May 7, 2012

Cracking the code for sustainable "BoP" business models

Unlearn the past to create the future ~ C K Prahalad
In the half decade or more since I increasingly began to focus on the challenge of the emerging consumer opportunities among the lower income demographic of the developing world, I've yet to hear of an unconditionally successful business model specifically designed for this segment of the world's population.

We've seen the unprecedented success of mobile phone adoption with double digit growth rates in Sub Sahara and rural India or China, but was the prepaid business model designed with the needs of the informal economy in mind or an accidental superstar? The same goes for the oft quoted MPesa mobile money transfer system in Kenya or the virtuous qualities of the Nokia 1100.

The concept of the Bottom of the Pyramid, now called the BoP, has overshadowed the rest of CK Prahalad's contributions to management and strategy - the core competence of organizations is one great example. Today, I'd like to remind us of a speech he made in Hyderabad's International School of Business way back in early 2009.

Overthrow the tyranny of dominant logic, he said, if you want to be successful in today's global economy.
Dominant logic is the result of a pattern of socialisation. All of us are susceptible to it. Often, the dominant logic is implicit. For over fifty years, developed country managers, consultants and academic researchers have been socialised to believe that developing markets cannot be a source of innovation. The academic community has, by and large, accepted this notion as well. The dominant logic provides the theoretical lens with which we see the world. I think it's time to challenge this received wisdom.
And so, I've been thinking of overturning the dominant logic of current day interpretation of Dr Prahalad's Bottom of the Pyramid concept. Lets start with the basic assumption:

This is the best known visual of the pyramid that we have all seen. And its fundamental premise is based entirely on annual income - that is, the so called Bottom or Base of the Pyramid is the vast swathe of this planet's population defined solely by their cash flow. The Next Billion or 4 Billion or the "Other 90%" have neither been segmented with the consideration that global marketers give to the rest of their customer segmentation in 'ToP' markets nor their unique characteristics explored or explained in any further detail. I have been working on the latter aspect and will be sharing those thoughts soon but in this post I want to overturn the dominant logic of measurable income as a quality that could conceivably be applied to people who for the most part earn their living in the informal economy (Neuwirth's Systeme D) and their cash flows are irregular or unpredictable. How can one estimate one's income (if asked) when there is seasonality in cash flow over the course of the natural year?

The concurrent and as damaging assumption that goes hand in hand with this framing is that of 'survival markets' and thus the aspect that these are the poor (all 4 billion of them), a label that is loaded with so many assumptions regarding behaviour and needs. It is this poverty that needs alleviation that has resulted in attempts to focus on people's "needs" rather than the very human and aspirational "wants" of the audience. I've been pondering whether its due to this framing that the majority of business models are still failing to succeed at any discernible level beyond the initial pilot?

What if we turned this whole dominant logic on its head? What if we stopped focusing on people's needs and instead looked at their wants... I don't mean to stop offering them a cleaner cookstove or better solar light and sell them alcohol and tobacco instead ... I mean what if, even though the need might be that of modern energy but the human want is entertainment? That is, what people are seeking is a way to listen to the radio or watch TV rather than a solar powered lantern that doesn't smell or smoke like kerosene?

You'd still be selling them the same thing, just approaching the whole marketing strategy from an entirely different way from what is being done right now for BoP audiences.  Like customers (like human beings) everywhere, they are no different in seeking aspirational goals or status yet we focus on talking about toilets and firewood and kerosene... Is it any wonder nobody wants to listen?

By first questioning, then validating through field testing, the original assumption/s on which "the BoP" market concept rests, perhaps we can start designing business models from scratch that are resonant with the target audience and their particularities with respect to their cash flow, spending habits and environment, than simply focusing on a random number as "income" alone.

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