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12.
Business Case – BOP Strategy for Mobile phones industry
This section has been analyzed from mobile industry point of view. In this section, I have suggested 12 principles of innovation which can be applied to the mobile industry to address BOP markets.
First & foremost BOP market should be seen as new business development, companies should refrain from tried & tested methods used in the developed markets. As usage, spending patterns, network quality & users demand are different in these two markets. For example, BOP consumers may be happy if the basic calls & sms are working with good quality of services (QoS). But in developed word, the mobile users may be asking not only goodquality voice calls, but also uninterrupted mobile bandwidth connections (GPRS/data based on 3G/2G technologies). As a researcher, following are the principles which mobile companies should adopt to serve BOP market.
Price Performance
This is not about lowering prices. It is about altering the price-performance envelope. Price is an important part of the basis for growth in BOP markets. GSM handsets used to sell for $1,000 in India. Not surprisingly, the market was quite limited. As the average price dropped to $300, sales started to increase. However, when Reliance, a cell phone provider, introduced its Monsoon Hungama (literally Monsoon Melee) promotion that offered 100 free minutes for a mobile, multimedia phone with an up-front payment of $10 and monthly payments of $9.25, the company received 1 million applications in 10 days. Of course, price is a factor. Equally important is the performance associated with the price. The applications available through the Monsoon Hungama offer, for a mere $10 down payment, are quite incredible, including news, games, audio clips of movies and favorite songs, video clips, astrology and numerology, city guides, TV guides, stock quotes, and the ability to surf the Internet. The phone itself is fashionable and state of the art, using
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CDMA technology. Similar approach in other developing markets are required.
Innovation: Hybrids
The BOP market opportunity cannot be satisfied by watered-down versions of traditional
technology solutions from the developed markets. The BOP market can and must be addressed by the most advanced technologies creatively combined with existing (and evolving) infrastructure.
For mobile industry, mobile should not be able to help make voice calls, sms etc but also be able to provide payments solutions, utility bills, weather information & e-governments activities. All these facilities are available in the developed word. But a better approach is required from the company to match price-performance to cost-quality balancing.
Scale of Operations
It is easy to succeed in a limited experiment, but the market needs of 4 to 5 billion people suggest that the experiments must be commercially scalable. In earlier sections, it has been proven that BOP markets are huge & can become a engine for growth. Companies needs to be smart enough to find out the demands of BOP customers & build features in the phones. That way product can be the mass market product & bring economy of scales for mobile companies.
Sustainable Development: Eco-Friendly
The poor as a market are 5 billion strong. This means that solutions that we develop cannot be based on the same patterns of resource use that we expect to use in developed countries. Solutions must be sustainable and ecologically friendly. Companies need to think about the packing used in making mobile phones (environment friendly material). It has also been belived that some mobile companies are trying to make phones using paper rather than using plastic, rubber or steel parts.
Similarly charger for the phones can use kinetic power of bicycle or scotter etc. All these experiements has been done by various industries. But there is a need to commercialize the technology.
Identifying Functionality
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Recognizing that the functionality required in products or services in the BOP market might be different from that available in the developed markets is a critical starting point. In fact, developers must start from this perspective and look for anomalies from their prior expectations based on their experiences with developed markets. Mobile companies needs to find out what is required by BOP customers. For example mobile payment solutions, utility payments. E-government activities, weather activities should be done by the phone for BOP users. Or alternatively BOP users wants phone to be also additionally loaded with watch, timer, camera, online TV functionality. Since most of BOP consumers may not bought camera or TV in their lifetime. Also mobile phone should support the various languages, since most of the BOP users are not educated.
Process Innovation.
A significant opportunity for innovation in BOP markets centers around redefining the process to suit the infrastructure. Process innovation is a critical step in making products and services affordable for the poor. How to deliver is as important as what to deliver. Basically mobile phone companies should develop the suitable product based on their existing functionalities. One size may not fit all. This requires lot of innovation in production as well as distribution & marketing skills.
Deskilling of Work
In most BOP markets, there is a shortage of talent. Work must, therefore, be deskilled. To be cost effective, companies must involve the BOP users in production process & de-skill the distribution network. Use some of the BOP SME/entrepreneurs to be involved in distribution as well as marketing network.
