Business strategies to reach new markets, new customers

1. Business strategies to reach new markets, new customers Universitas Comeniana Bratislavensis Dr. Brigitte Monsou Tantawy

2. Business strategies to reach new markets, new customers • Objective: Explore how large organizations have adapted their strategy to reach new customers, new consumers. Analyse how these strategies are successful in reaching the Poor and addressing the Millennium Development Goals.

3. Business strategies to reach new markets, new customers • Programme: • Six lectures, two sessions of individual cases and two sessions of comparison of cases in two days • Day one: • 9:00-10:30 lecture • 10:45-11:30 cases • 11:30-13:00 lecture • 13:45-15:15 lecture • 15:15-16:00 cases • 16:15-17:15 lecture • Day two: • 9:00-10:30 lecture • 10:45-11:45 comparison of cases • 11:45-13:15 lecture • 14:00-15:30 lecture • 15:30-16:30 comparison of cases • 16:30-17:00 conclusion

4. Business strategies to reach new markets, new customers • Is there an attractive market? • Millenium Development Goals • What role can business play? • New business models for the Poor • Innovative solutions through partnerships • Finding capital for the Poor • Measuring success • Comparative strategies and drivers of success

5. Is there an attractive market?

6. Business strategies to reach new markets, new customers • BOP Market for goods in the 18 largest developing countries represents $1.7 trillion (Hammond and Prahalad, 2004) • 4 billion people lived on less than $5 a day • “Poverty Market”: • <$1 / day: 1.2 billion • “Submerged Market”: • $1<-<$2 /day: 1.6 billion • $2<-<$5 /day: 1.2 billion (Prahalad, 2002)  often do not have bank accounts or access to formal credit But may be able to obtain loans from money lenders at above-market rates.

7. Business strategies to reach new markets, new customers • In Latin America, home to the largest income inequality on earth, the key differentiator of “emerging consumers” resides in employment, • In Latin America, the consumer products are the number one spending for the average consumers with housing, transportation and communications absorbing another large part, • Emerging consumers represent a market larger in value than the upper segments in Brazil (51%), Argentina, Colombia, Costa Rica, Mexico, Chile(69%). G. D’Andrea, G. Herrero, 2006

8. Saturation of current markets Purchasing Power Parity in U.S. dollars Wealthy >$15,000 800 Population in millions Emerging Middle Class (MOP) Existing capability; New market 1,500 $1,500-15,000 New capability;New market Base of the Pyramid (Prahalad & Hart, 2002; Hart & Christensen, 2002; London & Hart, 2004; Prahalad & Hammond, 2002) <$1,500 4,000

9. Markets growing <1% Purchasing Power Parity in U.S. dollars Wealthy >$15,000 800 Population in millions Strong growth in D&E markets >10% Emerging Middle Class (MOP) 1,500 $1,500-15,000 Many isolated experiments Base of the Pyramid (Prahalad & Hart, 2002; Hart & Christensen, 2002; London & Hart, 2004; Prahalad & Hammond, 2002) <$1,500 4,000

10. Business strategies to reach new markets, new customers • “Sustainable global enterprise represents the potential for a new private sector-based approach to development that creates profitable businesses that simultaneously raise the quality of life for the world’s poor, respect cultural diversity, and conserve the ecological integrity of the planet for future generations. Making such a societal contribution while simultaneously creating shareholder value will take real imagination and a fresh approach to business strategy.” Stuart Hart, 2005

11. Business strategies to reach new markets, new customers • Most global companies today are “growth starved” which leads them to explore “low income” markets. • Competitive pressure in Consumer Goods markets in developed countries strengthens need to seek out opportunities in the developing and emerging (D&E) markets.

12. Business strategies to reach new markets, new customers • Heterogeneity of the Poor: • There is heterogeneity at: • Economic level (income per day) • Geographic level (Asia, Africa, Latin America…) • Cultural level, • Religious level (caste, untouchability,…) • Familial level (married, widow, divorced) • Gender level • Careful segmentation is key

13. Business strategies to reach new markets, new customers • Heterogeneity of the Poor: • Women represent the poorest of the poor in many societies, • Women not only face economic vulnerability but also social status, discrimination in the work place, violence at home and outside, • Age and education are additional elements of segmentation.

