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4. Products and Services for the BOP
BOP can be a viable growth market. During the last decade, many MNCs have approached BOP markets with an existing portfolio of products and services. Because these product portfolios have been priced and developed for Western markets, they are often out of reach for potential customers in BOP markets. More important, the feature-function set has often been inappropriate. As a result, the promise of the emerging BOP markets has been largely illusory. At the same time,
developmental agencies have also tried to replicate developed country models at the BOP with equally unsatisfactory results. The development assistance community has invested billions in Western mechanical waste water treatment facilities in the developing world. Many if not most of these facilities were no longer operating within a year of their completion because the local markets could not afford the electricity to operate them, did not have a steady electricity supply, or lacked an adequate supply of chemicals and spare parts.
MNCs do recognize that only 5 to 10 percent of the population of China or India can represent a new market of 50 to 100 million each. MNCs can more easily tap into the top of the economic pyramid in emerging economies such as China, India, or Brazil, and these markets can be substantial. Although the affluent in these markets might appear to be similar to traditional consumers in developed countries, they are not. They tend to be much more value-conscious.
Regardless, the goal is to reach the entire population base, including the BOP. How can MNCs capitalize on this emerging BOP opportunity?
A Philosophy for Developing Products and Services for the BOP
The BOP, as a market, challenges the dominant logic of MNC managers (the beliefs and values that managers serving the developed markets have been socialized with). For example, the basic
economics of the BOP market are base per unit, high volume, and high return on capital employed.
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This is different from large unit packs, high margin per unit, high volume, and reasonable return on capital employed. This shift in business economics is the first surprise to most managers. As we previous section, The Market at the Bottom of the Pyramid, creating the capacity to consume—the single-serve and low unit pack revolution at the BOP— can be the first surprise for product
developers trained in the West. How can anyone make money at $0.01/unit price at retail? is often the question. Similarly, in the West, product developers often assume that the required
infrastructures for the use of products exist or that Western infrastructure can be made economically viable and will function properly in these markets. In a developed market, access to refrigerators, telephones, transportation, credit, and a minimum level of literacy can all be assumed. The choice of technologies is not constrained by the infrastructure. However, in BOP markets, the quality of infrastructure can vary substantially, especially within a country as vast as China, Brazil, or India.
What is available in Shanghai or Mumbai is not an indication of the infrastructure in the hinterlands of China or India. For example, the supply of electricity can be quite erratic and blackouts and brownouts are common. Advanced technology solutions, such as a regional network of PCs, must coexist with poor and indifferented on all unit packages, low margin electrical and telecom infrastructures. Hybrid solutions that integrate backup power sources with PCs are a must, as are customer interfaces. For example, India boasts more than 15 official languages and 500 dialects, and 30 percent of the total population is illiterate. How then can we develop user-friendly interfaces for products that the poor and the illiterate can understand and utilize? Surprisingly, illiteracy can lead to acceptance of the state-of-the-art solutions. For example, illiterate consumers can see and hear, not read. Therefore, video- enabled cell phones might be more appropriate for this market.
These challenges are not isolated conditions. Involvement in BOP markets challenges assumptions that managers in MNCs have developed over a long period of time. A new philosophy of product development and innovation that reflects the realities of BOP markets is needed. This philosophy must represent a different perspective from those that we have grown accustomed to in serving Western markets. Based on research, 12 principles that, taken together, constitute the building
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blocks of a philosophy of innovation for BOP markets. In this section, we discuss each of these principles with specific illustrations drawn primarily from the detailed case studies of successful innovations at the BOP.
Twelve Principles of Innovation for BOP Markets
1. Focus on price performance of products and services. Serving BOP markets is not just about lower prices. It is about creating a new price-performance envelope. Quantum jumps in price performance are required to cater to BOP markets.
2. Innovation requires hybrid solutions. BOP consumer problems cannot be solved with old technologies. Most scalable, price- performance-enhancing solutions need advanced and emerging technologies that are creatively blended with the existing and rapidly evolving infrastructures.
