Pattern description

The product or service offering does not target the premium customer, but rather, the customer positioned at the base of the pyramid. Customers with lower purchasing power benefit from affordable products. The company generates small profits with each product sold, but benefits from the higher sales numbers that usually come with the scale of the customer base.

Inventive problems

Application examples

Unilever’s Indian subsidiary Hindustan Unilever was one of the first companies to gain a solid footing at the base of the pyramid. In the 1990s this subsidiary introduced Wheel, a laundry detergent specifically developed for the Indian market, containing a lower oil-to-water ratio to make it suitable to hand wash textiles in rivers, as is frequently the custom in India. To make this detergent accessible to the broader Indian populace, Hindustan Unilever decentralised production, marketing and distribution, selling the product at local corner shops. A further outlet was so-called Shakti entrepreneurs who sold their products door-to-door. This business model allowed Hindustan Unilever to increase its revenues by 25 per cent and market capitalisation by 40 per cent between 1995 and 2000. Today, Wheel is among the best-selling laundry detergents in India.

The Tata Nano car is another successful application of the Target the Poor business model. This vehicle was developed in 2009 by Indian car manufacturer Tata and is sold for the incredibly low price of just US $2,500. The car is practical and has many innovative cost-cutting features. To keep costs down, it is sold without extras. Manufacturing processes rely on a low-cost Indian labour force and were adapted to reduce the amount of steel. International engineering contributions and a policy of outsourcing enable a cost-effective production. The company benefits from good publicity of this low-priced car, and its efforts to address the needs of impoverished people have given it a positive public image.

Retail giant Wal-Mart introduced Target the Poor banking services in the United States. The global financial crisis has caused many US citizens to lose everything, including their credit rating. Established banks would no longer serve these people. Wal-Mart widened the range of products and services available to its main target group of low-income customers and offered a series of financial services tailored to them such as prepaid credit cards. Because the company did not hold a banking licence, it had to limit the financial services it offered to those that did not require such accreditation.

References

The Business Model Navigator: 55 Models That Will Revolutionise Your Business