New Delhi: How should businesses treat a market consisting of people earning less than $3,000 (Rs1,40,000) a year each? We mean less than $10, or the equivalent of Rs420, a day?
With a generous load of respect, says a survey by World Resources Institute (WRI), which will be released at a conference on 26 April, 2007, on Emerging Business Opportunities and Business Finance.
The reason is simple. There are 4 billion such people residing on this planet and they constitute the base of the economic pyramid (BOP) globally, accounting for a $5 trillion consumer market. Try converting that into Indian currency. It works out to Rs2,10,00,000 crore.
Yes, the the 1.4 billion medium and high income group does represent a larger market, worth $12.5 trillion. But that is a segment is already well-served and extremely competitive.
So, though the low-income people are relatively poor with incomes below $3,000 in local purchasing power — $1.56 a day in India, $3.35 in Brazil, $2.11 in China and $1.89 in Ghana — taken together they have substantial purchasing power.
Thus, the population segment that makes up for 72% of the 5.58 billion people worldwide, and an overwhelming majority of the population in Africa, Asia, Eastern Europe, Latin America and the Caribbean, can no longer be missed out for the business opportunities they have to offer and the market potential they posses.
New empirical measures of their behaviour as consumers and their aggregate purchasing power suggest significant opportunities for market-based approaches in these areas. This would not only help to better meet their needs and increase their productivity and incomes but also ascertain their gradual entry into the formal economy.
The BOP markets, especially in rapidly growing Asia are often rural, very poorly served, dominated by the informal economy. As a result of these handicaps these markets are relatively inefficient, under-served and uncompetitive.
The survey data on incomes, expenditures and access to services also shows marked differences across countries and regions in the composition of these BOP markets.In some countries like Nigeria the markets are concentrated in the lowest income segments of the BOP while in others like Ukraine they are concentrated in the upper income segments.As for the regional differences, rural areas dominate most BOP markets in Africa and Asia while urban areas dominate most in Eastern Europe and Latin America.
Striking patterns emerge in spending as well. While food dominates BOP household budgets in almost all the countries concerned the share spent on food declines as incomes rise and the shares for transportation and telecommunications grow rapidly. In all regions half of BOP household spending on health goes to pharmaceuticals. In all except Eastern Europe the lower income segments of the BOP depend mainly on firewood as a cooking fuel, the higher segments on propane or other modern fuels.One interesting revelation that the study has come out with is that spending patterns in these segments show latent demand in the areas of information technology and transportation.