14. Business strategies to reach new markets, new customers • The Poor as Consumers: • They tend to shop frequently, • They buy in small quantities, • They lack of storage space or appliances to preserve and cook food, • They have a lower tolerance for risk taking, • They have a low penetration of electronic media, • They have a high level of illiteracy, • They have a reluctance to switch brands or adopt new products.

15. Business strategies to reach new markets, new customers • The Poor as Producers: • Consumption is inherently linked to income Leveraging the productivity capacity of the poor is the first step • Information and infrastructure are necessary to empower the poor producers

16. Business strategies to reach new markets, new customers • The Poor as Distributors: • They have a deep knowledge of the local market, • Low-income, community-based sales person can be extremely effective in building demand for goods in the hard-to-service rural market, • There are basic lack of physical connectivity and tremendous challenges in rural areas.

17. Business strategies to reach new markets, new customers • Purchasing strategies: • The Poor are not choosing the lowest-priced products but they have very sophisticated approach in assessing total purchasing costs, • They have strong preference for leading and intermediate brands over low-priced, economy brands, • It is a question of aspiration and image but also because of quality and performance, • Daily shopping and cooking give poor consumers deeper knowledge of quality and price and best place to buy each category, • “What is cheap ends up being expensive”

18. Business strategies to reach new markets, new customers • Purchasing strategies: • With less disposable income, poor consumers have less margin for errors in their purchases, • Category “level of involvement” is positively correlated with loyalty, • Shopping process is driven by day-to-day needs, • “Total purchasing cost” includes transportation costs, logistical constraints for bringing purchase home, time spent in commuting, • Traditional retailers have a number of benefits over modern retailers: small SKUs, proximity, service (opening hours), credit, familiar owner.

19. The Millennium Development Goals

20. Business strategies to reach new markets, new customers • The Millennium Development Goals and targets come from the Millenium Declaration signed by 189 countries, including 147 Heads of States, in September 2000.

21. Business strategies to reach new markets, new customers • Eradicate extreme poverty and hunger • Achieve universal primary education • Promote gender equality and empower women • Reduce child mortality • Improve maternal health • Combat HIV/AIDS, malaria and other diseases • Ensure environment sustainability • Develop a global partnership for development

22. Business strategies to reach new markets, new customers • Goal 1: • Target 1: Halve the proportion of people whose income is less than $1 a day: • 1990: 27.9% in developing regions • 2002: 19.4% • Target 2: Halve the proportion of people who suffer from hunger: • 1990: 29% in developing regions • 2003: 17%

23. Business strategies to reach new markets, new customers • Goal 2: • Target 3: Ensure that children everywhere, boys and girls alike, will be able to complete a full course of primary schooling: • 1990: 79% in developing regions • 2004: 86% • An educational gender gap persists: • 2004: • 18% of boys out of school in developing regions • 22% of girls

24. Business strategies to reach new markets, new customers • Goal 3: • Target 4: Eliminate gender disparity in primary and secondary education preferably by 2005 and to all levels of education no later than 2015: • Share of women in houses of parliament: • 1990: • 15% in developed regions • 12% in the world • 2006: • 21% in developed regions • 17% in the world

25. Business strategies to reach new markets, new customers • Goal 4: • Target 5: Reduce by two-thirds the under five mortality rate: • Under-five mortality rate per 1000 live births: • 1990: 106 in developing regions • 2004: 87 • Percentage of children immunized against measles: • 1990: 71% in developing regions • 2004: 73%

26. Major trends in the Goals by region

27. Business strategies to reach new markets, new customers • Goal 5: • Target 6: Reduce by three-quarters the maternal mortality rate : • Proportion of deliveries attended by skilled health care personnel: • 1990: 43% in developing regions • 2004: 56%

28. Business strategies to reach new markets, new customers • Goal 6: • Target 7: Have halted by 2015 and begun to reverse the spread of HIV/AIDS: • Continue to rise: • 2005: 38.6 million of people living with HIV • Target 8: Have halted by 2015 and begun to reverse the incidence of malaria and other major diseases: • Number of new tuberculosis cases per 100 000population • 1990: • 149 in developing regions • 28 in developed regions • 2004: • 151 in developing regions • 16 in developed regions

29. Business strategies to reach new markets, new customers • Goal 7: • Target 9: Integrate the principles of sustainable development into country policies and programmes and reverse the loss of environmental resources: • Proportion of land area covered by forests: • 1990: 31% World • 2005: 30% • Energy use per unit of GDP: • 1990: • 266 in developing regions • 216 in developed regions • 2003: • 218 in developing regions • 189 in developed regions

