When your market of billions of buyers lives on pennies a day, you need to create products that fit their budget – but don’t break down too quickly.
For years, multinational companies avoided selling to lower-end consumers because they assumed there was no potential for profit. Now it’s become more common for companies to explore these waters with products as diverse as consumer gear to hospital equipment to technology tools. For example, Google recently announced a stripped-down Android model that will be offered to Indian consumers.
The Indian market is huge. Over 10 years ago, “The Fortune at the Bottom of the Pyramid” by C.K. Prahalad encouraged businesses to explore the lower-end market. The University of Michigan business professor argued that not only was there potential in this market, but that the buyers were just as discerning as higher end buyers. Prahalad has since died, but in the book he estimated that there was a market potential of $13 trillion from Indian buyers.
In the years that followed, there were several attempts to tap into this market, but most failed. Procter and Gamble, for example, tried to sell a powder-based water purification system at a reasonable profit margin. But then they decided that educating the public about how to use it would outweigh the benefits. The technology was developed into Pur, which is run as a philanthropic effort.
There are challenges…Distributing goods to the thousands of tiny Indian shops that cater to poorer Indians was also a challenge. The average shopkeeper doesn’t have the room for storage, and the technology to support warehousing. Pricing challenges and deciding how advanced products should be also posed problems.
But now, it seems, companies are being savvier and spending more time developing products that are right for Indian consumers – not just cheaper versions of their products for other markets. As a result, companies like G.E. and Nokia are taking time to find the right fit – and laying the foundation for future profits.