HBS Managing Innovation Winter 2012 Course

12Feb/12115

Poor people are NOT “just like us.” Serving their needs profitably requires a new approach to innovation

Posted by dleger

There is a fortune at the base of our economic pyramid where the needs of 4 billion poor people are largely unmet. Companies around the world have been trying to transform these poor people into consumers for decades now, but their efforts have yielded very little success. This is largely due to a lack of innovation in how base of the pyramid consumers are approached.

Most companies go into these markets with the premise that people at the base of the pyramid are like people at the top of the pyramid—just with less money. The strategy has therefore been to sell them the same products, more cheaply. While lower income levels certainly do not define a person’s core identity and aspirations, they do define almost every aspect of a person’s context and needs. So while human values and aspirations may be universal, a product’s concrete value proposition will not apply across all levels of the economic pyramid. For example, Gillette recently spent millions of dollars developing a new razor for the Indian market and tested the product on Indian men studying at MIT. The test yielded great results and Gillette launched the product in India, where it was a complete flop. It turned out that unlike their countrymen in the US, Indian consumers didn’t have reliable access to running water or a comfortable bathroom to shave in, so the new razor was impossible for them to use.

Companies trying to serve the base of the pyramid would do better to recognize their target consumers’ differences and not expect low prices to be sufficient to win this untapped segment over. Companies need to realize that winning the fortune at the base of the pyramid is not a simple matter of pricing but rather of innovation at every level of the business model. Many of the innovative companies we admire like Apple and Bang & Olufsen are built off of understanding their target consumer so well that they don’t even need to ask her what she wants. They are just like her, they know what she wants before she does, and they design products that make intuitive sense to her and fit into her life effortlessly. Unfortunately, most companies targeting the base of the pyramid don’t have this insider knowledge of their consumer. Instead, they make flawed assumptions about how similar the base of the pyramid will be to their existing consumer base and attempt to force fit their existing designs and business models to serve the poor. So how do you understand a consumer who is nothing like you and who you have no market data about?

Human-centered design provides a valuable tool to understand the context in which people use products but when targeting the base of the pyramid, it requires even more time and resource investments than usual. After its first failure at reaching the base of the pyramid in India, Gillette went back to the drawing board. It launched its innovation process with a laser focus on gaining insight into its target market. A team of Gillette employees spent thousands of hours on the ground in India to truly understand the consumer. The team spent time in people’s homes, on shopping trips, and watching people shave. Armed with its new insights, the Gillette team designed a completely new razor and used its understanding of the consumer in planning every aspect of the business model including marketing and distribution. The new Gillette Guard gained 4% market share in its first quarter and is now the best-selling razor in India.

Some might see this need for in-depth consumer insight and human-centered design as an obstacle to doing business at the base of the pyramid. I see it as an incredible opportunity. Most companies are still years away from recognizing the potential of this huge untapped market and light years away from mobilizing themselves to do something about it. But top of the pyramid markets are saturated and growth within them is fading. For those that are willing to innovate to serve an entirely new consumer base, there is a huge opportunity to create a fortune at the base of the pyramid. Clearly, a few companies are placing big bets on this idea. P&G has launched a sort of skunkworks ‘$2-a-day’ project that sends teams deep into the field to be immersed in the lives of poor people, observe, and design products with those insights in mind. P&G also recently launched an Innovation Center in Beijing, with the aim to research, source and develop products locally. Though this is a long term game, initial results suggest that investing in this new type of innovation has the potential to unlock the fortune at the base of the pyramid.