In this series we have looked at two bottom-of-the-pyramid product examples so far. The first one, which was about one-laptop-per-child showed that success hinges on confronting legacy product architectures. The second example, about TI’s ultra-low-cost cellphone chipset, illustrated that sometimes breakthrough changes are needed not so much inside the product but inside the company (by changing the way of doing things significantly). But at times, the focus has to be neither inside the product nor inside the company but out in the market. Not addressing the market architecture issues can be a point of failure.
In that context, let’s look at the Gramateller ATM. It was designed for rural markets in India and had an attractive price-point (about $2K versus the traditional price of $10K), relevant features (biometric identification, etc.) and an easy-to-service design. As a product it seemed to a perfect bottom-of-the-pyramid solution. But it failed in the marketplace. Why? One reason is that the acquisition cost of an ATM is a small fraction of the total cost of ownership. After all ATMs have to be networked to the bank and refilled with cash almost daily and, over time, the cost of doing all this exceeds the original acquisition cost. But there is another important reason why it failed. The Gramateller team grossly underestimated the challenge of selling the product and associated service to non-consumers. It fell for the classic trap: build it and they’ll come.
Not surprisingly, the ‘build it and they’ll come’ doesn’t work, most of the times, even at the bottom-of-the-pyramid. But there is a strong misconception that having a latent market somehow implies that there is pent-up demand. The reality is the opposite. Since the customer hasn’t used this type of product before, there is a significant internal change involved in using the new solution. This is inherently disruptive. You are competing against buyer contentedness (I am satisfied), ignorance (I don’t know what I don’t know), and/or inertia (why change). So a disciplined approach to creating demand is needed.
Creating demand among non-consumers is very different from traditional selling. One type of traditional selling involves going to an under-served customer and selling them a better product. It’s about selling, what Clayton Christensen calls, a sustaining innovation. You go to a customer and try and sell a CRM solution that does account management and not just contact management. Or you go and sell a base station that has 6 sectors instead of 3.
Another type of traditional selling is to go to an over-served customer and sell them something that can get the job done at half the price. Selling them CRM as a Software-as-a-Service (SaaS), as Salesforce.com has done, is an example of this. But these switchover sales to either under-served or over-served customers are easier than selling to non-consumers.
Attacking incumbent market structures
Contrast Gramateller ATM team’s ‘build it and they’ll come’ approach with ITC’s eChoupal initiative. eChoupals are one-stop-shops on the internet for rural farmers in India. The ‘shop’ transmits information (weather, prices, news), transfers knowledge (farm management, risk management), facilitates sales of farm inputs and buying goods (screened for quality, price). This is not about breakthrough technology (though it does use technology in an innovative way) but about thoughtful creation of new market structures in place of old ones.
eChoupal is a fully commercial venture expecting to do about $2.5 in turnover by 2010. Its approach of looking at old market architectures and finding a way to replacing them with a new market architecture has won it a number of awards (Stockholm Challenge 2006 among them). Essentially what they have done is to go beyond treating communities purely as collections of customers. They have built livelihood partnerships around the product and have invested considerable effort into bridging cultural and education gaps and creating positive associations. Had Gramateller ATM team taken this approach to market building it would have been a big success story by now.
So far we have seen that developing a bottom-of-the-pyramid market can require breakthroughs at the product architecture level, company architecture level or even at the market architecture level. All the examples that we have looked at have related to the IT industry. Next time we will take a quick look outside the industry and then tie it all back to the emergent opportunity in the enterprise software space.
Previous articles in this series:
Anatomy of New Growth in India
Another Reason to Not Ignore Emerging Markets
Can’t Escape In-Market Incubation Any Longer
Likely Lessons of OLPC
Taking Inspiration from ULCC
Later article in this series:
Building a New Value Chain
[Growth Anatomy Series Roundup is here]
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