Segmenting the Bottom of the Pyramid for Strategic Insight by John Ireland

John Ireland, Ph.D.

Canadian University of [email protected]

Segmenting the BOP for Strategic Insight

The Business with the BOP proposition:1) There are billions of poor consumers in emerging markets2) They are an attractive target segment because3) They are very badly served (no competition) and4) They make up in scale what it lacks in wealth.

Key assumption: For the BOP to constitute a segment, all BOP consumers must respond similarly to a given Marketing mix. If they don’t there is no “scale”.

A key contradiction: Everyone agrees that the BOP is diverse. Why are they surprized that what works in one BOP market fails in another. Proof: sachets, Shakti women, etc. failed when exported.

The purposes of this presentation are: 1. To demonstrate that the term “BOP” is too vague for targeting or as a

taxonomy for research. 2. To summarize the scant published BOP segmentation literature.3. To offer some macrosegmentation variables as a starting point.4. To offer cases that demonstrate the need utility of these descriptors.

What are BOP consumers really like?

What are BOP consumers really like?

Realities: • Higher incomes (starving)• High costs.• Stable incomes, able to plan.• Urban location • One language, culture• Literate• Matriarchal society• Rampant criminality, “informality” and broken institutions.

Latin-American BOP

• Low incomes (starving)• Low Costs• Volatile farming incomes• Rural location • Diverse languages, cultures• Illiterate• Patriarchal society.• Traditional village life.

Pioneering Authors’

Clearly, these are not the same segment although they both arepoor people in emerging markets.

Assumptions

What are BOP consumers really like?

RuralClose

UrbanBOP

Rural- Urban

FormerMiddle-class

RuralDistant

Austin (2005) asked for segmentation.•Rangan, Chu, Petkoski (2011) income levels and implications. •Ireland (1997, 2001, 2003, 2008) on urban – rural differences.•Chicweche (2009) distinguished degrees of “urbanity” (below) in Zimbabwe•Rivera-Santos, Rufín, & Kolk (2012) , in Brazil, focused on distance from cities.

The figure below summarizes the literature

UrbanRural

Traditionalconsumers

Hybridconsumers

Hybridconsumers

Modern consumers

Modern consumers

The literature: Not much

Full accessTo cities

CommuteNo access to cities

Partial access To cities

Full accessTo cities

Low,Stable?FarmingIncomes

Low,Stable?FarmingIncomes

Low,Unstable

(Day labor) orLow, Stable

(mining)Incomes

Low,Unstable

(Day labor)

Low,Stable

(Salaried)

SupposedConsumer traits

More than half the population livesIn cities and more than half of them are poor.

Half of urban population is poor

Half of population is urban

India:27% urban population was poor30% rural population is poor.

Where are people poor? It depends on the country

Some “Revealed” BOP segmentation Variables

The four A’s of BOP marketing•Availability of an appropriate product.•Access: distribution channels•Awareness: communication•Affordability: cheap , fragmented or financed

What segmentation descriptors define a product’s appropriateness?•Climate/geography:

Pot-in-pot only works in dry climates.Ideal stove: biomass, biogas or solar.Moneymaker pump: works in monsoon climates.

•Religion: vegetarian, halal, islamic banking.•Literacy/language: multilingual ATM: voice driven, fingerprint ID.

Pot-in-PotGreat! Self-made, ridiculously cheap. Won’t work in humid climates. Unnecessary in cold climates.

Oorja: massive failure (5,000 sold. Now targeting businesses with large unit).Requires biomass: What about desert areas? Urban areas? Biogas in urban areas (garbage, dung).Solar cookers in deserts.

Some “Revealed” BOP segmentation Variables

The four A’s of BOP marketing•Availability of an appropriate product.•Access: distribution channels•Awareness: communication•Affordability: cheap , fragmented or financed

Granting access depends on.•Shopping occasion: • Villagers purchase daily. No shopping occasions.• Urban consumers make planned purchases in modern channels,

impulse or fill-in in neighborhood (high-prices).•Available transportation options: road, path, stairways, etc.•Criminality/Govt. Control: can’t deliver. Must entice out or use locals.•Spending density, Moms: allow, “hogares productivos”.

Sign: we will expel any opposition candidate. Census takers are raped & /or killed.

Criminality: Thugs charge tolls for entry if they like you.

The governmentsays it controlsthe red areas.

Many Asianshave experienceWith thisSituation.

Map of Caracas: gray areas are under partial government control

A shantytown store: note the power of the channel & brand.Similar to Indian distribution.

Prahalad said, “For my theory to work, you need is law and order”. That rules out much of Africa and Latin America.

Venezuela only counts weekend deaths as murders.Do you really want toTarget the poor in theseCountries?

This doesn’t countIraq, Syria, Nigeria,Afghanistan, Pakistan,Libya, etc. Venezuela probably has as many violent deaths as Syria.

Great road. Lovely colors. Easy distribution.

The women in Rio don’t need gymnasiums to work on their bundinis

A Medellin Freeway

Some “Revealed” BOP segmentation Variables

The four A’s of BOP marketing•Availability of an appropriate product.•Access: distribution channels•Awareness: communication•Affordability: cheap , fragmented or financed

How to communicate? It depends.•Literacy: SMS work fine in Azerbaijan, not India. •Access to mobile phones (SMS, etc.)•Linguistic diversity: One ad works fine in Brazil.•Urban poor are exposed to signs, products, POP, etc.•Religion/culture: I can’t use my European ads in Muslim countries.

Poverty is not synonymous with illiteracy97% literacy75% poverty

10% literacy82% poverty

Can you get them on the phone?Access was almost 10 times better in China than in Bangladesh

Some “Revealed” BOP segmentation Variables

The four A’s of BOP marketing•Availability of an appropriate product.•Access: distribution channels•Awareness: communication•Affordability: cheap, fragmented or financed

How to make things affordable? It depends.•Relative costs: in India, local content lowers costs. In Nigeria, it raises them.•Unstable incomes and inflation favor fragmentation (sachets & programmed purchases) .•Economic stability: allows financing.

Some BOP segmentation Variables “Revealed” by the Examples

• Rural – Urban continuum: Everything.• Government control, criminality, informality: Place• Income density: Place• Income stability: Price• Inflation: Price• Shopping occasions: Price• Climate/weather: Product.• Literacy, education: Promotion• Available transportation: Place.•Mobile- internet access: Promotion.• Linguistic & cultural heterogeneity: Promotion, Product.

Areas for research• Too many to count. This field is going backwards.• Kolk, Rivera-Santos & Rufín found the literature is more

interested in giving advice than in obtaining facts. I concur.• Failures seem to be swept under the carpet. We need to study

some real failures from all aspects to understand what really went wrong (I‘m betting that the price was too low to support needed services, including financing).