BOP is an abbreviation for “Bottom of the Pyramid” and is a idea of doing business targeting low-income people in emerging countries who live on less than $ 3,000 a year . The population belonging to this BOP group is said to be 72% (about 4 billion people) of the world population, and the market size is said to be about 5 trillion dollars. This is said to be on par with Japan’s real GDP.
The BOP class in emerging countries has a large population volume and is attracting attention as a new market in the world economy.
The main characteristics of BOP business are “it is necessary to solve social problems (poverty and hygiene problems) and balance business”, and “it is necessary to have a mechanism to bring income not only to corporate profits but also to low-income earners”.
- 1 Proponent of BOP business
- 2 The BOP group will be the “next volume zone” of the future middle-income group
- 3 BOP business success conditions
- 4 Benefits of BOP business
- 5 Example of BOP business
- 6 BOP business failure example
- 7 BOP Business Challenges and Future
- 8 Achievement of SDGs ahead of BOP business
Proponent of BOP business
The concept of BOP business was first proposed by Professor C.K. Prahalad, who was enrolled in the University of Michigan Business School in the United States.
Professor C.K. Prahalad argued that “the poor are consumers, not aid.” He also argues that the BOP business needs to be “ partnered with the poor to innovate and achieve sustainable win-win scenarios “. In other words, the BOP business is not just about providing goods and services to make a profit, but also creating a mechanism to increase the income of the poor to generate continuous consumption and aim for a sustainable market.
The BOP group will be the “next volume zone” of the future middle-income group
There are various detailed definitions of the BOP layer, but the most common is the report “The Next 4 Billion” published by the International Finance Corporation (IFC) and the World Resources Institute (WRI) in 2007. It is interpreted as “a group of people living on an annual income of less than $ 3000” as defined in. The “4 billion” in the title of this report refers to the world’s BOP population of about 4 billion, which is about 72% of the world’s population. Most of the BOP group, which is estimated to be about 4 billion people, is expected to rise to the middle-income group in the future, so the BOP group is a new promising market “ Next Volume Zone“, it is attracting worldwide attention.
By revitalizing the BOP business, further growth of the global economy as a whole is expected, so creating many products and services targeting the BOP layer will create great market opportunities.
BOP business success conditions
Creating a mechanism for increasing income for the poor
In order for the BOP business to succeed, it is necessary not only to provide products and services to make a profit, but also to build a mechanism to increase the income of the poor and create continuous consumption. It’s the key. In other words, it is essential to carry out economic activities that companies would not normally do, such as increasing the income of the entire region at the same time as doing business.
Marketing rooted in local lifestyles, customs and culture
The lives of low-income people in emerging countries are subject to unique customs and cultural constraints such as religious discipline and male-dominated women. When doing a BOP business, you need to do a detailed investigation to see if your product fits those constraints. It is also necessary to collaborate with local NPOs and NGOs when approaching people whose consumption and living conditions have not yet been clarified.
Carry out hygiene and cultural awareness activities
In the area where the BOP group lives, the sanitation of the area is often poor. For example, in areas where there is no habit of washing dishes with detergent, it is necessary for companies to carry out enlightenment and educational activities such as “how much the use of detergent will reduce infectious disease infections”. It is also important to carry out educational activities such as understanding and disseminating that product purchases will reduce future medical expenses and living risks.
Benefits of BOP business
Improving corporate image
Companies that carry out BOP business are recognized as companies that directly develop the social value of the region. From such a background, it is possible to improve the corporate image not only in the local market but also in the global market, and it is also possible to carry out branding.
Promotion of innovation
For companies doing BOP business, it is expected that the method of developing and selling products and services in the BOP market will be quite different from any market in which they have entered.
Therefore, in the process of entering the BOP market, there is a possibility that epoch-making products / services or marketing methods that can be used in the global market will be born. In addition, you may be able to get ideas that will help you develop new business models.
Earning pioneer profits
The BOP market is an undeveloped market with low competition among companies, that is, it can be said to be “ Blue Ocean “. If we can quickly enter this Blue Ocean and establish a solid position in the BOP market, we will be able to acquire a position to become a pioneer in the future growth market.
He explained that the BOP business targeting the low-income group has great merits even for companies pursuing profits that target the abundant money of developed countries.
However, if you are considering entering the BOP business as your company’s overseas expansion, start the BOP business with a long-term perspective and strategy, such as the companies introduced in “Examples of BOP Business Companies” explained below. I need to go.
