Session Title:
Managing Business at the BOP

Date of talk or publication:
2005

Speaker Name / Title:
Wilson A. Jácome & Luis E. Loría, Luis Reyes

Organization:
IDE-Business School, TIA-Ecuador

Description:
It is common practice in business, especially in emerging market economies, to target customers at the top of the socioeconomic pyramid because they have high purchasing capacity. The less privileged segments of the population, which in the case of Ecuador amounts to nearly three quarters of its habitants, have traditionally been neglected. Some opportunistic entrepreneurs (e.g., loan sharks and many informal businesses and stores) exploit the needs of those in the poorer market niches with low quality products and services offered at unreasonably high prices. These poor segments consequently differ dramatically from the middle and high-income segments of the population in terms not only of monetary income and purchasing capacity, but also adequate access to quality products and services, many of which are desperately needed.

In 1960, TIA Stores opened its first store in Guayaquil, Ecuador with a highly unorthodox strategy: to target customers at the lower half of the socioeconomic pyramid. By the end of 2005, TIA will be operating 63 stores using three different business formats and be the third largest retailer in the country, with estimated annual revenues in excess of US$130 million. TIA’s growth strategy has been driven by a successful business model innovation: MULTIAHORRO, a “barrio store” that better serves BOP customer needs for goods and services. The MULTIAHORRO barrio stores, located in some of the poorest and most densely populated neighborhoods of Ecuador, offer limited assortments of goods at the lowest price in their area of influence. The ordinary life of the poor has been improved through small, but extremely important, details such as increased savings on purchases, access to clean and hygienic shopping spaces, and pleasant and helpful customer service. Feeling cared for in an appropriate environment might be expected to elevate self-esteem and stimulate aspirations to self-improvement in the local population.

This case study of MULTIAHORRO illustrates how owners and managers of national or international corporations willing to serve BOP customers can make a real difference in terms of improving not only the quality of life, but entire reality, of millions of poor people in the world, and make a profit, even under adverse business, social, and political circumstances, through successful business model innovations.