Not so long ago, “poor consumers” sounded like an oxymoron. According to conventional wisdom, the societies of the developing world were built like great pyramids: the few phenomenally rich at the top, a thin wafer of middle class just below and, sitting on the bottom, a colossal plinth of poor folks who had nothing but their dreams. In Brazil there was even a name for it: Belinda, a tiny and prosperous Belgium surrounded by a teeming and destitute India. Companies instinctively poured their efforts into pursuing the wealthy consumers; for “India,” there were only economic scraps and the dole. Even academics and policymakers tended to see the poor not as consumers but as victims. Now the wizards and the wonks are taking a second look. “The great white spot in the world economy is the lower-income market,” says Laercio Cardoso, who oversees low-income markets in Brazil for the Anglo-Dutch laundry-soap manufacturer Unilever. “Reaching them isn’t charity–it’s business.”
Lately, business is booming. Makers of everything from bicycles to bouillon cubes are scrambling to serve the most modest of patrons. Factories are retooling to turn out no-frills goods such as floor fans, single-door refrigerators and basic air conditioners. The most popular footwear in Brazil, the Havaiana, is a flip-flop. And cheap doesn’t have to mean chintzy: late last year, Consul, a Brazilian affiliate of Whirlpool, designed a fully automatic three-cycle centrifuge washing machine that costs no more than a clunky tank washer, about $220. The big seller in rural India is the Boxer AT, a sturdy, low-maintenance motorbike, priced at about $600. And single-serve packets of everything from shampoo to Nescafe are flying off the shelves. “Just look at our customers,” says Hugo Bethlem, executive director of CompreBem, a Brazilian discount supermarket. “All over the world, the low-income market is the market.”
The view from the boardroom has shifted south for the simplest reason of all: economic necessity. Not long ago, the rule in the underdeveloped world was to protect local markets from carpetbagging multinationals and their flood of cheap and durable goods. What emerged was a bell-jar economy in which inefficient industry flourished in artificial splendor, selling overpriced wares to the wealthy few. The clubby days are over now, thanks to globalization and the wave of free-market reforms that swept the world in the 1990s. Given half the chance, savvy consumers betrayed their familiar homemade goods for quality foreign brands, from Heineken to Honda. But there’s just so much foie gras the market can bear. In short order the top-tier consumers were spoken for. Suddenly the sales magicians had to reinvent their businesses.
The solution: go downmarket. According to a recent article in Foreign Policy by University of Michigan Business School professor C. K. Prahalad, and Allen Hammond of the World Resources Institute, the 18 largest developing nations are home to some 680 million families earning $6,000 a year or less. These low-wage earners take in $1.7 billion a year–about the size of Germany’s gross domestic product. “In reality,” Hammond and Prahalad write, “low-income households collectively possess most of the buying power in many developing countries.”
The experts are beginning to pay attention. When South Africa opened its doors to world enterprise in the early 1990s, mobile-phone companies fairly salivated. But in time, operators like MTN and Vodacom found themselves stuck serving a small, moneyed class of urban sophisticates. Soon they realized the gold was elsewhere and introduced prepaid phone cards. Not the $10 and $20 cards that U.S. and European teens burn up at recess, but ones that cost $5 or less. Never mind that phone-card users pay steeper per-minute charges than postpaid mobile subscribers. Phone traffic exploded, making Africa, with 51.8 million handsets, the fastest-growing cell-phone market in the world. “The issue is not how much something costs,” says Jonas Lindblad, Africa and Middle East telecom analyst for Pyramid Research in London. “It’s lowering the entry barrier and giving people control over cash flow.”
Marketing to the abandoned masses is not for everyone. Manufacturers moan about having to redesign products, retool factories or vastly boost production to make up for falling profit margins. Distribution in the slums can be a logistical nightmare. Yet serving the poor also forces businesses to innovate. One of the most popular cell phones in rural India is the sturdy Nokia 1100, which is advertised as dust-resistant and doubles as a flashlight. Electrolux Kelvinator, also of India, recently launched a refrigerator that keeps ice frozen for up to six hours after a power failure–an attractive feature in the blackout-prone latitudes. Bradesco, Brazil’s biggest private bank, defied skeptics and invested $100 million to set up bare-bones teller services in underused post offices. Most depositors earn $65 a month or less. Yet, by June, Banco Postal had already captured 1.6 million new accounts, and is expected to break even this August, two years ahead of schedule.
Many companies are hiring anthropologists and demographers to learn more about their clientele. One of the most valuable lessons has been that small can still be beautiful. Ask Urmi Sen. The 18-year-old college student from Asansol, India, likes to wear her black hair thick and long, even though it’s hard to care for. So it was a minor blessing when Hindustan Lever Ltd. recently started selling individual packets of Sunsilk, her favorite shampoo. “I can afford the sachets out of my own pocket money,” she says. “I don’t have dip into the household budget to buy a whole bottle.”
None of this is news to Samuel Klein. A Polish Jew and former vodka salesman, Klein fled Nazi Europe for the ragged blue-collar fringes of Sao Paulo, and started peddling bedsheets and blankets door-to-door. His pushcart business turned into Casas Bahia, Brazil’s best-known department store, with more than 350 branches. Klein, now 80, had a secret: a hassle-free installment plan that lets low-income buyers pay off their TV sets, refrigerators and stereos for a few dollars a month. He required little more than an address and a signed promise to make timely payments. “The bigger the problem,” Klein once said, “the bigger the opportunity.” Half a century later, the message finally seems to be getting through.
