Ethan Arpi

Selling to the Poor

FTToday, the Financial Times covers Casas Bahia, a BOP favorite from Brazil which has also been discussed in CK Prahalad’s book, The Fortune at the Bottom of the Pyramid.? Although the FT adds little to the debate about extending credit to low-income consumers, it still provides important exposure to businesses that are engaging the poor.? Below, I have highlighted some of the more interesting points raised in the article and added some of my own commentary.

Could selling to the poor be more than just turning a profit?

Michael Klein, managing director, says one reason for the company’s success lies in something understood by his father, a Polish immigrant, when he began selling table and bed linen from a handcart more than 50 years ago: ?He understood that the poor want to be treated with respect. They want to be treated as if they were rich.?

(Sure, even the poor have their pride.? But being rich and acting rich are two different things.)

Consumers or citizens?? Can we buy our way into citizenship?

Five decades on, with annual sales of R$12bn ($5.56bn), this is still the case. ?We help people achieve citizenship,? Mr??Klein says. ?When one of our lorries delivers a refrigerator to a house in a favela [shanty town], it tells the neighbours that this customer is an honest person, a person of dignity and responsibility, a person with access to credit.?

(Maybe?the rhetoric is a little strong.? I?m not so sure that people immediately equate a refrigerator with honesty.)

Picking out the bad apples

To make sure they will pay, all customers wanting credit are interviewed by sales staff. To the customer, the interview may appear to consist largely of informal chat. If a customer says he is a house painter, for example, the interviewer will say she is thinking of painting her living room and ask roughly how much paint would be needed, to make sure the customer knows his trade. Once the customer’s income has been established, staff will make sure he is not committing to payments beyond his means, sometimes suggesting a smaller television, for example.?

(Is this really true?? From what I have heard, Casas Bahia loves when customers splurge on the biggest TVs)

Should the poor save, or should they just spend?

So why do customers not save for six months instead and pay half the price up front? ?Brazilians have no habit of saving,? Mr Klein says. ?They worry only about how much they can pay each month.? He says they would rather commit immediately to monthly payments and then work extra shifts or take a second job.

(Ah, so it’s culture that keeps them poor.)

Thanks for the lead Rob.