Is the lower end of the consumer segment really profitable? If yes, why are so few brands pursuing it? What does it take to make this segment really work for your brand? This is a sample of emailed questions I received to my previous blog. I am not the least bit surprised, because these are exactly the kind of questions some of my American clients are trying to answer, as they go about expanding their base in India.
Many a book may have been written on this subject, but the irony is that a successful marketing strategy for the lower-end consumer segment requires adherence to the simplest and most fundamental principles of marketing.
Step 1: Understand the consumer and her needs
Step 2: Develop a product that meets those needs
Step 3: Sell it at a price she can afford
Step 4: Make it available at the store where she can purchase
The one company who has proven it time and again is the Indian subsidiary of Unilever plc, Hindustan Level Limited (HLL). Let’s take a couple of examples from HLL’s brand archives.
HLL realized that many lower income consumers in India subsist on daily wages and tend to shop only for what they need on that particular day. These consumers could not afford to purchase even the cheapest bottles of shampoo. In order to match its shampoo line with low income consumer purchasing patterns, the company developed single serve sachets of shampoo. Today, in India, single-serve packages account for over 60% of the shampoo market. Further, the number of products sold in single-serve packets today includes items such as soaps, detergents, coffee, biscuits, and even bread.
HLL recognized that in cost-conscious, low-end Indian households most women avoided the appearance of self indulgence. Hair grooming proved to be their one personal luxury. Researchers discovered that many cost-conscious females actually used soap to wash and maintain their hair. With this consumer insight, HLL developed a quality product that served both hair and body needs. Breeze 2-in-1 was released in smaller Indian towns to a great reception.
So, why haven’t many brands managed to successfully tap into this segment of the market? While there could be several plausible reasons, I feel the primary reason is that success in this segment requires a much stronger organizational commitment. Global companies need to rethink traditional business models, new product development strategies and develop new distribution processes exclusively for this segment. Companies need to re-orient themselves from a ‘margin-driven’ thought process to a ‘volume-driven’ one. Just this one change requires a paradigm shift in the basic economics of developing new products and marketing them.
Staffing strategy, especially R&D and marketing teams, is the the other area that needs to be looked into. Most successful companies have prospered designing for and selling to wealthy and homogenous populations – like affluent, English-speaking Americans. A marketing team comprising elites with MBA degrees, even if hired locally, is insufficient to truly understand needs of the lower-end of the market. Marketing and R&D teams need anthropologists and ethnographers to understand and interpret consumers’ socio-cultural needs in emerging economies.
Much like the path to salvation, unearthing the treasure from the bottom of the pyramid is simple and, yet, difficult. To achieve it, an organization needs to tread this difficult path with commitment, conviction and a clear plan.