3. As BOP markets are large, solutions that are developed must be scalable and transportable across countries, cultures, and languages. How does one take a solution from the southern part of India to the northern part? From Brazil to India or China? Solutions must be designed for ease of adaptation in similar BOP markets. This is a key consideration for gaining scale.
4. The developed markets are accustomed to resource wastage. For example, if the BOP consumers started using as much packaging per capita as the typical American or Japanese consumer, the world could not sustain that level of resource use. All innovations must focus on conserving resources: eliminate, reduce, and recycle. Reducing resource intensity must be a critical principle in product development, be it for detergents or ice cream.
5. Product development must start from a deep understanding of functionality, not just form.
Marginal changes to products developed for rich customers in the United States, Europe, or Japan will not do. The infrastructure BOP consumers have to live and work in demands a
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rethinking of the functionality anew. Washing clothes in an outdoor moving stream is different from washing clothes in the controlled conditions of a washing machine that adjusts itself to the level of dirt and for batches of colored and white clothes.
6. Process innovations are just as critical in BOP markets as product innovations. In developed markets, the logistics system for accessing potential consumers, selling to them, and
servicing products is well developed. A reliable infrastructure exists, and only minor changes might need to be made for specific products. In BOP markets, the presence of a logistics infrastructure cannot be assumed. Often, innovation must focus on building a
logistics infrastructure, including manufacturing that is sensitive to the prevailing conditions.
Accessing potential consumers and educating them can also be a daunting task to the uninitiated.
7. Deskilling work is critical. Most BOP markets are poor in skills. The design of products and services must take into account the skill levels, poor infrastructure, and difficulty of access for service in remote areas.
8. Education of customers on product usage is key. Innovations in educating a semiliterate group on the use of new products can pose interesting challenges. Further, most of the BOP also live in media dark zones, meaning they do not have access to radio or TV. In the absence of traditional approaches to education—traditional advertising—new and creative approaches, such as video mounted on trucks and traveling low-cost theatrical productions whose job it is to demonstrate product usage in villages, must be developed.
9. Products must work in hostile environments. It is not just noise, dust, unsanitary conditions, and abuse that products must endure. Products must also be developed to accommodate the low quality of the infrastructure, such as electricity (for example, wide fluctuations in voltage, blackouts, and brownouts) and water (for example, particulate, bacterial, and viral pollution).
10. Products must work in hostile environments. It is not just noise, dust, unsanitary
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conditions, and abuse that products must endure. Products must also be developed to accommodate the low quality of the infrastructure, such as electricity (for example, wide fluctuations in voltage, blackouts, and brownouts) and water (for example, particulate, bacterial, and viral pollution).
11. Innovations must reach the consumer. Both the highly dispersed rural market and a highly dense urban market at the BOP represent an opportunity to innovate in methods of distribution. Designing methods for accessing the poor at low cost is critical.
12. Paradoxically, the feature and function evolution in BOP markets can be rapid. Product developers must focus on the broad architecture of the system—the platform—so that new features can be easily incorporated. BOP markets allow (and force) us to challenge existing paradigms. For example, challenging the grid- based supply of electricity as the only
available source for providing good-quality, inexpensive energy is possible and necessary in the isolated, poor BOP markets.
It might appear that the new philosophy of innovation for the BOP markets requires too many changes to the existing approach to innovation for developed markets. It does require significant adaptation, but all elements of innovation for the BOP described here might not apply to all businesses. Managers need to pick and choose and prioritize. Although effective participation requires changes to the philosophy of innovation, the pain of change is worth the rewards that will be reaped from the BOP and from traditional markets. Further, when we recognize the issues involved, innovation can be quite an energizing experience. Also plan to illustrate with a large number of examples that a wide variety of organizations—MNCs, local firms, and NGOs—are successfully innovating with vigor in these markets and are making a great difference in the quality of life of low-income customers and low- income communities. This is of particular importance to MNCs. Because innovations for the BOP markets challenge our established ways of thinking, BOP markets can become a source of innovations for the developed markets as well. Innovation in BOP
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markets can reverse the flow of concepts, ideas, and methods. Therefore, for an MNC that aims to stay ahead of the curve, experimenting in BOP markets is increasingly critical. It is no longer an option.