In 2015, there were over 290 million households with an annual disposable income below US$10,000 (in purchasing power parity – PPP terms) who can barely afford discretionary spending (that is, spending on items other than food, non-alcoholic beverages and housing).
Yet, large multinationals are paying greater attention to these low-income households at the bottom of the pyramid (BOP), as this is a largely untapped market that may offer businesses a new growth avenue they need in the present time of slow economic growth and uncertainties.
In targeting low-income consumers, however, it is important to recognise that, even with limited purchasing power, poor consumers can still be highly diverse. Companies that acknowledge and address diversity at the BOP can expect to reap significant rewards, as seen in the example of Haier Group which recorded strong growth in the sales of automatic washing machines in China and other key markets by responding to the needs of low-income consumers.
Haier Group’s Total Sales and Sales of Automatic Washing Machines: 2008-2015
Source: Euromonitor International Competitor Analytics
Look beyond the market size
Take Nigeria and Vietnam for example: these two countries are among the major emerging economies that have captured a lot of attention from international consumer goods businesses in recent years. The BOP markets in both countries are very similar in terms of size, with around 13.5 million households with an annual disposable income below US$10,000 (in PPP terms) in 2015.
But beyond the similarity of the BOP market size, the differences between Nigeria and Vietnam are truly remarkable:
- In 2015, nearly all (99.7%) Vietnamese households were connected to the power grid whilst over a third (33.8%) of Nigerian households had no power supply. For poor Nigerian households in remote rural regions, the proportion of households having no access to electricity is considerably higher;
- The difference is equally stark when it comes to fresh water supply. During the same year, 91.9% of Vietnamese households had water supply compared to only 34.7% of Nigerian households;
Proportion of Households with Access to Key Facilities in Nigeria and Vietnam: 2015
Source: Euromonitor International from national statistics
- Differing access rates to facilities and infrastructure like this need to be taken into account, because they impact consumers’ behaviours, purchasing preferences and habits. For example, if poor households have no access to electricity, they will highly unlikely own a refrigerator and thus will not buy chilled products.
Acknowledge and address diversity
Returning to the case study of China’s Haier Group: back in 1985 it was near bankruptcy, but it managed to turn fortunes around to become one of the world’s largest manufacturers of household appliances. A key part of Haier’s successful transformation was down to its ability to understand and cater for the diversity at the low-end of the consumer durables market:
- In the late 1990s, Haier found out that many rural consumers in China used their washing machines not only to launder clothes, but also to wash sweet potatoes. Haier subsequently dedicated an entire R&D team to address this matter. The end result is a product that is extra-durable with wider pipes that would not clog with soil and vegetable peels;
- In neighbouring India, Haier produces electronically sophisticated washing machines that can cope with frequent power fluctuations and that can also work at nearly zero water pressure (Near Zero Pressure – NZP technology). Power shortages and low water pressure are the challenges that Indian consumers face in their daily lives.
Innovations like these have popularised Haier’s washers among low-income communities in many countries and helped boost the company’s market share significantly. In 2015, Haier Group captured 18.9% of the global market of automatic washing machines, up from 7.3% ten years earlier.
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