation, etc. What other challenges might you face when working with BOP needs?

7 Selling at the BOP: What’s Different? Selling is still selling. It’s an emotional decision. People aspire to similar things, and buy what they want not what they need. For example, consumers don’t buy drip irrigation because it uses less water, or even increases yields. They buy it to get more money for their family, for things like education, entertainment, etc. References: Ramkishen, Y. “New Perspectives on Rural Marketing, Jaico Publishing House; Rirchandani, Rahul, “Evolving a New Marketing Mix for Selling to Rural Indians,: Concept Paper, Sept, 2005; “Marketing to Rural consumers – Understanding and tapping the Rural Market Potential, “ IIMK Rept., April, 2008.

8 Selling at the BOP Product Features and Capabilities – Take into account availability of services (poor or no electricity) and auxiliary products (e.g. batteries). – On the other hand, telecom infrastructure (mobile phones) may be very good Pricing – Price sensitivity is very high – Pricing should be for affordable value offerings but doesn’t necessarily mean “cheap” – Cash flow may fluctuate seasonally

9 Selling at the BOP Promotion and Advertising – Rural consumers like to touch and feel a product before making a decision – Many of the consumers may be semi-literate and/or poorly educated but still very shrewd about their purchase decisions. – Intermediaries are often the foundations of distribution. These trusted members of the community, represent your product. This is similar to distribution models in the US like Avon or Tupperware.

10 Community Organizations Many BOP businesses utilize various kinds of community organizations to sell and/or distribute their product or service. These are common in most developing countries to organize community events and/or services Called different things such as Self Help Groups, Community-Based Organizations (CBOs). Formal organizations but loosely organized (an analogy in the US would be a PTA). Run by trusted members of the community Also a source to recruit local entrepreneurs Source: http://www.self-help-approach.com

11 Business Models for BOP The Monitor Group in Mumbai did an extensive survey of the BOP in India and identified 7 basic business models in use. Reference: Emerging Markets, Emerging Models”, March, 2009. These models are summarized in the next slides. Models include both for-profit and non-profit companies or organizations. Source: http://www.monitor.com/in

12 Pay-Per-Use Pay-Per-Use. Consumers pay lower costs for each use of a group-owned facility, product, or service. This limits the impact on their cash flow while the high volume of consumers makes the proposition sufficiently attractive for third-party providers. Key Features – Customers pay as they have cash available – May have a group management structure (village level management for example) – Alternatively, a local entrepreneur may manage

13 Pay-Per-Use: Byrraju Foundation The Foundation seeks to build progressive self-reliant rural communities by providing services in healthcare, environment, sanitation, primary education, adult literacy and skills development. The Foundation currently works in 200 villages. One 1000-2000 liters-per-hour water purification plant per village Shared investment between Foundation and community Provides 2-3 liters of pure and safe drinking water per person per day at nominal service charge of 16 paise (less than half a cent) per liter. Source: http://byrrajufoundation.org/index.php

14 No Frills A pared-down, No Frills service that meets the basic needs of the poor at very low prices and still generates positive cash flow and profits through high volume, high asset utilization, and service specialization. Features – High customer volume and high asset utilization drive down unit costs – Specialized service offering, not a full service business – Highly standardized service protocols

15 No Frills: Lifespring Hospitals Affordable, high quality maternal care for low income women and children in India. Lease old 20-25 bed hospitals (saves land and construction costs) Focus only on maternity Efficient and standardized operations Deliver about 150 babies per month per hospital – Normal delivery is 2000 rupees (about $40). – Each patient consultation is 75 rupees (about $1.50). Source: http://www.lifespring.in/index.html

16 Paraskilling Paraskilling. Combines No Frills services with a reengineering of complex services and processes into a set of simple standardized tasks that can be undertaken by workers without specialized qualification. Key Features – Engineer process into simple, discrete parts – Low skill workers can perform on a high volume – Development of para-professional employees – Typically for service offerings like medical or educational

17 Paraskilling: Gyan Shala Provides primary education to poor 330 one room schools in slum areas in India Parents pay about $.60 per month per student tuition, less than government (public) school tuition and much less than private schools Created a standardized curriculum, lesson plans and teaching aids that can be taught by less-skilled teachers (lower salary) Students test scores very high Source: http://www.gyanshala.org/

18 Shared Channels Shared Channels. Piggybacking products and services through existing customer supply chains into hard-to-reach areas. Key Features – Proper incentives to all participants in the distribution chain – Using existing channels, creating alliances – Using an existing trusted distributor