Education of Customers
Innovation in BOP markets requires significant investments in educating customers on the
appropriate use and the benefits of specific products and services. Given the poor infrastructure for customer access, innovation in the educational process is vital. The methods used for educating consumers can also vary. In media- dark zones, Mobile companies could use billboards painted on walls, truck-mounted demonstration crews with catchy jingles that attract crowds in villages for
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their product or functionality demonstration.
Designing for Hostile Infrastructure
The BOP markets exist in a hostile infrastructure. Design of mobile phones should take into account dusty, noisy environment & dirty hands. Infra structure is poor. During the distribution the phones should be able toi withstand shocks. Charger should be able to withstand voltage fluctuated between 90 and 350 volts against a rated 220-volt transmission. Sudden surges in the current were quite the norm.
Interfaces
The design of the interface must be carefully thought through. Most of the customers in BOP markets are first-time users of products and services and the learning curve cannot be long or arduous. The interface should support touch, traditional keys & multiple language support.
Distribution: Accessing the Customer
Distribution systems that reach the BOP are critical for developing this market. Innovations in distribution are as critical as product and process innovations. Moble distribution should include the SME/enterpreneuers from the BOP market. This way trust will be build & BOP users will be
engaged.
BOP Markets Essentially Allow Us to Challenge the Conventional Wisdom in Delivery of Products and Services
By its very nature, success in BOP markets will break existing paradigms. All the changes required in product, business process to serve the BOP users in mobile industry will challenge conventional wisdom. Unless mobile makers are willing to discard biases, this opportunity will remain invisible and unattractive.
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Annexure
Case – 1, Jaipur Rugs: Connecting Rural India to Global Markets
The Jaipur Rugs case explores how a company can benefit the poor by connecting them with global markets. Jaipur Rugs makes this connection by building and orchestrating a global supply chain on a massive scale—one focused on developing human capability and skills at the grassroots level, providing steady incomes for rural men and women in the most depressed parts of India and connecting them with markets of the rich, such as the United States. Thousands of independent workers are organized to produce consistently a very high quality product, on a complex decentralized basis through a system of organization that is unique. The company not only uses traditional weavers but also teaches, in remarkably short time, the craft to people who do not have a tradition of weaving. Raw materials are sourced from around the world, processed into rugs with traditional and new designs in rural India while maintaining quality control of end products. Jaipur Rugs provides a unique and dynamic example of how a profitable commercial connection between the poor and the rich—across the world—can be done.
Approximately 300 direct, full-time employees:
7 family members
226 headquarters employees
70 regional branch office staff, including 40 area commanders
Approximately 40,000 contractors (indirect employees):
28,000 weavers
12,000 other laborers involved in the manufacturing process
The coordination of activities across multiple legal entities gives Jaipur Rugs
Access, but not ownership, to specific skills
Influence, but not control, over key processes
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Decentralization of investment
Business System Building Blocks
Four foundational building blocks allow Jaipur Rugs to profitably influence quality and rapidly adjust to marketplace demands, while executing the extremely complex process of handing over raw materials to an autonomous group of individual contractors.
Deeply Rooted Relationships Driven by Social Values
Competitive wages—Wages paid by the company give people options to have a better quality of life than the alternative work available in villages.
Investment in skills training—The main activities of the Jaipur Rugs Foundation are to recruit and train new weavers for the company. Because of the social impact that Jaipur Rugs has on many regions of the country, the government subsidizes the cost of looms and training in certain regions.
Access to healthcare and education—The Jaipur Rugs Foundation leverages alliances with other NGOs that provide health care and education to the weavers.
Opportunities for aspiring entrepreneurs—When he recognizes contractors who do good work and have the right attitude, Chaudhary believes in giving them loans so that they can become key links in the overall production process. As a result of his recognition of their talents, many contractors see their incomes, social standing, and capabilities multiply. Because Jaipur Rugs demonstrates strong social values, its contractors recognize the difference in working for Jaipur Rugs versus other companies. This recognition elevates the relationship between contractors and the company from a contractual agreement to one of multifaceted value for both. These strong relationships help Jaipur Rugs influence the quality of its products, despite utilizing such a highly
Decentralized production process.