30. Business strategies to reach new markets, new customers • Goal 7: • Target 10: Have by 2015 the proportion of people without sustainable access to safe drinking water and basic sanitation: • Proportion of population using improved sanitation: • 1990: 35% in developing regions • 2004: 50% • Proportion of population using improved drinking water sources: • 1990: 71% in developing regions • 2004: 80% • Target 11: By 2020 to have achieved a significant improvement in the lives of at least 100 million slum dwellers: • Still growing • In 2007, for the first time in history, the majority of people will live in urban areas

31. Business strategies to reach new markets, new customers • Goal 8: • Target 12: Develop further an open, rule-based, predictable, non-discriminatory trading and financial system: • Increase Official Development Aid • Three quarters of exports from developing countries now enter developed markets duty-free • Targets 13 & 14: Address the special needs of the least developed countries, landlocked countries and small island developing states: • The 50 LDCs now receive about one third of all aid flows • Target 15: Deal comprehensively with the debt problems of developing countries: • Debt payments for 29 heavily indebted countries have fallen by $59billion • G8 cancelled the debt of these countries that meet criteria • WB, IFC ADF will cancel debts to 19 countries

32. Business strategies to reach new markets, new customers • Goal 8: • Target 16: In cooperation with developing countries, develop and implement strategies for decent and productive work for youth: • Youth unemployment rates: • 1995: • 16% in developing regions • 12% in developed regions • 2005: • 14% in developing regions • 14% in developed regions • Targets 17: In cooperation with pharmaceutical companies, provide access to affordable essential drugs in developing countries: • Prices of antiretroviral drugs have decreased significantly • Target 18: In cooperation with the private sector, make available the benefits of new technologies, especially information and communications: • 1990: 530 million of fixed or mobile phones • 2004: 3 billion of phones 14% of the world’s population were using Internet

33. Major trends in the Goals by region

34. What role can business play?

35. Business strategies to reach new markets, new customers • The fundamental role of business is: • To create wealth • To provide goods and services • To create jobs • To pay taxes • To innovate, invest and improve efficiency • To act responsibly

36. Business strategies to reach new markets, new customers • « Business leaders need to speak out now about their role in driving progress in society. For too long we have allowed people to think that business is interested in nothing other than profit, when in fact we see the purpose of business much more widely. • We believe that the fundamental purpose of business is to provide continually improving goods and services for increasing numbers of people at prices that they can afford. » Paul Polmann, P&G

37. Business strategies to reach new markets, new customers • « We are committed to creating economic value, but we are not indifferent to how we do it. • Progressive businesses are gaining competitive advantage by responding to societal signals.  • We prosper by helping society to prosper. » Idar Kreutzer, Storebrand

38. Business strategies to reach new markets, new customers • “When a business is faced with a problem it can’t look up to the heavens and pray for a solution. It rolls up its sleeves and solves the problem. Because if a company doesn’t solve the problem, it goes out of business. This problem-solving capacity is why I think the private sector can provide tremendous social value in tackling poverty.”Kurt Hoffmann, Shell Foundation

39. Business strategies to reach new markets, new customers • The general consensus is that there is a significant, untapped potential for greater application of business skills and competencies to development issues • There are certain things that the private sector does extremely well. These include: • operating efficiently at a large scale, • delivering essential products and services where markets are functioning, • developing innovative solutions to technical or operational obstacles to meet customer needs • Taking a performance-oriented, results-driven approach to management

40. Business strategies to reach new markets, new customers • The greatest leverage for society and business is often found through the application of a company’s tangible assets (such as equipments, innovative technologies, distribution networks) or intangible assets (such as management expertise, knowledge transfer, branding and marketing strength) rather than through issuing a cheque.

