It’s no wonder that emerging markets, with 80 percent of the world’s consumers and projected growth rates two to three times those of the developed world, have become the primary growth target for many Western companies.
Yet for many of these companies, the search for big revenues and profits in emerging markets has been an ongoing exercise in frustration.
Why? A mobile Indian laundry service may provide some clues.
Too many multinationals have simply imported their domestic business models, perhaps tinkering with product or pricing, but not fundamentally rethinking their distribution, marketing, and overall profit models.
As a result, they end up competing for business at the top of the pyramid, where volumes are too low to generate sufficient returns. Or they might sell radically stripped down versions of their products or smaller quantities—offering less for less money (and lower margins)—in hopes of tapping into the enormous potential at the bottom of the pyramid.
There’s a better place to start: the vast middle—with consumers whose needs aren’t being met by cheap, low-end products but who can’t afford even the least expensive of the high-end solutions. Companies that can devise new business models and offerings to meet those needs affordably have opportunities for profitable growth.
In India, for instance, many people trying to do something as prosaic as washing their clothes face an unappealing choice. They can take their clothes to a laundry or to a traditional washing person known as a dhobi. The dhobis are cheap, but use unhygienic water and can damage clothes as they slap them against rocks to clean them. A laundry, which may or may not use clean water, returns the clothes in good shape, but only after four or five days, and is far more expensive than using a dhobi.
After careful observation and research, my firm discovered that what these customers really want is to be able to replicate the advantages of a home washer/dryer at an affordable price.