There are different ways business can engage with BoP markets. One waste company is employing ex-waste pickers in India. Photograph: Image Broker/REX
A recent online chat asked how business can best operate in base of the pyramid markets and what could be learnt from the success and failures of those businesses already serving the lowest income communities. Here are 10 key findings:
1. Make it about core business
One of the biggest errors companies can make is to treat base of the pyramid (BoP) projects differently from their core business, according to Cornell's Eric Simanis. Operating in very low income populations presents enormous challenges from high operating costs and poor economies of scale to sceptical consumers, "so if these projects aren't being driven as rigorously and as laser-focused on meeting the numbers as companies would with "traditional markets", they simply won't have a shot at profitability."
A focus purely on social impact won't work, companies need to see social impact as a byproduct of doing good business. In many cases the impact will come through the product itself, Simanis added, this means a focus on good quality products. "I think a lot of the pulling back by companies from the BOP space happened because projects were being run like CSR ventures but were expected to perform on the profits/revenue side."
Business Call to Action's Tatiana Bessarabova agreed that using core business was key. "Whereas CSR typically takes place in the community investment sphere ... 'pro-poor' business stems from the core ofskeptical the business, where the company's expertise lie". She gave the example of Santander Brazil which aims to encourage financial literacy and growth in small business through loaning to micro enterprises that traditionally find it hard to secure funding.
Hystra's Oliver Kayser agreed but did point out the benefits of setting up an internal joint venture between the CSR team and the buisiness lines. He gave the example of Total's solar lantern Awango project which was initially set up in this way.
2. Scaling up a business model is challenging
Simanis pointed to a difference between scalable and replicable. Every business model is replicable, he said, given time and money. Scalable, however, means it must hit a target return on investment within a certain time frame. "So a break-even business isn't scalable; a single business unit that is profitable may not even be scalable ... the profits have to be high enough and fast enough at the business unit level for a project to be scalable." This is not an easy task and businesses need a huge amount of patience and the willingness to look beyond traditional short term metrics.
3. It's vital to understand the needs, demands and constraints of the target market
Understanding what BoP customers need and want requires a significant time investment. Bessarabova advised working closely with communities, adjusting the business model to the local context and understanding the financial needs of customers. Introducing the idea of paying for a product that prospective BoP customers may not be familiar with means a lot of work on tailoring a companies' marketing, distribution and financial approaches.
Havard's Jane Nelson agreed that companies trying to serve the BoP market must take a comprehensive approach to understanding the range of constraints that low-income producers or consumers face. Companies should also think about partnering with others to strengthen their understanding of systems within which low-income producers and consumers are operating.
4. Work should be grounded in country offices
The major challenge BoP units face is where they are based. Projects should be grounded in country, said Eric Simanis. "You can't run a business in Kenya out of the Paris office and have a standalone cell in the field (one of the greatest values of being inside a corporation are the economies of scale of leveraging operations). But if you run projects that are aiming to make less than the target return or are diluting margins, the country office will have no interest in it."
Construction company Lafarge and brewing and beverage company SABMiller were given as good examples of companies working within country offices to drive business which fits with their overall objectives. Kayser praised the Lafarge "toolkit" which has allowed country offices to design an approach appropriate to the local context while leveraging global best practice and experience.
5. There is a significant role for the public and development sector
Nelson referred to the Department for International Development's (DFID) role in providing some initial funding support to Safricom/Vodafone's CSR team to market and business model test the initiative that eventually became M-PESA - the mobile phone based money service - which was then successfully scaled up.
Simanis agreed that there was a clear role for the public and development sectors, especially in providing working capital during early stage piloting of business projects. But it's important, he warned, that this capital is not contingent upon business working with local NGOs or addressing certain impacts as this will see the initiative slide into the CSR realm.
6. Business need to constantly adapt their products
Businesses that most successfully serve BoP markets constantly adapt their products to meet consumer preferences, said Ashton's Emily Haves. She referred to Barefoot Power which found that customers were much more receptive to their solar products if the cords were white, not black. "It's key to respect everyone as a customer, even if their purchasing power is low."
Kayser sounded a note of caution against variety, however, which he said can lead to complexity in terms of training the salesforce, ordering and supply chain. He advised that pilots be kept as small as possible
7. BoP business doesn't mean exploiting the poorest communities
Serving low income populations, when it's about creating viable livelihood opportunities - by incorporating them as consumers, suppliers or distributors - is not exploitative.
Haves said that in the energy sector, most have concluded that for energy access products to be sustainable - they need to be delivered through market-based mechanisms. "Experience has shown that when products are given away there is no feedback mechanism for the donor to understand the end-users' priorities, which means the products don't evolve to be truly useful and desirable."
Simanis agreed: "Yes it's about selling stuff to poor people ... [but] ... we have to give these consumers the freedom and respect to make their own purchasing decisions." Dictating what people should and shouldn't buy is a tricky road with ethical implications. He advised that companies bring their values into this market - that they believe in the product they're offering and treat customers with respect.
8. It's not just about selling products
There are many different ways business can engage with BoP markets through the value chain. Bessarabova spoke about the waste company employing ex-waste pickers in India to serve households as doorstop collectors. She also referred to the Japanese company aiming to improve the livelihood of Indian farmers by scaling up its production of organically produced cotton.
9. Take the risk away from the customer
De-risking investment for BoP customers is key, said Haves. For example, trust in solar can be low, especially when people have bad experiences. She referred to Off Grid Electric which decided to sell solar as a service rather than a product, so the customer could stop paying if the system stopped working.
Kayser added the example of Grameen Shakti, which tied monthly loan repayments to the visits of the maintenance technician to reassure customers that repairs would be carried out and reassure the company that payments would be made.
10. There are good examples of business models working well in BoP markets
Bessarabova offered the example of L'Occitane, which entered the shea-rich Burkina Faso market in 2006. It has worked to support female shea butter pickers and processors and to improve their working conditions, including through literacy programs, microcredit loans and training to support income-generating activities.
For Hayes, Greenway Grameen, the Indian social enterprise selling cookstoves, stands out for improving health, saving people money and providing a product customers really want and need. The initiative went through multiple iterations of the cookstove - using feedback from focus groups - to create a product that worked and was desirable, as well as having positive social and environmental impacts.
Simanis forwarded BASF's India country team, a business-to-business company which has been targeting opportunities in the value chain of its customers which are serving BoP consumers. He also referenced SC Johnson's work in Ghana on combatting malaria through insecticides and insect repellent.
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