Selling to the Poor

[via Suhit] CK Prahalad and Allen Hammond have written an article in Foreign Policy:

Markets in the developing world can nurture global business through their sheer size, rate of growth, and consumer demands. Consider three examples: cell phones, table salt, and cosmetics.

Cellular technology was originally developed as a luxury for the rich, but today poor countries drive the explosion in wireless communications. Sub-Saharan Africa is now a leading region in percentage growth of cell phone usage, expanding 37 percent during 2003. India boasts 22 million cellular customers and is adding around 1.5 million new customers every month. By 2005, China, India, and Brazil will have a combined 500 million cell phone users, compared to 150 million in the United States. The sheer size of these markets will necessarily change the dynamics of the businessshifting to the poor the power to determine both the preferred features of cell phones and their technological makeup. The pacesetting customers will no longer be found in Tokyo and Rome, but rather in Xian and Bangalore.

Selling to poor consumers also requires innovative research and development. In rural India, for example, only four out of 10 households use iodized table salt, even though iodized salt provides a critical and convenient nutritional supplement. Due to India’s environmental conditions, much of the iodine in salt is lost during transport and storage. The remainder often disappears in the Indian cooking process. To overcome this problem, Hindustan Lever Ltd., a subsidiary of Europe’s Unilever Corp., has developed a way to encapsulate iodine, protecting it from transportation, storage, and cooking, and releasing the iodine only when salted food is ingested. The new salt required Hindustan Lever to invest in two years of advanced research and development, but if its salt sells successfully, the company could sharply reduce iodine deficiency disorder, a disease that affects more than 70 million people in India and is the country’s leading cause of mental retardation. The lesson: Successful product development requires a deep understanding of local circumstances, so that critical features and functionalitysalt with protected iodinecan be incorporated into the product’s design.

Modernizing distribution channels is also crucial for companies hoping to reach low-income markets in the developing world. Person-to-person cosmetic giants Amway Corp. and Avon Products, Inc. use direct-distribution strategies in India and Brazil, respectively, to sell beauty products among a wider circle of customersincreasing the corporations’ reach and employing poor people as entrepreneurs. Amway, for example, has enlisted around 600,000 self-employed individual distributors in India. Hindustan Lever is mimicking the approach with a direct-distribution system for personal-care products. The company expects to sign on more than 500,000 self-employed Indian distributors within five years.

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Rajesh Jain

An Entrepreneur based in Mumbai, India.