Example of BOP business
The most well-known example of the BOP business is the Grameen Bank in Bangladesh, founded in 1983 by Nobel Peace Prize-winning economist Muhammad Yunus. Grameen Bank has built a system that allows the poor, who do not have collateral such as land and deposits, to receive loans from financial institutions.
When receiving a loan from Grameen Bank, the borrowers form a group of five and receive the loan one by one. When the repayment of one person who has received the loan is completed, the next person can receive the loan, and even if the repayment cannot be made, the members in the group are basically not liable for joint guarantee. The group is made up of residents living in the same area, most of whom are women in the lower caste. It is said that the bad debt rate is 2% or less because it is a mechanism that gives a sense of duty of repayment responsibility by using the habit of having a high weight of human relations in the community. The mechanism for providing small loans to the poor is called “ microfinance ” and creates opportunities for many Bangladeshi women who had not even had the opportunity to work before to earn income from entrepreneurship. rice field. As a result, the child enrollment rate in the community has also increased.
Fumakille, a major pesticide company, entered Indonesia, where mosquitoes are abundant throughout the year, in the 1990s, and launched a localized product that studied the ecology of local mosquitoes.
The key to market creation is marketing activities by sales staff and locally hired sales lady. Sales staff visit a private store called “Warung”, which is peculiar to Indonesia, to explain the products and negotiate the handling, while sales lady visits private houses in the vicinity to promote free samples. We have created a sustainable market by steadily creating a flow line of “ When consumers are satisfied with the free sample, they shop in Warung “. It provides work opportunities for women belonging to the poor and contributes to independence support.
Another notable example is the sale of soap in rural India by Unilever, a global consumer goods manufacturer based in the United Kingdom. Unilever sells soap to the BOP, whose daily income is less than $ 2. In the past, in rural India, there were many deaths due to diarrhea, etc. due to the deterioration of the hygienic environment due to the lack of habit of washing hands with soap. Therefore, Unilever held a hygiene education seminar centered on local female residents and adopted a system to hire local women as sales staff.
Like Fumakilla, it is a method of hiring local women as sales agents, but most of the women who become sales agents are customers who also use Unilever products themselves.
In addition, the products we sell are also devised, and the products sold in the BOP market are subdivided or single-use products that are sold in smaller quantities than regular products. This is because the unit price is lower for subdivided packs and single-use size products, which lowers the hurdles for consumers to purchase.
By gaining significant profits from the BOP business in India, Unilever has achieved both business and social contribution and the development of the local community.
BOP business failure example
The cheap car “ Nano ” developed by Tata Motors of India was sold to low-income earners at a low price of 100,000 rupees (about $2,000). , More than 90% of households in India did not sell well because they did not have enough income to buy “Nano” even if they took a loan. When conducting a BOP business, it is important to have a detailed understanding of the living standards and needs of the target low-income group.
BOP Business Challenges and Future
There are many cases of failure in the BOP business, and the causes include “inappropriate price”, “insufficient infrastructure support”, and “insufficient reliability”. It is said that the common cause of all failures is the lack of understanding of local characteristics and needs. In other words, the biggest challenge in the BOP business is “ closeness to the local area “, and the key to any business is to properly grasp the target. When starting a BOP business, it is necessary to firmly grasp the characteristics and needs of local residents, and it is important to build partnerships with NGOs, NPOs, and local companies that are familiar with the local area and have personal connections. is.
As mentioned in “The Next 4 Billion” mentioned above, the BOP group is called the “next volume zone”, that is, the “future middle-income group”. By revitalizing the BOP business in collaboration with private companies including multinational companies, citizen groups such as NGOs and NPOs, and the government, global economic growth will be realized, and the BOP group will be the next middle-income group. It is expected to play a central role in the economy.
By the time the BOP is raised to the middle-income group, it is expected that a strong relationship of trust will be built between the people who belonged to the BOP and the companies that develop the BOP business. It becomes a barrier to entry and maintains a certain level of competitive advantage.
With its high growth rate and plenty of room for market development, the BOP business has great potential.
Achievement of SDGs ahead of BOP business
SDGs is an abbreviation for “Sustainable Development Goals”. Adopted by the United Nations General Assembly in September 2015, it has set 17 goals and 169 targets that the world should address by 2030.
The goals of the SDGs are to eradicate poverty, violence and hunger, and to achieve sustainable economic development without destroying the environment. Is required to continue.
The BOP business targeting the low-income group is one of the effective means to achieve the SDGs , and the BOP group is provided with high-quality products and services within reach. If so, it also opens up the possibility of solving health, welfare and education issues. It should also lead to a safer and more comfortable environment.