Friday
December 27
2013

Elsa del Castillo

The Best of 2013: Do the 4 P’s of Marketing work for BoP Businesses?: Solutions, Access, Value, Education (SAVE) might be a better guide

Editor’s note: As part of our Most Influential Post of 2013 contest, we are re-publishing the articles that attracted the most reads, social media shares and comments of the year. This article was the most-viewed for May. To see the full list of the most popular posts in 2013 and to vote for your favorite, click here.

It has been nine years since C.K. Prahalad wrote his renowned book The Fortune at the Bottom of the Pyramid. As regular NextBillion readers are no doubt aware, the book sparked a significant movement of new approaches in the business environment, highlighting the need to stop looking at the poor as victims, and start recognizing them as creative entrepreneurs and consumers who appreciate a good deal. From there, the concept has been analyzed, extended, and supplemented to make way for new and innovative inclusive business models, highlighting the role of low-income citizens as consumers and participants in market value chains.

A company that shifts its strategy toward these previously unattended market segments will wonder if traditional business models will maintain their effectiveness. An interesting article in Harvard Business Review written by Richard Ettenson, Eduardo Conrado, and Jonathan Knowles (Rethinking the 4 P’s) explores that point. In the particular context of business to business strategies, the authors consider the need to expand the vision of the famous 4 P’s of the marketing mix (product, price, promotion and place). According to the article, the 4 P’s model has been a little limited for current businesses, as it puts more emphasis on product strategies than on the current trend of “selling solutions.” The authors propose moving from product development with functional and technological strengths – which today is easy to copy and which diminishes potential to achieve differentiation in the offer – to a focus on the marketing mix updated under the SAVE (Solutions, Access, Value, Education) outline. That is:

  • Rather than thinking of “products,” think in terms of “customer solutions.”

  • Rather than talking about “price,” consider the “value offered.”

  • Rather than speaking of “promotion,” focus on “customer or client education.”

  • Rather than focusing on the “place,” talk about “access.”

Although the authors do not suggest the SAVE approach for BoP-focused business, the model is very applicable. The attention of this market segment requires the company to focus on identifying specific needs to address, and to reorient its business plans to achieve greater effectiveness.

On this issue, D’Andrea and Herrero (Understanding Consumers and Retailers at the Base of the Pyramid in Latin America) identify some key factors on purchase behavior in low-income sectors in Latin America. As I mentioned earlier, a thorough understanding of these factors can determine the success of a business initiative. According to the authors, the low-income sectors:

  • Have a group consumption potential higher than that of the highest segments.

  • Search for mid-tier brands in basic product categories more than only low-priced products. Since their purchases consume a considerable portion of their income, they don’t want to make a mistake and purchase a brand with a poor reputation.

  • Respond to the consumer need to make smaller, more frequent purchases rather than bulk purchases.

  • Are sensitive to price, which makes it necessary to consider the smaller costs associated with purchases (transport involved in the purchase, storage, maintenance requirements, etc.)

  • Appreciate the value of logistic solutions that help them access goods and services. Proximity is a critical factor, and the opportunity cost of time spent on the purchase is high.

It seems, therefore, that the SAVE approach has significant value in these new business models. And if we go even further and consider the variables that marketers have added to the marketing mix, i.e. three new P’s: (Processes, People and Proactivity), we find that in addressing this new market, it will be important to review our internal processes to reorient delivery systems, after-sales guidance, etc. It will also be important to work with a team capable of creating closeness and affinity in the company-customer relationship. Finally, in terms of proactivity – a variable that refers to the physical aspect of a service – it will be important to consider which forms of service and sales facilities are required, and how many services to offer, among other topics.

In Latin America, there are interesting experiences in the development of these new business models. One of the best examples is microcredit, where some core elements of the strategy relate to the importance of investing in consumer education on the use of financial products and managing their own businesses, in the proximity of the promoter and the client to find financing solutions that consider the variability of their income, where the language used to promote and inform considers appropriate ways to improve understanding and, where the payment scheme prioritizes higher frequency as opposed to larger amounts. Another interesting example is being observed in sectors such as public services and, more recently, medical services, in which pre-payment systems start to take effect. Within these new businesses, forms of access to services (including creative transport approaches to reach areas of limited access, or pay stations in zones with high competition) are carefully designed.

In emerging markets, opportunities for new businesses are widespread. Responsible companies will need to devise business plans based on respect for the consumer, in-depth understanding of the needs of these new groups and, especially, on the sale of products and services that truly improve their quality of life. If this is achieved, we will have succeeded in creating innovative models that create both economic and social value.

Elsa del Castillo is the director of the Universidad del Pacifico’s postgraduate school, professor of the academic administration department, director of academic quality, member of the postgraduate school’s admissions council, and member of the research center at this institution. She is also director of the international research team at the Social Enterprise Knowledge Network (Latin America).

Categories
Entrepreneurship
Tags
Base of the Pyramid, marketing and advertising, pricing