Home Business & Finance Fighting Poverty Together: Rethinking Strategies for Business, Governments, and Civil Society to Reduce Poverty
Emerging Middle Class
The alleged large and lucrative market at the bottom of the pyramid is a mirage. Fueled by rapid economic growth, the shape of the economic pyramid is changing in many developing countries leading to a rapid emergence of the middle class. Companies seeking new profitable opportunities are much better off targeting this vast new pool of consumers—the fast-growing middle class—in the emerging economies, especially China and India.34
Single-Serve Revolution: A Dud
The most often cited example of BOP success is shampoo sold in single-use sachets to the poor, which is said to have begun a “single-serve revolution” that is sweeping through poor countries, as companies learn to sell small packets of various products such as shampoo, ketchup, tea, coffee, biscuits, and skin cream. “A rapidly evolving approach to encouraging consumption and choice at the BOP is to make unit packages that are small and, therefore, affordable.”35 It is interesting to note that the pioneer of this revolution was CavinKare, an Indian start-up firm that first introduced shampoo in sachets in 1983, and not MNCs with the technological and marketing prowess of, for example, Unilever or Procter & Gamble.
This claim of “affordability” is just marketing lingo. Companies may prefer to sell small packages at lower profit margins to encourage trial, brand sampling, and impulse purchasing. The poor may prefer these small packages because of convenience and managing cash flow. The poor find it difficult to save money due to lack of safe place to keep money and paucity of banking services. The poor may not have the money to buy a bottle of shampoo, but could buy shampoo sachets for occasional use. However, small packages increase consumption by facilitating impulse buying. It is common forpaanwallas (small kiosks selling tobacco and other sundry products) in India to sell single cigarettes, resulting in increased consumption. In Malaysia, samsu (the generic name for cheap liquor) is sold in small bottles of 150 milliliters (5 ounces). It is also possible that a customer might be fooled into thinking the lower price of a smaller package makes it truly cheaper. (It is for this reason—to avoid consumer deception—that products sold in supermarkets in the United States are required to display the per unit price as well as the price per package.) While small packages probably create value by increasing convenience and helping the poor manage cash flow, even that might be debatable. An ACNielsen study on rural markets in India found that for several products the best-selling package size is the same across rural and urban markets.36
Whether or not they create any value for the poor, single-use packages do not increase affordability. The only way to increase real affordability is to reduce the price per use. HUL sells Annapurna salt in a small package size to target the BOP market, but at exactly the same price per kilogram as for larger packages. (Recall that Annapurna salt sells at a 275 percent price premium to unbranded salt.) As a result, small packages of Annapurna “have been slow to penetrate mass markets, although they have been successful in surprise niche markets, such as college students living in hostels.”37
Companies need to reduce costs to make their products affordable to the poor. Larger packages usually lead to lower production and distribution costs per unit, which is why the per-unit price is usually lower for larger, economy-sized packages. In reality, single-use packages for most products are usually sold at a premium price. “In Mexico City, for instance, a full-size bottle of Head & Shoulders dandruff shampoo that lasts roughly 70 shampoos costs half as much, per ounce, as a single-use sachet.”38
Prahalad states that “the entrepreneurial private sector has created a large market at the BOP; the penetration of shampoo in India is about 90 percent.”39 Although he recognizes the negative impact of the proliferation of single-serve packages on the environment, he then optimistically dismisses the problem by arguing that MNCs have both the incentives and resources to solve the environmental problem. Yet it has been almost thirty years since the first introduction of shampoo in sachets, and companies have not yet solved the environmental problem caused by plastic packaging. In fact, most single-serve packages are made from fused, multilayered, metalized polymer material that is impossible to recycle. This problem is exacerbated in poor villages and slums where trash collection facilities are grossly inadequate or nonexistent. A visit to any Indian village or town confirms the severity of the environmental problem.
During a recent visit to several villages in the Indian state of Rajasthan, it was obvious that single-serve packages are very common in the kirana shops (small kiosks selling general merchandise). Indeed, the single most common product category in single-use packages was chewing tobacco. This does not make chewing tobacco any more affordable, but it probably does increase the consumption to the detriment of the poor.
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