Emergic: Rajesh Jain's Blog

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Selling to the Poor

May 7th, 2005 · No Comments

Red Herring writes:

There are five billion people in developing countries that are currently underserved, but cant wait to join the global economy, says Coimbatore Krishnarao Prahalad, a University of Michigan professor and author of best-selling business books, including The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits.

Consumers at the bottom of the pyramidas Mr. Prahalad refers to the poorcant afford the same products as Western consumers. On average, they earn less than $2 per day. Mr. Prahalad, considered one of the worlds most influential business thinkers, believes companies can make a profit targeting this market, if they make their advanced technology affordable.

First, price/performance ratios need to improve by a factor of 30 to 100, he says. But contrary to popular belief, there is more to it than just taking existing technology and removing some functionality, he says. Products for developing countries often have to be more advanced than those for the developed world.

How can one sell more advanced products at lower prices and still make money? Through innovation, says Mr. Prahalad. The $39 you pay for a DVD player that was made in China isnt all about low labor costs, he says. It is about doing things differently.

In India, car manufacturers such as Tata and Hyundai sell cars for $7,000for $9,000 you have a car with a video screen in the back seat and the quality is high, says Mr. Prahalad. Why do we sell cars in the U.S. and Europe for $20,000?

India is proving to be a popular testing ground for new, affordable products in a variety of fields, including artificial limbs and disposable razors.

Tags: Emerging Markets

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