Misguided
title aside, my blog entry for this week focuses on the impact of social
ventures targeted at the bottom of the pyramid. With the collective spending
power of more than $5 trillion a year, this segment still lacks the viability and
ease of execution that a richer segment might provide to companies interested
in “innovating”.
Notions
like these are rooted in the misconceptions pointed out by Whalan[1].
Whereby, he dispels the idea of not being able to make money from poor
consumers quoting the example of Coca Cola having done the exact opposite. He
then moves on to suggest that were more companies willing to invest in such
consumers, the latter would be unequivocally better off, by virtue of
competitive pricing. Consider the same village in Africa abundant in Coke. Now imagine Pepsi saying
to the management at Coca Cola “don’t you feel like you’re taking advantage of
these people by making money from them? We’re not
going to do that”. Pepsi doesn’t
invest. Coke has a monopoly. Consumers are worse off; they have less choice,
and are probably paying more. Now imagine this for something more serious than
soda. The third clarification echoes the “giving or teaching a man to fish”
debate, and how charity may just encourage “laziness and stymie innovation”. Martin
Fisher is probably one of many who can attest to that first hand. #Throwback to
last class where Fisher’s initial failure with his water pumps was attributed
to his earlier charitable model of business.
However, while Whalan makes some great points, we
can’t ignore some other reasons why companies may shy away from investing in
this consumer group. As Simanis and Duke point out[2],
poorer consumers are challenging on two counts; changing their consumption behavior
is more difficult, and they require unique systems of delivery. These
challenges hike up the costs associated and increase the risk of failure. If
that’s the case, what’s a company to do but fold?
Well, for starters, these companies need to
realize, poorer consumers are much warier of their purchases compared to their
richer counterparts. In so, they might not only be resistant to new products,
but also suspect of them (large MNCs and their exploitation baggage, go figure”).
Therefore, a new product has to offer significantly large benefits with
relatively low disruption for them to adopt it. This of course includes the
route to market as well, which as highlighted in SC Johnson’s venture in Ghana,
if executed properly, can make “promising strides’.
Not addressing these two challenges prudently is
what leads to bottom of the pyramid ventures retiring as little more than learnings for a company’s corporate
social responsibility portfolio. That’s when this company realizes perhaps
investing in that iPhone app wasn’t such a bad idea after all.
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