Reference no: EM131283843
Historically, government-owned power-generation facilities, including massive solar projects and wind farms, have been the norm in emerging markets. However, it is often not cost-effective to extend the power infrastructure into rural areas. One problem with the new systems is the lack of scale. Rural markets are dispersed, and distribution is not well established. As a result, many investors consider rural renewable energy initiatives to be too risky. Lack of scale and a shortage of capital are just two of the problems associated with reaching the world's poor. For consumer products, Professor Aneel Karnani of the Ross School of Business has identified another stumbling block to market success.
"The biggest problem is that prices are too high. Companies overestimate the size of the market and end up selling to the middle class, not the poor," he says. There is ample evidence that some of the world's best-known global marketers recognize this. For example, Adidas has developed a sneaker priced at one euro that it hopes to sell in Bangladesh. Unilever's Cubitos are seasoning cubes that sell for as little as two cents each. Danone has developed a variety of products for emerging markets, including Dolima drinkable yogurt, Dany Xprime jelly pouches, and Milky Start milk porridge. Even when companies have the right product at the right price, another problem is persuading low-income consumers to change long-entrenched behaviors by paying for new products and integrating them into their lifestyles.
In short, it is not enough to simply launch a low-cost product: markets must be created. This was the lesson Procter & Gamble learned after it spent years developing PUR, a water purification powder that sells for 10 cents. Although market research indicated that villagers wanted clean water, PUR ultimately did not catch on with consumers. In the end, P&G chose to donate PUR to relief organizations and has partnered with other groups to educate villagers about the benefits of PUR. Even as Procter & Gamble continues to target consumers at the bottom of the pyramid, its primary target is the middle-class consumer: a professional manager who lives in a modern high-rise apartment building and has enough discretionary income to dine out several times each month.
"Our innovation strategy is not just diluting the top-tier product for the lower-end consumer. You have to discretely innovate for every one of those consumers on that economic curve, and if you don't do that, you'll fail." Robert McDonald, CEO and chairman, Procter & Gamble Procter & Gamble has also learned the value of local research and development programs. This is something that domestic companies in India and other emerging markets have known for a long time. In fact, as innovation guru Vijay Govindarajan has noted, "The biggest threat for U.S. multinationals is not existing competitors. It is going to be emerging-market competitors."
In India, for example, entrepreneurial companies are creating a variety of low-cost products that meet the needs and fit the lifestyles of consumers at affordable prices. The products include an improved $23 wood-burning stove created by a startup company called First Energy. Indian women spend many hours each day cooking, and there was a clear need for a stove that burned less wood and generated less smoke. The key was adapting technology used in power plants. Engineers at the Indian Institute of Science created a high-efficiency, perforated burning chamber equipped with a small fan.
The engineers also found an innovative way to convert agricultural by-products into valuable resources: The new stove burns pellets made from corn husks and peanut shells. Hindustran Unilever spent 4 years developing Pureit, a portable water purification system ($43). Rather than rely on traditional distribution channels, Unilever tapped its network of 45,000 sales representatives who demonstrate Unilever products in their own homes. The women follow up the demonstrations by delivering products door-to-door.
Today, more than 3 million Indian homes have Pureit systems. Godrej & Boyce Manufacturing offers Little Cool, a $70 portable refrigerator that uses minimal electricity. Only 20 percent of Indian households have refrigerators; to assess the opportunity, Godrey sent researchers to meet with farm families in rural India. The resulting product resembles a cooler with handles for easy transport. Instead of a power-hungry compressor, the units have cooling chips and fans. Because power outages are common in India, Little Cool can run on batteries, and it is heavily insulated so contents stay cool for hours.
Discussion Questions
1. Why are companies such as Siemens, GE, and Procter & Gamble targeting the "bottom of the pyramid"?
2. Review the discussion of diffusion theory. How might an understanding of the characteristics of innovations help marketers succeed in emerging markets?
3. What types of marketing communications may be necessary to launch an innovative product such as Procter & Gamble's PUR in emerging markets? What changes in consumer attitudes and behavior are required for successfully launching a product such as PUR?