Essay About Hll Vs P&G And Indian Bottom Of The Pyramid Market Segment

Reaching Out To The Bottom Of Pyramid
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Reaching Out to the Bottom of the Pyramid
The concept of Bottom of the Pyramid (BOP) was proposed by C.K Prahalad and Hammod in 2002. It refers to the
approximate 4 billion people across the globe with a purchasing power of EUR 1000 per year or less.
The article attempts to provide insights into the Indian Bottom of the Pyramid market segment and the potential it
could offer to a multinational company to expand its market and build a global base here.
The Indian economy is growing at an annual rate of 8 percent. This growth is considerable when compared to the
growth of European countries, which is less than 2 percent on a 10-year average, and the growth of the American
economy, which is approximately 3 percent.
Moreover, there has been significant reduction in poverty levels and increase in quality consciousness among the
Indian rural and urban under-served in the past 10 years. This changing scenario in the Indian economy could
translate into an investment opportunity for many multinational companies.
Figure 1: Indian Income Classes 2003:2004
Source: National Council of Applied Economic Research (NCAER)
The NCAER analysis (fig 1) shows an increase of over 150 percent in the number of consumer class households in
the last 10 years. Simultaneously, the deprived have decreased from 32 million to 17 million. This emergence of the
BOP segment could be defined as a new consumer market.
The BOP market in India comprises a population of 750 million (70 percent of the population) living in 600,000
villages (rural area). In addition, the 70 million people residing in urban cities constitute the urban poor market. This
latent market may enable MNCs to develop their global base and expand their market.
From Pyramid to Diamond
The change in the structure of the consumer class as depicted in fig 2 signifies a substantial opportunity for
marketers to capitalise on this fast-growing consumption class. In fact, it is imperative that marketers focus on
developing innovative products to meet consumer needs. The rural market has been increasing steadily at a rate
greater than the urban market. About 53 percent of FMCG and 59 percent of the consumer goods market reside in
the rural sector. Therefore, rural markets are vital for the growth of most companies.
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Figure 2: From Pyramid to Diamond
Source: National Council of Applied Economic Research (NCAER)
Unilever India (HLL) is the biggest market player in consumer goods. In 2005, rural markets contributed 35 percent to
HLLs sales whereas urban markets constituted 65 percent. This ratio is in favour of the rural market considering the
low levels of penetration. HLL considers BOP consumers to be an important part of its consumer portfolio and has
specific strategies and programmes to increase its reach in this segment.
“With an increasing number of households falling under the climbers and consumers segments, the income
distribution in India is changing in its structure from a pyramid to a diamond.”
HLL vs P&G: BOP Activity
HLLs market share (by volume) in the shampoo and detergent markets is 47.5 percent and 38.5 percent,
respectively, as against P&Gs market share (by volume) of 23.2 percent and 12.4 percent. P&Gs target consumers
mostly comprise the upper segment. When P&G entered the Indian market, it did so with an aim to make profits and
not increase its market share. Hence, the company followed a funnel market strategy catering to a niche audience.
For example, the launch of P&Gs globally acclaimed shampoo brands, Pantene and Head & Shoulders, the
shampoo market witnessed the creation of an altogether new premium segment. By following this marketing strategy,
P&G was aiming to establish a healthy business with a healthy bottom line.
By focussing on margins instead of volumes, P&G succeeded in building its global brands in India. The company did
this on the basis of its strong brand equity and consumer pull to target the upper segment of the urban consumer
market.
Gradually, the industrial focus on the type of market segment in India began shifting from the upper and mid
segments to the mid-lower segment. In the process, P&G Global realised that it was only present in the uppermost
segment of the price pyramid, thus appealing to only 3.6 percent of Indian consumers. Therefore, the volume growth
of the company was under pressure. As the company understood the benefits of being a player in the larger segment
of the Indian market, it chose to become a volume player.
In 2004, P&G launched low-priced sachets of shampoo and detergent, which were specifically aimed at the low and
mid-market segment. It also slashed the prices of premium products making them available to the average Indian
consumer. However, despite these approaches, P&G unlike HLL has been unable