P&G going after the bottom of the pyramid

TakeAway:  The bottom of the pyramid represents two-thirds of the world’s population yet only a fraction of the world’s income. 

But don’t be fooled, this market can be very profitable. 

With the right combination of volume and capital efficiency, and a focus on economic profit, companies will be rewarded.

P&G has a bullseye on the BOP

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Excerpted from NYTimes, “P.& G. Sees the World as Its Client,” By Leslie Wayne, December 12, 2009

Add close to 548,000 new customers a day. Every day. For the next five years.

That is the goal Procter & Gamble’s new chief executive, has been promoting in recent weeks and that will be an important benchmark for his tenure …

The consumer products giant has to keep expanding its reach beyond its core markets of the United States, Western Europe and Japan, and start winning over new customers in places like Nigeria, India and Somalia, and is taking on steep challenges.

One is that its rivals Unilever and Colgate have long had a presence in many of these far-flung countries, so much so that they are called walled cities within the industry because of the difficulties new competitors face in penetrating these new markets.

“It will be a knife fight, it will be brutal,” said an industry analyst … “It will be fought in shampoo, detergent, deodorant, and Unilever and Colgate won’t roll over.”

The other big challenge is how a company that built itself on selling premium products at premium prices can shift to selling an array of low-priced products for consumers who often live on only a few hundred dollars a month or less.

In some cases, potential customers do not use many of P.& G.’s products and may even have to be taught how to do so …

Sales from developing countries are doubling every four years. Today, sales from developing markets represent 32 percent of P.& G.’s $78 billion in annual revenue, up from 23 percent four years ago.  Unilever and Colgate, though, already get about 45 percent of their sales from emerging markets.

Today, P.& G. has annual sales of $25 billion from developing countries, compared with $8 billion eight years ago. Procter already operates in 80 countries, selling its wares everywhere — large superstores in cities and tiny storefronts in remote villages …

The pitch from P.& G. executives … Americans spend about $110 a year per capita on Procter’s products. The worldwide per-capita figure is $12. In Mexico, the number is $20; it’s less than $3 in China and less than $1 in India.

The goal is to get the per-capita numbers in China and India to look like Mexico’s. If that were to happen … sales at P.& G. would increase by $40 billion …

Of course, customers in developing countries have little money to spend. And getting Procter’s goods to small towns and villages is a difficult logistical challenge …

Products, too, have to be adjusted. P.& G. has had to break down products like shampoos and soaps into smaller and less expensive sizes …

“There may be one billion new customers,” said Deutsche Bank. “But it is a question of the price per customer and what they can buy. How can you maintain profit margins when you are trying to sell small shampoos or little bars of soap in deepest India or sub-Saharan Africa?”

Procter has come up with marketing efforts that are decidedly different than those in the United States and other more developed countries.

Many infants, for instance, simply go without diapers, which means that P.& G. goes to hospitals and mobile clinics to demonstrate the use of diapers. Because the cost of diapers are often an issue and because children and parents often share the same family bed, P.& G. is promoting diaper use only at nighttime …

Edit by TJS

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