Motivating MNCs to Engage BoP as Consumers and Producers
We take it for granted that companies aiming to do business at the BoP have done the same sort of due diligence required for top of the pyramid market analysis. That would be: understanding consumer purchasing power and buying habits, and setting the appropriate price points.
You, or in this case, I, would be wrong.
Taking in a session at the Net Impact Conference this past weekend, I was reminded that, by enlarge, multinational companies (MNCs) may have the interest in the BoP, but those that deeply understand their customers and how they live are still in very much in the minority.
Dileepan Siva, Senior Manager for the Synergos Institute, who spoke in a session on motivations for MNCs doing business emerging markets, said it took him several months to convince a multinational company hoping offer a new product to BoP consumers to agree to a facilitated market immersion. That’s where representatives spend time with a typical would-be customer or customer family to understand how they live. When the company did agree to do an immersion, how long did this particular firm spend with a would-be customer? A week? Two? Try half of one day.
Contrast that with Unilever in India where marketing and distribution representatives are known to stay up to several months in certain areas, Siva said.
The question is why aren’t those companies talking to consumers in a way that’s appropriate to serve their needs? Part of it simply may be an assumption of consumer incomes. How many times have you purchased a simple consumer good in a particular country that has, say, 10% of the buying power of the U.S., yet that same item costs more than in the U.S.?
“(MNCs) think they want to work at the BoP, but in actuality, their price point, when it comes down to it, doesn’t really get to the BoP,” he said, noting that prices are often one or two rungs higher on the income ladder. Siva stated that a more interesting angle to impacting the lives of BoP comes from engaging them not only as consumers, but as producers.
None of this to is to say Siva is a pessimist. He sees both the profit motive as well as public policy changes as helping to incentivize MNC’s toward reaching out to BoP population. One recent example he cited was the Extractive Industries Transparency Initiative, or EITI, which affects mining and oil extraction companies, among others. A clause in the recently passed financial reform legislations federal requires any company that lists on any exchange regulated by the U.S. Securities and Exchange Commission to disclose payments to foreign governments to obtain contracts (read: bribes). While not necessarily an apples to apples illustration when it comes to the BoP, it’s certainly helping to nudge companies to change their behavior.
These companies “are running to comply,” he said.
Where Siva sees a good deal of innovation happening is within the local business units of MNCs and those companies’ willingness to enter into partnerships. He cites the case of Grameen Danone in Bangladesh, which is producing a BoP yogurt drink, as an example.
“If you look at many of the sustainable case studies on the BoP that also achieved some level of scale, almost every single one involves some level of partnership,” he said.
Siva’s comments are food for thought as we consider the value of knowing your customers almost always intertwines with knowing when to partner to serve them.