Selling to the world's poor offers huge potential
The world's poor are a vast potential market for a surprising number of products. Here's why it makes sense to sell to people who don't have much money.
It might seem counterintuitive, but setting your sights on the world's four billion poorest people can be remarkably lucrative. Just ask Suneet Singh Tuli. The CEO of wireless-device manufacturer DataWind Ltd. says his Montreal-based company's revenue could soar from less than $10 million last year to more than $300 million next year, thanks to the stripped-down tablet computer it developed to sell in India: "It's an astonishing rate of growth."
His management team figured that if they could offer tablets for a price similar to the $30 to $60 that most cellphones cost in India, they could sell enormous numbers of tablets there. (Indians buy 15 million cellphones per month .) DataWind has pulled off this feat, selling bare-bones tablets for $60 a pop at Indian retailers. The company already has sold 100,000 units at $47 each to India's government, which in turn sells them to students for $35-and ultimately plans to sell tens of millions more. Tuli says DataWind already has more than 1.5 million pre-orders from individual Indians and could move five million units this year.
By whittling down the price as low as possible, DataWind has put its tablets within reach, not only for affluent Indians but also the endless ranks of the poor. Many poverty-stricken Indians are willing to part with a large chunk of one month's income for a tool they can use to help educate themselves and their families. DataWind is now discussing deals similar to the one in India with governments in Thailand, Sri Lanka, Turkey and Brazil.
DataWind is one of many rich-country companies finding gold at the "bottom of the pyramid" (BoP), a term popularized by the late University of Michigan business professor, C.K. Prahalad. In his influential book, The Fortune at the Bottom of the Pyramid , Prahalad contended that Western firms could make life better for the poor and boost their own bottom lines by treating the poor as a vast consumer market. How vast? The World Resources Institute, a Washington, D.C.-based think-tank that advocates market-based approaches to reducing poverty, estimates the four billion people with individual purchasing power of less than US$3,000 per year make up a US$5-trillion consumer market. (Adjusting for purchasing power reflects the fact that a dollar buys a lot more in poor countries.)
Corporate giants such as Unilever, Procter Gamble, SC Johnson and Nike all have developed low-cost products aimed at the BoP. "The big idea is that it's the majority of the world's population," says Ted London, director of the Base of the Pyramid Initiative at the University of Michigan. He says the poor have countless unmet needs that firms of all sizes can help to fill. For instance, "there's no lack of need for low-cost health care," says London, including soap and other hygiene-related products, as well as tools to help women give birth at home safely when hospitals aren't an option.
The greatest opportunities lie in affordable offerings to address basic needs such as health, education, food and shelter. After all, the poor are loath to part with their money for anything they don't truly need.
But you'll have to adjust to their modest incomes. One way is by offering an affordable serving size, as laundry detergent makers have done with single-use sachets. You'll also have to adapt to local conditions. The firms selling these sachets had to modify the detergent formula so that customers laundering their clothes in rivers instead of washing machines wouldn't pollute the water.
To spot opportunities, look at problems as markets. "There's a need for things such as food, clothes, laundry and cookstoves," says Medard Gabel, CEO of BigPicture Consulting, a Media, Penn.-based firm that helps companies develop products tailored for emerging markets. "The challenge is figuring out how to turn these into a business."
This is a challenge that financial-services provider Mint Technology Corp. seems to have solved. By tapping into a unique niche in the United Arab Emirates (UAE), the Toronto-based firm has, in slightly more than a year, become the largest non-bank prepaid card-processing company in the Middle East.
Mint has succeeded by retooling an existing product-prepaid credit cards developed for Canadian Tire and MuchMusic-to meet the needs of the UAE's hundreds of thousands of construction workers from South Asia. These labourers are among the more than 2.5 billion people worldwide who lack bank accounts. UAE employers needed a way to pay these workers electronically to meet new regulations designed to make it easier for workers to send money back home. So, Mint developed and installed ATMs compatible with its prepaid cards, which it reformatted to support future offers of financial products. Mint forecasts it will have 550,000 cardholders in the UAE by June.
It takes a lot of legwork to craft a BoP-targeted product like that. After spotting the potential in India several years ago, Tuli spent about a week per quarter putting his ear to the ground. "You can't discover gaps unless you're in the market," he says. "Spending time there exposes you to things."
One insight Tuli gained was the paramount importance Indians place on education as a key to escaping poverty: "Someone who drives a rickshaw doesn't aspire for his kids to take over." This is the insight that convinced Tuli that even poor Indians would buy a no-frills tablet if DataWind could deliver it at a rock-bottom price.
Yet, even getting the price right isn't enough. You also have to take into account the complexities of the countries in which the poor live. For instance, Anup Kumar, head of business development at Feedback Business Consulting in Bangalore, which helps foreign companies break into the Indian market, points to the multitude of cultures in his highly diverse country: "Firms have to tailor their offerings, localize if need be-and be patient."
London acknowledges that customizing products for the BoP can be complex and time-consuming. Still, he says, "It's an investment well worth making. The nice thing about it is that you can run a successful business and make a difference."
In an increasingly global economy, companies that figure out how to serve the poor can develop immense client bases serving a market that most firms overlook. DataWind certainly has proven that being first has its rewards. After all, a little foresight enabled the small Canadian firm to blaze a trail in a potentially mammoth new tablet market. Take that, Apple.
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