Editor's Choice March 2011: Is the Bottom of the Pyramid Really for You?
What are the reasons to NOT invest in inclusive business? And what should you ask yourself before you do? These are questions posed - and answered - by Monitor in a 6 page article in Harvard Business Review. The article speaks direct to companies - many of them - that are interested in opportunities at the bottom of the pyramid but hesitant.
The challenges are neatly described and used to outline 5 questions to ask yourself before you plunge:
- can we manage large numbers of low-margin low-value transactions?
- can we work with informal markets?
- can we keep out legacy and overhead costs?
- do our leaders have a long-range mind-set?
- will our organisational culture stifle a bottom-of-the-pyramid innovation?
Companies that can answer yes will find the article full of useful ideas about how to make progress and how others are hurdling the challenges: hospitals that reduce costs by specialising in more standardised procedures; pesticide producers dealing with the need for disbursed rural distribution by selling to farmers via small rural agrodealers; gherkins providing one solution to the problem of 'side selling' - where there is no local market, there is less risk of farmers selling to passing traders rather than those who provided seeds and input (the challenges of sourcing from local farmers in ways that work for both farmer and buyer is high on the agenda in current Facility-supported projects).
The article is useful and practical from start to finish, and will be of value to anyone considering their own options in the base-of-pyramid market. Three strong messages hit me hardest:
Firstly, the challenges are real and companies should think hard about whether they have the institutional set-up and long-term time horizon to overcome them.
Secondly, a sharp reminder to distinguish between 'need' and 'demand': don't waste time trying to market products that you think the poor need but consumers don't want. Evidence suggests the majority of low-income consumers opt for 'aspirational' rather than 'beneficial' products.
Thirdly, the most encouraging business model innovations are not incremental adaptations but new ground-breaking end-to-end strategies. Examples ranging from bottled water to funeral insurance to housing development show how an entirely new business model can reap substantial returns.