41. New business models for the Poor

42. Business strategies to reach new markets, new customers • Cases: • The Narayana Hrudayalaya Heart Hospital (India) • Aspen Pharmacare (South Africa) • Patrimonio Hoy (Mexico) • Hindustan Lever (India) • Shell solar (Sri Lanka) • Gas Natural BAN (Argentina) • TIA (Ecuador) • Nestlé (Africa, Asia, Latin America)

43. Business strategies to reach new markets, new customers • The Narayana Hrudayalaya Heart Hospital (India) (founded in 2001): • Private sector health organisation making a profit and providing cardiac care for the Poor • Dual strategy: attract patients who pay the full price of treatment and use part of the profits to offer at-cost or below-cost care to the Poor • Indicator of Quality: mortality and infection rates comparable to those in US hospitals • New technology and flexibility with short-term contracts with suppliers • The telemedicine and the insurance programs receive financial and technical support from government

44. Business strategies to reach new markets, new customers • Aspen Pharmacare (South Africa) (founded in 1997): • Now the Africa’s leading generic pharmaceutical manufacturer • The first African firm to enter the Anti Retro Viral market and the first firm in the world granted licenses for patented ARVs • Low manufacturing costs, very limited R&D and Marketing costs • First approved supplier of the Clinton Foundation • Funds from PEPFAR (President’s Emergency Plan for AIDS Relief)

45. Business strategies to reach new markets, new customers • Patrimonio Hoy (Mexico): • Launched in 1999 by CEMEX as a sales, distribution and savings program to serve self-construction market • Tremendous success with 100 000 Mexican low-income families reached • Credit through a well-planned savings program: groups of 3 families saving for 7 cycles of 10 weeks • Use of local promoters (with well-established networks) to generate sales and monitor the program within assigned areas • To date 62 offices in 29 cities, $42 million of construction materials • Benefits for the families: decrease the average time construction from 5 years to just one year, access to credit, improved service, increased net worth, improve savings habits, increased entrepreneurship • Benefits for CEMEX: increased sales and profitability, improved corporate image

46. Business strategies to reach new markets, new customers • Hindustan Lever (India): • HLL is a leading company in India in consumer goods with thousand SKU across 20 categories including detergents, personal products, beverage and foods • Thousands of independent retail and wholesale outlets characterized the Indian consumer goods market • As 70% of India population reside in rural villages, HLL realised it could double its market by reaching these consumers • Shakti was launched in 2000 to overcome the challenges of the rural market: reach, communication and influence • To Date: 30 000 micro-entrepreneur women selling products in 100 000 villages in 15 states, 300 partners including NGOs, banks and both state and local government departments • Benefits for the Shakti women: double the household income, education for children • Benefits for HLL: increase in sales: 8%, corporate reputation

47. Business strategies to reach new markets, new customers • Shell Solar (Sri Lanka): • Shell Solar’s basic photovoltaic (PV) system gives power to customers • Systems are covered by a 10-year warranty, PV system are manufactured in Shell Solar factories and batteries, cables, swithches are sourced locally • Shell Solar establishes a direct sales channel supported by a consumer financing package from rural banks or microfinancing entities • End of 2005: 35 000 sold in Sri Lanka (15 local solar centers) and 20 000 in India (25 local solar centers) • Grants from World Bank and IFC at the start to reduce the cost of each system by 25% • Each solar center is staffed by local coordinators and technicians • Marketing strategy is word-of-mouth

48. Business strategies to reach new markets, new customers • Gas Natural BAN (Argentina): • Main partner in the project Communizada Organizada: a coalition of 40 NGOs based in the Moreno district of Buenos Aires (65% of population living in poverty) • The idea was to channel existing funds for construction through a trust “Solidarity Pipeline” • The trust facilitated a link among residents, the residents were encouraged to convince neighbours to take part in the project • Residents had selected a 4-year payment plan • Benefits for residents: a significant decrease of cost compared to alternative fuels, a clean way to heat homes • Benefits for Gas Natural BAN: reaching new consumers • Benefits for local government: reduce the investment in public infrastructure

49. Business strategies to reach new markets, new customers • TIA (Ecuador): • The retailer TIA opened its first store in 1960 targeting customers in the lower half of the socioeconomic pyramid  end of 2005: larger third retailer in the country • Barrio Stores target customers living in very poor and densely populated areas • Limited assortment of basic goods, replenished daily at the lowest price in the neighbourhood • Low-cost operation: few employees trained to perform all tasks • Location of the stores selected in populated area and near a school, a church or a police station

50. Business strategies to reach new markets, new customers • Nestlé Milk District Model: • Nestlé set up the first Milk District outside of Europe in Mexico in 1930 with the objective to establish a steady and secure supply of fresh milk near a factory • Nestlé provides veterinary expertise, infrastructure, training, grading systems, quality and safety controls, a fair and transparent pricing and a financial support system • Benefits for the farmers: increase of income and regular monthly payment • Benefits for Nestlé: security of procurement, food safety and quality of the milk