19 Shared Channels: BASIX BASIX serves 200,000 customers in India, most of which earn less than $1 per day One product is weather insurance for small farmers in India – Insurance policies indexed to rainfall amounts Sold through ITC’s e-Choupal kiosks. – Village Internet kiosks managed by farmers themselves, that enable the agricultural community access ready information in their local language on the weather & market prices, disseminate knowledge on scientific farm practices, facilitate the sale of farm inputs and purchase farm produce from the farmers’ directly. Source: http://www.euacpcommodities.eu/files/ScalingUpMicroinsuranceweb.pdf

20 Contract Production Contract Production. Directly involves small-scale farmers or producers in rural supply chains. The contractor organizes the supply chain from the top, provides critical inputs, specifications, training, and credit to its suppliers, and the supplier provides assured quantities of specialty produce at fair and guaranteed prices. This model, along with the next two, engage low- income suppliers or producers.

21 Contract Production: Calypso Foods Specialty fruit and vegetable exporter, including Gherkins Works with about 5000 farmers on a contract basis. For-profit, $6M in revenues in 2008 Farmers are paid in installments every two weeks to guarantee cash flow Calypso’s supply is assured Source: http://www.calypsofoods.net/index.php

22 Contract Production: Honey Care Africa For-profit Kenyan company, sources honey directly from 12,000 farmers in East Africa Provides farmers supplemental income for a low investment of time and money – About 15 minutes every two weeks – 4 hives produce in first year about $80 worth of honey against a $220 investment; established hives would produce $200-$220 per year in later years Honey Care manages the entire supply chain and helps arrange financing Source: http://www.honeycareafrica.com/

23 Deep Procurement Deep Procurement. Bypass traditional middlemen and reach into the base of the economic pyramid, enabling direct purchases from large networks of low-income producers and farmers in rural markets and often providing training for quality and other specifications. Key features – Technical Assistance to producers – Quality assurance close to the source of production – Linkages from producer direct to major buyers – Very similar to contract production but usually at a much larger scale and run by a third party, not the buyer directly.

24 Deep Procurement: SERP Society for the Elimination of Poverty (SERP). A public agency that organizes more than 800,000 women into self-help groups. Has arranged buying agreements with large government agencies to procure commodity crops and hand made goods. This model is similar to contract production but has a third party involved, works with very large buyers (governments or large companies) and works to eliminate the middle man. Source: http://www.serp.ap.gov.in/SHG/index.jsp

25 Demand-Led Training Demand-Led Training. Applies a formal-sector “temp agency” model to down-market opportunities, with enterprises paying a third party to identify, train, and place employees for job openings at the edges of the formal and informal sectors. Key features – Certification of quality – Pre-assured demand for placement is defined before training occurs

26 Demand-Led Training: TeamLease Services India’s second largest private employer, serves 1000 clients with 80,000 employees Takes requirements from employers, lays out the operation, identifies and recruits individuals to fill the jobs Trains people as necessary and charges training back to customer Focuses on placing rural workers into urban formal sector jobs Source: http://www.teamlease.com/

27 Exercise As a group, talk about businesses or organizations you know in your own community and think about them in these terms? Do you use any as a customer? What is your experience? Are there other models besides these seven that you can think of? Think about these models and constraints as you develop and analyze your design research.

28 Questions to Address for Your Plan Is the product or service one poor customers will pay for? Do low-income people say they want it, or has someone decided they need it? Do you need to educate the users? If yes, how, and how can the channel absorb the cost of the education? What substitutes exist for the product? How else do poor customers satisfy the demand the product or service offers? What is the price, and how does it match up to irregular and unpredictable cash flows? What is the revenue model? The distribution model? How strong are the linkages from producer to end buyers and their preferences? Source: Monitor Group “Emerging Markets, Emerging Models”, March, 2009

29 Resources Ramkishen, Y. “New Perspectives on Rural Marketing, Jaico Publishing House; Rirchandani, Rahul, “Evolving a New Marketing Mix for Selling to Rural Indians,: Concept Paper, Sept, 2005; “Marketing to Rural consumers – Understanding and tapping the Rural Market Potential, “ IIMK Rept., April, 2008. Self Help Groups - http://www.self-help-approach.com/http://www.self-help-approach.com/ Monitor Group – www.monitor.com/in


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