Bottom of the Pyramid

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Since the financial collapse, I hear more and more companies in India talking about targeting people at the Bottom of the Pyramid (BoP).  In a nutshell, it’s concept termed by Professor C.K. Prahalad that defines people living on less than USD 2.00 a day and when you aggregate their buying power it’s actually quite large.

There have been many case studies done on this idea and the big urban legend is that someone from P&G came to India because sales were dismal.  After a few days, the exec realized that selling products in single use sachet packets would be the way to big profits….SORT OF.  Funny thing I couldn’t find any case studies or documents about P&G, instead I found some info from a local player that had the idea of selling sachet packets (Scribd document).

This idea of targeting the BoP maybe a decade old idea, but then I realized there are people that have been targeting this demograph for decades – political people. And they have successfully sold people on a vision and hope for years and do it quite well. If anything a case study should be done on the political entities that have been targeting the BoP.  Granted, some of their tactics are probably not for corporate consumption but I do believe there might be a couple things that could be picked up from them and implemented.

Pricing Strategies

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sealinkSetting a price for a product is sometimes one of the toughest decisions a company can make. Set it too high and people scream and run the other way.  Set it too low and you end up shooting yourself in the foot and leaving money on the table. One thing seems to be true, if you lower your price you pick up extra customers and hopefully enough to offset the new lower pricing strategy.  Someone needs to tell that to the Indian bureaucrats. Recently, I’ve noticed a couple instances where they have raised prices hoping to make more money…incredibly stupid.

The new public/private airports (i.e. Hyderabad) are facing a revenue shortfall with decreased airline traffic and to make up the difference they have increased the airport usage fee, aka User Development Fee (UDF).  In India, where people are VERY price sensitive this will just drive more people to look at alternative transport methods.

Another instance is the recently opened Bandra Worli Sealink (BWSL) in Bombay.  They currently charge Rs. 50 (USD one buck) one way and traffic has been about 50-60% of their revenue targets. So the infinite brain trust of the BWSL management are planning to increase the rates by 20%, this is just beyond words.  I’m sure traffic will fall even further.

If the management from the two companies mentioned above are reading this, please take a page from the Indian wireless carriers. Follow the 3 step method they use:

1. Drop prices, get more users
2. Drop prices, get more users
3. Drop prices, get more users

Do you see a pattern?  I thought paying Re. 1 (2 cents) a minute was cheap but apparently not, with the latest price war my call rates went down not up.