Serving the base of the pyramid: five tips from emerging-market experts

Serving the base of the pyramid: five tips from emerging-market experts

The idea of serving the world’s poorest populations while expanding into developing countries is alluring, but has proven difficult in practice. Here’s some advice from the trenches

Bruce Watson, Friday 30 May 2014 17.02 BST

For companies looking to expand their markets, emerging markets represent an attractive target: billions of consumers, eager for jobs, goods and services that will bring them further into the global economy.

Of course, these markets also come with some challenges, most notably the fact that potential consumers in the “base of the pyramid” (BoP) – or the poorest half of the world population – make, on average, less than $2.50 per day. But armed with the right product, the right marketing and the right distribution network, a company could, conceivably, crack the code, make the sale, help alleviate poverty and find itself breaking ground in a new economic frontier.

On Thursday, the Guardian and SC Johnson partnered to host a panel called “Business at the Base of the Pyramid” at the Social Innovation Summit. The session, which brought together some of the top academics and businesspeople working in the field, explored the problems and possibilities of one of the world’s largest market segments. Here are some of the takeaways:

Needed: a clear business objective

One of the first lessons for companies hoping to enter the base of the pyramid is the vital need to directly and clearly set goals and expectations. For example, a company hoping to develop a market for its existing products will act differently than a company hoping to develop new consumer products, which will act differently than a company that plans on launching a philanthropic effort. Each option employs different strategies, seeks different goals and employs different measures of success. To be successful at the bottom of the pyramid, a company needs to develop a clear vision that plays to its strengths.

Mark Milstein, the director for sustainable global enterprise at Cornell University, cited chemical manufacturer BASF as one example of a company that did this the right way. Recognizing the rising demand for housing in developing countries, it tried to find a way to enter the market. The obvious choices, like real estate or construction, were out of its comfort zone. But “they make products that go into other products, that eventually make housing”, Milstein noted. The company developed an additive that cures concrete quickly and evenly, making it easier and cheaper to build houses. Marketing this to the base of the pyramid, BASF built a business that, Milstein says, is doubling in revenue every year.

Scale is not a substitute for profitability

One commonly held idea about BoP businesses is that they reach profitability through scale. In other words, companies develop a product that has an exceedingly low profit margin, but aim to sell huge quantities to make it worthwhile. Unfortunately, the panelists said, the large-volume, low-profit model is often unsustainable.

Mark Martin, VP of international markets marketing at SC Johnson put this in perspective, explaining that fixed costs and marketing can quickly eat up profits on low-margin goods. “We found that, in order to cover fixed costs, you need to charge high margins on products,” he said. “That’s not to make a high profit. That’s to cover the fixed costs.”

Consumers don’t want a low-quality or depressing product

Another classic path for companies looking to work at the bottom of the pyramid is to strip down a product, removing many of the extra features that consumers at the top of the pyramid might expect. Alternately, companies looking to the bottom of the pyramid often develop products that give the customers what they need, such as an anti-malarial product, rather than what they want.
Companies have tried numerous approaches to solving this problem. Instead of trying to sell anti-malarial chemicals to BoP consumers, SC Johnson markets products like bug repellents and cleaning solutions that offer an attractive primary purpose and protect consumers against malaria – and sells them via local entrepreneurs, Martin said. It also offers a subscription service that delivers a sampler of household products every month.

Use existing economic and cultural structures

When looking to create economic opportunities at the base of the pyramid, many companies are inclined to go with what they know, seeking the kinds of development, production and distribution networks that exist in developed countries. And when these structures are missing, many try to recreate them. However, even the lowest-income developing markets already have economic and commercial structures. And companies that are able to integrate themselves into these existing structures not only stand to make a profit, but also can avoid the costs associated with reinventing the wheel.

Andres Peñate, SVP for corporate affairs at SAB Miller Latin America, offered a great example: In Colombia, much of the commercial life of small towns and villages take place in tiendas de barrio, little general stores that provide consumer goods, lending services and gathering spaces. Rather than competing with these markets or seeking other outlets for their goods, SAB Miller worked with store owners to improve their sales. And, in war-torn areas that didn’t have tiendas, it helped organize and build these traditional commercial structures, where it then sold its products.

Don’t go it alone

When global companies like SC Johnson or SABMiller look to enter the base of the pyramid, they have a major advantage: size. But what about smaller enterprises that have products targeted toward developing communities but don’t have the reach or resources of large global conglomerates?

Rahul Barua, a partner at Clean Star Ventures, a venture capital firm, explained the vital necessity of strategic partnerships. “Imagine a 25-year-old college grad from the Bay Area who has developed a technological innovation for base of the pyramid communities,” he said. “It can be difficult to commercialize. Strategic partners, like European utility or big banks or NGOs can make a huge difference.” Among other things, these partnerships can bring capital, expertise in local customs, and credibility.

Barua’s ultimate conclusion is as true for companies seeking to enter the base of the pyramid as for the consumers who live there: “If you don’t have resources,” he said, “it can be hard to go it alone.”

The values-led business hub is funded by SC Johnson. All content is editorially independent except for pieces labelled advertisement feature. Find out more here.


About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: