NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Tuesday, August 19, 2008

New Delhi: Indian companies seeking their pot of gold from the lower-end or bottom of the pyramid (BOP) consumers are in for a bit of shock: The market may be much smaller in reality. While earlier, this market was supposed to be formed of 400 million people, now market research firms Technopak Advisors and Evalueserve are saying that it is not more than 160 million.

Arvind Singhal, chairman of Technopak Advisors says that around 35 million households or around 160 million people that form the bottom of the pyramid and spend around $22 billion per annum. Aditya V. Jain, VP of Evalueserve quotes slightly different figures saying that of the 400 million people that were said to constitute the BOP earlier, 240 are below the poverty line and earn below $1 a day with very poor purchasing power. The rest 160 million earn between $1-2 a day and are the ?real? bottom of the pyramid that marketers can address as a consumer group. Singhal breaks down the BOP market further saying that half of the $22 billion spent by the BOP consumers is spend on food, intoxicants and tobacco.

The BOP market is also fragmented, spread geographically and costly to service. Products have to be priced cheaper and thus afford thinner margins. Singhal remarks that since the BOP customers cannot afford to buy products in bulk, there are repeated number of transactions if one sells products to them. ?More transactions mean more cost to the company.?

In comparison premium or luxury consumers that amount to some 15 million households spend close to $18 billion. Clearly, it is more lucrative to serve the high end than the low.

Jain points out that financial services, FMCG etc should be the ones entering such a market and the BOP market may not be for everyone.

The premium end consumers are more clearly defined and easier to access as opposed to those at the bottom of the market. In such a scenario, companies have to take a call on whether servicing this mass audience is worth the gain.