These include not only the complex risks involved in the BOP itself, but also companies’ reluctance to enter the fray. Cases like those of Hindustan Lever, Cemex and Tetra Pak (see table) show that these barriers can be overcome and that the challenges and difficulties presented by the BOP market offer outstanding opportunities.
One of the main barriers hindering companies from entering the BOP is fear of the unknown, to which we must add inexperience in this new market and skepticism as to its potential. Hindustan Lever’s decision to enter the massive Indian markets, for example, had to surmount serious resistance within its parent company, Unilever.
One specific manifestation of this reluctance is the fear of cannibalization. Companies panic at the thought that the position of the brands, products and services with which they are competing in markets with a high purchasing power will be questioned, if they begin to compete at the BOP. Although the threat is real, companies like Tetra Pak have curtailed it thanks to geographical segmentation or, in the case of Cemex, by developing clearly differentiated products. What is more, the business model designed for the BOP can be scalable and transferable to other markets and products, which enables the company to fine-tune it and enhance its ability to create value over time.
Another challenge involves demolishing the widespread belief that the BOP is not stimulating for executives. In the case of Cemex, for example, there is evidence of precisely the opposite: its executives’ personal and professional enthusiasm, excitement and commitment with the project is palpable. A company’s decision to pursue this type of project must be translated into expectations of its results and an adequate investment. The greater these magnitudes, the more staff and executives will buy into the project, and thus, the greater its chances of success.
Finally, a barrier that must be negotiated even by companies that have already entered the BOP is their own rigid goals. Nike failed in its attempt to commercialize sports sneakers designed for low-income markets in Asia and Latin America due to its pricing policy. Despite its low cost, Nike scarcely lowered the product margin, so the new sneaker could not compete with local companies. As corroborated by IESE’s case studies, volume and efficient use of capitalare more important at the BOP than are profit margins.
Meeting Real Needs
Companies that decide to enter the BOP must make an effort to understand the differences between this new segment and their traditional markets. The BOP population tends to lack the basic commodities found in the developed world, such as safe drinking water, education, energy, telecommunications and food. And when they do manage to get them, they have to pay dearly. This situation generates innumerable opportunities for whomever finds profitable formulas for meeting the real needs at the BOP. Hindustan Lever, Cemex and Tetra Pak have grasped that their products and services must bring together a multitude of factors, such as creating social value, meeting customers’ real needs and creating economic value for the company. Based on their experiences, it can be gathered that to compete successfully at the BOP, a company must change its vision and mindset, the goals of which must center on sustainable value creation as opposed to short-term profit.
Additionally, these people live from hand to mouth. That is, when they have income, it tends to be earned daily from their jobs or small-scale economic activities. What is more, they live within what is called the informal economy. As they are used to meeting their needs outside the usual commercial channels, they are not bound to the market. In addition to being dependent on their purchasing power at any given time, their continuity as consumers will depend to a large extent on the value they get for their money and on whether the products or services meet their needs better than the alternative means at their disposal. This is a reality that companies must keep foremost in mind when designing their business models.
Learning and Creating Links
Investment in R&D&I is vital to gaining in-depth knowledge of both the market and customers’ needs. So is forging relationships with non-traditional partners (like NGOs, government agencies, multilateral bodies, and local communities). These partners will provide indispensable information and knowledge and help to generate trust amongst companies and consumers at the BOP, thus creating sustainable competitive advantages.
A significant portion of the population at the BOP lives in rural areas. Although this makes the market more complex to serve, it may also mean greater purchasing power. The rural segment of the BOP tends to have the housing issue solved, along with a small plot where they can grow some of their food, so they tend to have more disposable income.
Adapting to the Circumstances
Much of the population lives in difficult-toreach areas. This fact, along with the inadequate transportation infrastructures in developing countries, makes it more difficult to deal in goods and poses a significant challenge for companies. The level of development of infrastructures for utilities such as water, electricity and telecommunications is also under par. Nor does the BOP population tend to have access to loans or relationships with banks.
In the informal economy that predominates at the BOP, relationships are based on informal, as opposed to legal, social contacts. In light of this situation, companies might be going against the current if they try to change the reality instead of adapting to and taking advantage of the opportunities that this type of social organization affords. Cemex, Tetra Pak and Hindustan Lever have been capable of adapting to the system and designing successful business models.