Innovations at the base of the pyramid: a new approach?

Anderson and Markides article titled “Strategic Innovation at the base of the pyramid” explores how in developing countries, the lower income strata is a large untapped market and can be pulled in to be a viable consumer segment. The approach to target this segment is different from targeting the upper income levels- the poor will only purchase products if those products are adapted to suit their needs. These needs include the products being low priced in order to fit their tight budgets; the products being suitably adapted to the environment, their habits and their cultural sensibilities; the product being readily available via supply chain networks and market penetration; and generating awareness in the community regarding the presence and need of the product.

The portable Ultrasound machine shown in last class is one of the key examples of this approach. In order to tap into the underserved health market of the poor, the small sized machine was priced lower and was made to be transported in far flung areas on foot, where no supply chain or distribution system exists to service the people. This ties in neatly with the example of Avon cosmetics cited by the authors, whereby women in India went door to door to sell cosmetics and personal care products.

Just the concept of innovating at the Base of the Pyramid is refreshing. We tend to consider innovation to be taking place in MNCs and big corporations (and almost use it synonymously to describe Apple, Google, Lufthansa and the likes). However, there are various examples of strategic innovation that are enabling access of capital and goods to the poor. We have already read about the M-Pesa in Kenya and how it brought banking services to the unbanked poor. Another mechanism that has been existence since a very long time is that of  informal lending- such as ROSCAs (Rotating Savings and Credit Association) and ASCRAs (Accumulating Savings and Credit Association). These means have been highly successful in countries like Cameroon, Nigeria, India, Pakistan etc. Groups of people (mostly women) put an affordable amount of money in a ‘pot’ every month and by lottery give the total amount to one of the pitchers. This enables the poor to save up for large expenses. This is not to say that these informal mechanisms don’t run into problems of default, fraud or the inability of a pitcher to pay. But these societies are bound by relationships and trust can be one of utmost importance when dealing with these societies.

Financial institutions should innovate more ways of providing the poor with credit and in doing so, should adhere to the four principles of Anderson and Markides. However, belonging from a developing country myself, I would add a fifth principle to the argument- that of Trust. To launch a product in such a market, local collaboration, communication and trust are integral components for success. Given the current landscape of the Muslim developing world, however, and the growing anti-West sentiment, the question arises that how can MNCs  and foreign banks improve their image and establish trust in order to tap into the market?