INNOBLOG

The markets that exist at the bottom of the pyramid (BOP) have been garnering increasing attention in recent years. Traditionally, these markets have been served by charities and government aid programs but for-profit companies are increasingly targeting the BOP. This makes sense for two reasons. One: the business models of many charitable organizations and government aid programs are broken. Two: the opportunities for profit and impact in serving BOP markets are attracting for-profit players.

Why are charities and government aid programs ripe for disruption? First, the top-down business models offer opportunities for corruption as funds are collected and doled out by a centralized organization. Start-ups avoid dealing with the complaints of existing channels of distribution that have vested interests in continuation of an existing model. Moreover, the administrative costs incurred in order to prove to donors the efficacy of spending and services leads to unnecessary bureaucracy and reporting. For-profit start-ups do not have to chase elusive metrics of success such as improvements in well being. Entrants that seek a double bottom line can instead focus on more streamlined measures such as "increase in income or "jobs created as well as profit. Finally, continued operations of most charities are based on donated dollars rather than the self-sustaining revenue of for-profit businesses. The scalability of charities and aid programs tend to be linear with donated dollars while for-profits can invest in future growth without dependence on external resources.

Meanwhile, in the for-profit world, the buzz about selling to BOP markets and successful examples of such ventures are becoming more commonplace.
C.K. Prahalad's 2004 book, The Fortune at the Bottom of the Pyramid, promoted the idea of targeting products and services to the 5 billion people who live on less than two dollars per day.
Inspired by the Grameen Bank microcredit model, Grameen Phone created a business in which cellular phone access is sold to rural consumers by local entrepreneurs who make a profit by renting out small quantities of access to community members. Unilever famously reached rural non-consumers in India by selling small sachets of soap and other products through local, independent agents to customers who would not be able to afford a larger-sized quantity of product.

Given the large opportunities for both profit and impact, one might wonder why for-profits havent been interested or able to serve these markets in the past. I think the jobs-to-be-done lens can shed some light on the reasons for-profits have not gained more traction in the BOP in the past and how they can approach these markets successfully.

Companies need to recognize the distinct barriers to consumption and product "hiring criteria that exist for consumers in these markets. The lack of wealth, skill, time, and access present in the lives of those at the BOP serve as barriers to consumption. These barriers and the distinct set of "jobs to be done that these consumers have relative to consumers in Western markets mean that products and services may be evaluated along different performance dimensions by BOP consumers. New products that offer lower prices or greater access to information/communication may be of particular interest in these markets, even if performance along traditional measures is diminished.

By understanding these barriers and hiring criteria, and by taking to heart the concept of "good enough, some solar companies are finding that BOP customers constitute an ideal foothold market. Solar technologies that offer only a few hours of energy per day at a lower price are attractive to BOP customers who are overshot by the always-on, expensive power supply options marketed to wealthier consumers who have a different set of performance criteria. As these technologies develop in markets that are unattractive to incumbents serving the high-margin Western markets, they will inevitably improve in function and capacity to move up market. This phenomenon is not limited to emerging technology areas like solar is there any doubt that the operational and technological innovations involved in creating the one-lakh car wont be applied to Tatas future higher-end products?

One last point: in the competition for talented employees, for-profit start-ups have another edge over charities and governments. They meet the job-to-be-done of "doing well in addition to "doing good of those bright minds the organizations seek to attract.