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Jaipur Rugs benefits from a business model focused on converting fixed costs into variable costs, which allows them significant flexibility: Work is decentralized—Rug production is done on a pay for performance basis, depending on the quality and the quantity produced. As a result, the company‘s largest costs—labor and raw material—are variable.
Reducing Capital Intensity
Investment is decentralized—By using contractors for its manufacturing operations, Jaipur Rugs reduces its capital needs by not owning the key manufacturing assets, such as the dyeing, washing, machine carding, machine spinning operations, and most weaving looms.
Management influence over key functions is highly leveraged— The company directly employs only 300 people, yet influences 40,000 artisans who act as entrepreneurs and contractors.
Technical Architecture
The company‘s technical architecture combines information technology (IT) infrastructure, human interaction, loyalty, and training. Jaipur Rugs‘ investment in IT infrastructure includes an Enterprise Resource Planning (ERP) system to optimize its geographically diverse supply chain, allow for the continuity of work, institutionalize quality control, and achieve scale. The company also focuses on creating welldesigned communications networks to deliver raw materials, communicate with weavers, and track the progress of work in remote villages with no electricity. These communications networks are used by the company‘s branch office staff to effectively manage a highly human capital-intensive process.
Production
The Jaipur Rugs production process is a complex system that begins with global sourcing of raw materials and ends with worldwide distribution of the finished products. In between, the rugs are produced by 28,000 rural artisans across seven states in north and west India, supported by more than 12,000 additional production workers and a comprehensive system of quality control and logistics.
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CASE – 2, Casa bahia : Retail for the poor
Companies as savvy as Sears and Wal-Mart have sought to do business in Brazil but failed. Casas Bahia, though, successfully developed a model that serves the Bottom of the Pyramid in that country. The company succeeded in serving the large, lucrative market represented by the poor through innovation and the right financial approach.
Casas Bahia is a family-owned business started more than 50 years ago by Samuel Klein. After surviving two years in a Nazi concentration camp, Klein left his homeland in 1952 to start a new life in Brazil. To support his family, he sold blankets, bed linens, and bath towels door to door in São Caetano do Sul. That business transformed through the years into the largest retail chain in Brazil, selling electronics, appliances, and furniture. With a 4.2 billion real (the Brazilian currency) annual revenue, 330 stores, 10 million customers, and 20,000 employees, Casas Bahia has established itself as a successful and sustainable business serving Brazil‘s poor.
In 2003, the population in Brazil was 184 million, more than 80 percent of whom were at the Bottom of the Pyramid. The Bottom of the Pyramid, though, represents significant purchasing power in Brazil‘s economy (specifically, 41 percent of the total spending capacity). This R$124 billion accounts only for the formal reported economy. According to some estimates, the informal market in Brazil for the Bottom of the Pyramid reaches an additional 50 percent. In Brazil, 45 percent of total appliance and furniture spending is done by the Bottom of the Pyramid. Of particular interest is the high penetration of major appliances, such as television sets and refrigerators, at the Bottom of the Pyramid in Brazil. It is not uncommon to find households with a television or refrigerator yet lacking basic infrastructure, such as toilets and telephone lines. Those at the Bottom of the Pyramid in Brazil spend based on their needs. In a tropical climate, a refrigerator is a necessity. Everyone, regardless of class, feels the need for entertainment. For the poor in Brazil, that comes in the form of television or radio. For the market to connect with the products, though, some innovation was needed because 70 percent of Casas Bahia customers have no formal or consistent income. These customers are primarily maids, cooks, independent street
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vendors, and construction workers whose average monthly income is a bare minimum wage, whereas many do not declare an income at all. Yet this large portion of the population still wanted and needed appliances. Casas Bahia took an innovative approach and devised a unique financing model to serve this market. Part of the solution is the now famous carnê, or passbook, that allows its customers to make small installment payments for the merchandise. Payment schedules range from 1 to 15 months. The passbook is available only at Casas Bahia stores, and every month consumers must enter a store to pay their bill. The method also maintains relationships with clients.
