However, recently I glanced at this book in the library and it struck me that I had never read it. Reading it from the library meant that I'd have saved myself a solid Rs. 500 by borrowing it instead of buying it. The offer was too good to refuse, and so, I borrowed it. I've been reading from it in small doses, and I must say, I was wrong about the book. It does hold very interesting insights about the BOP market. I still find the bits where the author sermonizes about poverty allevation a little hard to digest. But the sections where he lists down the characteristics of BOP markets and lays a framework for approaching them, are extremely interesting and insightful. As I read the book, I shall keep making notes in this blog entry. Here goes the first one...
1. Do the poor have enough money to spend? CK Prahlad makes an interesting observation about how the general public and marketers get put off by the filth and squalor that surround the urban poor in slums. The dirty surroundings lead us to believe that the poor don't have the capacity to pay, and even if they do have some money, they would rather spend it on improving the condition of their sanitation and immediate living quarters rather than splurging on consumers goods and durables. This is a wrong assumption. Prahlad proves this by citing the example of the Dharavi slum dwellers. Dharavi has no sewage system or running water, and yet Prahlad's study shows that it has 90% TV penetration. This is no exaggeration. On a recent visit to Mumbai, I remember how I was dumbstruck at the sight of DTH antennas sticking out off hutments lining the Western-Express Highway. This effectively disbunks the theory that slum dwellers have no purchasing power and are hence not a viable market. But if they do have money, why don't they spend on improving the condition of their immediate living quarters? As Prahlad says, they choose not do so because they don't have proper title for the land they stay on. Hence, they prefer to spend on movable property like TVs and mobile phones that can move with them, in the event that they have to vacate quarters. If marketers wake up to the fact that there is such a large BOP population that buys their products, they would perhaps be in a better position to tailor their offerings to increase uptake from this segment.
Prahlad also offers an interesting insight about the poverty penalty that slum dwellers have to pay. On average every item that they spend on comes at a higher cost. Slum dwellers pay a 200-300% rate of interest when the borrow money from money lenders. Likewise, all other utilities come at a higher tax imposed by the informal market eco-system that has sprung up in the absence of regular market players. If a financial services company where to figure out a way to serve this market and charge an interest rate of 25% (nearly twice the normal lending rate) they would run a profitable venture that is beneficial to both the lender and the borrower.
Of course, servicing this market is not easy. The biggest challenge is adapting to the cashflow limitations of buyers in this segment. Though this is a major hurdle, it is not intractable. As cited in the book, several companies have managed to work around the problem. In India, over the last few years, NBFCs have started venturing into this market with small customized loans.
Elsewhere in the book, Prahlad says that companies should actively start engaging with these markets and try to incorporate them into their existing business expansion plans. I defer on this view. More on this later...Cheers.
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