Thi Hong Phuc Phan (18027991) Email: jennilyn_phan@hotmail.com

Thi Hong Phuc Phan (18027991) Email: jennilyn_phan@hotmail.com

The Fortune at the bottom of pyramid
Procter & Gamble Company
The Fortune at the bottom of pyramid
Procter & Gamble Company

According to Pervez, Maritz and Waal (2013), recently when poverty continues to be one of the global key issues and also one of the biggest challenges facing the society at large, the solutions to alleviate the continuing economic misery have become increasingly popular. The release of new theory called “Bottom of the Pyramid”, which is also known as “base of the pyramid”, by Prahalad and Hart has helped figure a new way of thinking about the intersection of business strategy and poverty alleviation (London & Anupindi, 2012). However, it does not seem like the business will always be profitable when doing the expansion to the low-income market, the challenges facing to the businesses also arise. This paper is to describe and discuss in-depth the Bottom of the Pyramid concept and also to go through the approach to the BoP venture that the selected company, Procter & Gamble, has undertaken in their business strategy in the Chinese market.

Dinica & Motteau (2012) stated that: "The distribution of money in the world looks like a pyramid". The “bottom of the pyramid” concept mentions that not too many people could earn a lot at the top of the pyramid but a big amount of people who are poor at the bottom of the pyramid. It is estimated that approximately four billion people that make up two-third of the world’s population listed in the poorest group (Prahalad and Hart 2002), whose purchasing power is less than five dollars a day or less than 3000 dollars per year. This low- income market seemingly presents an enormous opportunity for the world’s wealthiest corporations to attain their fortune and also to bring prosperity to the economic misery (Prahalad and Hart 2002). When a large volume of sale is taken into account, low per capita consuming power of the BoP market is not a problem to businesses; they believe that it can be profitable (Shao, 2008).

To be successful, wherever the companies operate, they must create value to their existing and potential customers (Weconomy Start, 2014) by offering the solutions to the current issues and fulfilling objectives in the way suiting the local market environment as well as culture. The key success of BoP is to develop the products and services in response to the low-income people’s needs and wants. But the truth is that it is truly difficult to help the managers to put themselves in poor’s shoes and analyse the poor along with their consumption habits (Dinica & Motteau, 2012). The life of poor is an uncertain lack of control over a lot of things and they work in an irregular way in which the producers might find hard to enter in such market structures, they are unsure if they could earn some money from entering in those markets of the poor. In addition to this, the level of illiteracy is also a problem for the producers who aim to target in the poor markets. Most of subsistence customers have not had a proper education and they seem not to read much information or make advanced calculation (Dinica & Motteau, 2012). According to Viswanathan et al. (2009), when marketers use the techniques of discount and coupons, consumers will be confused and anxious; they rather look at others who are more knowledgeable and trustworthy to decide what they should buy. Therefore, the preferable techniques in those market should be word of mouth, product demonstration in the street or the partnership with local sellers (Viswanathan et al. 2009).

Pervez, Maritz and Waal (2013) deem that most of the multinational companies have been experiencing the failure in the way they approached the BoP. It is far more complicated to develop their business in the low-income markets; instead of simply forecasting the demands of consumers, it requires the business development “processes in synchronisation with the BoP community”( Pervez, Maritz and Waal, 2013) to analyse what the actual needs of consumers in this community. Following Subrahmanyan &Gomez-Arias (2008), it is required to redesign the products in accordance to the needs of the BoP consumers; companies will be unsuccessful implementing the approach which is to provide “stripped down products” by taking the features from the products sold in the developed markets away. A major criteria to achieve the success at the BoP is to engage with the community to clearly understand the problems and needs of their potential consumers to design, modify and produce the products which have the features suiting their demands. London & Anupindi (2012) believe that engaging in co-creation with potential clients is also a helpful method in seeking the knowledge for product developments. Co-creation means that the enterprises will not only observe and interview their possible buyers, but also invite people to participate in their innovation in order to gather local people’s knowledge of their needs and wants and the business knowledge of the companies (Nahi, T, 2012). Co-creation allows companies to find sustained interaction and equal partnership with BoP communities resulting in mutual learning and leading to new business idea. As a result, co-creation seems to be a suitable method which could bring profits to the companies and wellbeing to local people. Instead upon determining a new “what” or a new “who” to effectively serve BoP consumers, the products and services development for BoP markets can be leveraged by the 4As including affordability, acceptability, availability and awareness (Anderson et al. 2007). The first step to strategic innovation at the BoP is that the products and services need to be suitable to existing needs or aspirations of local end-users. BoP consumers have relatively low disposable incomes so the products must match the cash-flows of them. The second challenge in serving BoP consumers is to innovate the products and service which need to be culturally, religiously and politically acceptable for the local potential buyers. The availability of products and services is yet another major challenge facing companies in serving BoP markets (Viswanathan et al. 2012). The distribution channels in BoP market may be weak and the task of getting products to those customers in these markets is apparently a barrier to overcome. Lastly, awareness is a challenge that companies need to develop. It is largely impossible for BoP consumers to access to the advertising media.