Financed sales represent 90 percent of all sales; 6 percent are cash payments and 4 percent are via credit card.
All customers who want to finance a purchase must submit to an SPC credit check. If the customer has a negative SPC score, Casas Bahia cannot complete the transaction until the customer resolves the credit problem. If the customer has a positive score, there are two alternatives. If the merchandise costs less than R$600, no proof of income is required; a valid permanent address suffices. Casas Bahia developed a proprietary system to evaluate prospective clients when merchandise costs more than R$600. Clients receive a credit limit based on total income, both formal and informal, occupation, and presumed expenses. This scoring process takes less than one minute. If the system approves the prospect, the salesperson can continue with the sale. Clients rejected by the system are directed to a credit analyst for further evaluation. This is where the importance of building a relationship is prominent. Based on training, the credit analyst asks a series of questions to determine a client‘s creditworthiness. The entire process typically is finished in 10 minutes or less.
The proprietary system that determines the creditworthiness of new clients also evaluates existing clients for potential new purchases. Based on the same factors previously noted, in addition to payment history, the system automatically produces a new credit limit. This ability is key in the cross-selling process. When the customer comes into the store to pay a monthly installment, the Casas Bahia salesperson sees that a new credit limit is available for the client. This salesperson has
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the opportunity to make a tailored cross-sale in the amount of the new credit limit.
CASE-3, CEMEX: Homes for the Poor
The ability to build and finance a quality home has been beyond the means of most of the world‘s impoverished. These people are often ignored by major corporations because it is thought they have too little money and are too difficult to reach. CEMEX, the largest cement manufacturer in Mexico, second-largest in the United States, and thirdlargest cement company in the world, has through innovation found a profitable and empowering means of housing the poor for profit, instead of leaving that to governments or not-forprofit organizations.
During the Mexican economic crisis in 1994 through 1995, CEMEX experienced a huge drop in domestic sales. Part of this stemmed from legal barriers that broke down, paving the way for international competition. Quick analysis of where revenues were specifically hemorrhaging most led to an astute observation that involved taking a closer look at the Bottom of the Pyramid market.
CEMEX analysts knew sales were down, but a key awareness was that whereas sales were down by as much as 50 percent in the formal market, sales in the less-wealthy segment informal selfconstruction market were down by only 10 percent to 15 percent. The company realized the high level of dependency on the formal segment left it vulnerable to the business cycle swings in Mexico. According to an estimate made by CEMEX, the do-it-yourself segment accounted for almost 40 percent of cement consumption in Mexico and has a market potential of $500 to $600 million annually. However, that segment also represented a portion of the population existing for the most part in a state of poverty. The company realized the key difference between the formal segment and the informal segment was in the average revenue per customer. CEMEX figured that by converting the low-income population (that forms a majority) into customers, the steady revenues from this segment could be impressive. Part of CEMEX‘s awareness involved considering the obstacles of reaching this market in an effective, efficient, and sustainable way. Clearly, hard work and innovation would eventually be needed, but getting a clear big picture first was vital.
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Market research based on various demographic factors—social, religious, political, and financial.
The study also analyzed the various construction practices and methods, brand perception, and image of various cement brands. The team realized that financing was the foremost and most difficult challenge to overcome for low-income customers. Unless the poor obtain access to credit, it would be difficult to sell the idea of constructing a complete house in the near future. The second challenge was that most families employed local semi-skilled or unskilled masons who built rooms without any planning. The lack of technical expertise resulted in a lot of raw material waste. Often, the masons did not order the right amount of material, and families did not have a safe place to
The study also analyzed the various construction practices and methods, brand perception, and image of various cement brands. The team realized that financing was the foremost and most difficult challenge to overcome for low-income customers. Unless the poor obtain access to credit, it would be difficult to sell the idea of constructing a complete house in the near future. The second challenge was that most families employed local semi-skilled or unskilled masons who built rooms without any planning. The lack of technical expertise resulted in a lot of raw material waste. Often, the masons did not order the right amount of material, and families did not have a safe place to