Session Title:
Understanding BOP Markets

Date of talk or publication:
2005

Speaker Name / Title:
Guillermo D’Andrea & Gustavo Herrero

Organization:
IAE School of Business, Universidad Austral & Latin American Research Center, Harvard Business School

Description:
Our research attempts to understand the vast segments of consumers who make up the low to middle-low socioeconomic strata – the base of the pyramid – in Latin America and the retailers that serve them. The project covered six countries – Argentina, Brazil, Chile, Colombia, Costa Rica and Mexico – that are the home to 71% of the region’s population and represents 81% of its GDP. Data from four focus groups conducted in each country and 217 retailer interviews were supplemented with macroeconomic information for the region. We drew heavily on Booz Allen & Hamilton’s field work and focus groups conducted by IBOPE under the sponsorship of the Coca-Cola Retailing Research Council, Latin America.

After determining that low-income segments represent a larger share of the consumer goods market than their more affluent counterparts, we set out to identify the patterns that characterize the purchasing habits and preferences of these emerging consumers as they relate to: brand preference; frequency of purchase; size of ticket items; store selection criteria; social validation of their role as buyers, preferred assortment of goods; assessment of the “total purchasing cost” beyond product prices; and reliance on credit.

We then looked at the retailers where emerging consumers shop and analyzed their attributes vis-à-vis other business formats. We paid special attention to the value proposition of neighborhood stores from the consumers’ perspective. Next, we delved into the business model of smaller retailers and analyzed their economic feasibility. While it is widely argued that neighborhood stores owe their competitiveness mainly to irregular fiscal behavior, we reached a different conclusion.

A better understanding of the needs and consumption habits of emerging consumers and of the value proposition posed by the retailers that serve them will hopefully enable manufacturers and service providers to reach out to this important segment, successfully. The ability to access better products and services will help crack the exclusion of those that live outside the boundaries of well-studied conventional markets. Our research is a step in the direction of addressing these billions of consumers on the basis of sustainable (i.e. lucrative) business propositions designed to suit their particular needs.