The Procter & Gamble Company is known as one of the world’s largest, strongest multinational enterprises producing and providing consumers with household and personal products headquartered in downtown Cincinnati, Ohio, United States (Reuters, 2014) .The Company was incorporated on May 5, 1905 and their brands are well known worldwide. Procter & Gamble is one of many companies capturing the low-income consumers in developing countries and is one of the first Western businesses to address the occasions of doing business in China, one of the developing countries of the world. Procter & Gamble entered Chinese market in 1988 and yet today it is a leading consumer goods company in China (Reuters, 2014).

According to Grant (2005), P&G’s success in the BoP market is thanks to the innovations in their strategies in incorporation of consumer research, cost and productivity, and manufacturing efficiency. To gain profitability in BoP markets, P&G has been managing the research for product development matching consumers’ needs at optimal price (Reingold, 2011). P&G believes that in order to be successful they need to develop innovative products for all consumers on the economic curve. According to Spence, R (2011), Cindy Graulty who is a scientist of P&G stated that it was a myth to say poor people only wanted function; just like us they cared about beauty.
Like many other multinational enterprises, Riley (2013) represents that P&G had entered Chinese market with watered down version of their popular products. Three P & G executives and scientists came to a small village to watch a young farmer washed her long black hair using no more than three cups of water. P&G realized that they need to implement the approach in which they are required to clearly understand their consumers in depth and to design and produce products meeting consumers’ existing needs at an affordable price for all BoP consumers (Riley, 2013). One way P&G have done was that they sent thousands of their employees to live with their potential customers around China to observe and help develop the right product for those customers and work out the way to reduce production costs by around 30 – 50 per cent to achieve the kind of product innovation for the $2 day project of BOP venture (Riley, 2013). The company understand that water scarcity is the rule in China, most of the population here have had to use laundry soap to wash their hair and it made their hair oily; P&G know it is necessary to develop shampoos which requires less water to rinse as well as keep costs at the lowest in the Chinese shampoo market to compete with existing local competitor (Grant, 2005). P&G launched a new shampoo called Rejoice, which is the most successful and cheapest local offer of P&G.

Product differentiation strategy is also one of the key success of P&G in such a competitive market in China; knowing that local (Chinese) shampoos producers are unable to help treat dandruff problems, Procter & Gamble has researched, designed and launched Head & Shoulder dandruff shampoo which could help customers to treat the dryness and itchy. P&G still kept their own cost down for BoP consumers in Chinese market. Approximately 15 per cent of the Guangdong market has been gained thanks to this product after one month launching (Riley, 2013).
Rather than what they have done well in Chinese market through BoP venture, the company also failed in strategy of developing products for Bop consumers in China. One particular example of the failure was Pampers disposable nappies. P&G first launched Pampers in China in 1998, they did not design to produce a specific product for the needs of local consumers; what they have done wrongly was assuming that parents would buy the product just because of the cheapest price they offered. P&G made a lower-quality version of U.S and European diapers and those products just did not work to keep the baby dry for 10 hours and be as comfortable as cloth (Frazier, 2010). After this failure, P&G has changed their strategy in releasing low-cost products which better meet the local customers’ needs.

In conclusion, the paper has already a discussed through the concept of “Bottom of the Pyramid”, which refers to the markets that many multinationals target to and serve the low-income individuals in developing countries of the world. Product development and innovation will be well implemented by clearly understanding the actual needs of local potential consumers’ needs and wants. The offered price will be kept at the possible lowest to help low-income individuals to control their expense. Once the multinationals successfully capture the markets by implementing BoP venture, the solutions for continuing poverty is a helpful method. P&G is one of the successful global enterprises who have done well in BoP market of China with some particular products which met the needs of the users at the lowest price P&G offered such as Head & Shoulders, Rejoice. However, companies might also experience failure if they do not follow the local needs and just focus on the price only; P&G’s Pampers disposable diapers is a right example for this kind of failure.

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