Competitive Advantage from the Bottom of the Pyramid

lg_electronics_logo_2486In a world where global competition is absolute, companies are looking at new ways to gain sustained competitive advantages. Global firms have employed blue ocean strategies to cater their services and offerings to the BoP (Bottom of Pyramid). The BoP markets are a hotbed for innovation and companies that are able to mold their business models to fit within this paradigm can truly alter traditional business models.

Many companies have derived BoP strategies from C.K. Prahalad, the brilliant management guru. Common marketing theories from the 4Ps to the 5Cs have failed when trying to engage the BoP. Instead, Prahalad introduces a new framework, the 4 As – Awareness, Access, Affordability and Availability. Awareness ensures customers and suppliers in the BoP know the product / service exists, Access ensure consumers have access to the product whether it’s the slums of Mumbai or Favelas of Rio, Affordability is paramount and most innovation challenges lie in this space and lastlyAvailability builds trust and loyalty with the BoP masses by ensuring a steady supply of products & services.

There are some excellent business & corporate strategy examples of companies implementing the BoP model. One company is the global conglomerate LG and the other is a social enterprise start-up based out of India called Sevamob.

Sevamob provides healthcare and advisory solutions to the BoP masses in Northern India. The business model is subscription based and very affordable around $2 / month. The services are provided via agents with wireless tablets who travel to remote regions in mobile vans. They provide advice on the spot and can create “trouble tickets” which are then handled by subject matter experts via a network, coordinated by a 24/7 call center. Mobile agents (doctors, insurers, agriculture experts) carry these handhelds to relay advice and look back upon previous engagements in order to craft custom solutions. Furthermore, the agents speak the villagers’ languages and eliminate obstacles such as illiteracy and absences of data networks. Sevamob is expanding by leaps and bounds and touches upon all facets of Prahalad’s model – Awareness (generated by traveling agents & word of mouth), Access (mobile vans & wireless tablets provide access to solutions), Affordability($2/month) and lastly Availability – villagers have come to trust the timely services from Sevamob.

At the other end of the spectrum is LG. The conglomerate is one of the top TV suppliers in Brazil and its unique strategy has led to tremendous brand equity. LG has focused on Brazil’s BoP based on Prahalad’s 4As framework while managing to navigate Brazil’s complex corporate and political network – an intricate “Keiretsu”. Brazil’s economic classes are divided into A.B, C, D, and E – A the wealthiest and E the poorest. The aggregate affordability of the D & E classes in favelas and other parts is substantial and as such LG has developed a sustained strategy focusing on the lower 2 classes. LG has devised payment subscription plans that makes its products affordable. Sponsoring local football events, utilizing tax incentives and setting up local manufacturing plants on subsidized government land has brought about brand ownership with locals. LG also restructured its organization by promoting locally which further endeared the brand. Another crucial facet of LG’s strategy was the launch of repair vans to remote areas & favelas with electricity generation capabilities. “Glocalization” of products has made LG successful where other South Asian companies have struggled.

“Innovation Sandbox” was the term coined by C.K. Prahalad which represents the model of applying the 4As along with target costing to fit economic affordability of BoP. LG & Sevamob have both managed to achieve that via a combination of novel business models and in LG’s case low cost & lean manufacturing. By focusing on the collective affordability of the BoP not only can you disrupt existing business models but you can also create new ones. To quote the late, great C.K. Prahalad “Any company that cannot imagine the future won’t be around to enjoy it.”

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