I believe opportunities exist for companies to reach low income consumers in developing countries with goods that meet their specific needs. Doing so would imply overcoming certain challenges, but would also yield significant benefits both for consumer goods companies and for the poor. In terms of demand, this opportunity appears to be promising.
As the figure above shows1, 55% of today’s world population belong to the so called top of the pyramid (TOP) and live on more than $8 a day; 8% belong to the bottom of the pyramid (BOP) and live on less than $2 a day; and 37% belong to the middle of the pyramid (also called deep in the pyramid or DIP) and live on $2-$8 a day. The data shows that, for the period 2009-2020, annual growth for TOP consumers is expected to be +4% whilst growth for DIP and BOP consumers is expected to be -3%.
This means that the world’s population living on a daily income above $8 is expected to rise from 55% in 2011 to 66% by 2020 as millions of DIP consumers move up the economic ladder thanks to economic growth. DIP consumers, therefore, have exceptional potential to boost consumer goods consumption growth in developing markets. Despite a positive demand outlook, the potential in the DIP market remains to be fully realized. There are two main challenges that companies need to overcome. First, determining the right price point and creating products to meet that price.
This can be solved through innovation in products and packages, with price point driving product development. Here, reducing package sizes and developing more basic packaging while ensuring quality, convenience and value is key to success. Second, ensuring product availability through appropriate distribution. Traditional trade is probably the biggest challenge as companies are used to dealing with structured supermarkets. Reaching every corner store with its own approach to stock keeping, credit and retailing in countries with underdeveloped infrastructure can be very tricky.
In some cases, companies may need to consider developing production facilities close to market in order to reduce distribution costs. In short, a different approach to risk, investment and organization is needed to meet the challenges of price point and distribution. But benefits can also be substantial for companies and for the poor. Let’s take dairy products as an example. On one hand, dairy brands can earn significant profits selling high volumes to the DIP market and building brand awareness in the minds of future TOP consumers.
On the other hand, access to healthier and safer food would increase for the poor and their children in developing countries, improving nutrition levels. Moreover, local employment would also increase if dairy companies decide to produce locally in order to save distribution costs. Finally, the traditional distribution channel would be strengthened creating a healthy counterbalance to powerful supermarkets and retailers. It remains to be seen whether companies can successfully overcome the aforementioned challenges and positively impact local communities through share value creation.