Marketing to the "bottom of the pyramid" is a fascinating, potentially hugely profitable idea that involves the challenge of carving off the "fat" on technologies and creating affordable products like the automobile called the Tata Nano, low priced shampoo sachets, a much-needed, cheap water filter or medical equipment to save millions of lives. You direct your innovation and marketing efforts to the overlooked billions of people living on under $2.5o per day who have vast unmet needs ....
Shashi Tharoor is an an author and member of India’s Parliament.
SOURCE:
http://www.theglobeandmail.com/report-on-business/small-business/starting-out/lessons-i-learned-from-three-startup-failures/article4377100/
India’s frugal revolution - The Globe and Mail
by UCLA
on Sep 26, 2008
ECONOMY
India’s frugal revolution
India’s sliding economy has inspired gloom and doom far and wide, but increasingly bearish sentiment is misplaced.
India still offers hope, but, to understand why, you have to leave macroeconomic indicators aside and go microeconomic.
Indian companies have long recognized the opportunities in meeting previously overlooked demand at the “bottom of the pyramid.”
Shampoo sachets originated in India more than two decades ago, creating a market for a product that the poor had never before been able to afford.
Indians without the space or money to buy a whole bottle of shampoo for 100 rupees could spend five for a sachet that they’d use once or twice.
But India’s leadership in “frugal innovation” goes beyond downsizing:
it involves starting with the needs of poor consumers – itself a novel term (who knew the poor could be consumers?)
– and working backward.
Indians are natural leaders in frugal innovation, imbued as they are with the jugaad system of developing makeshift but workable solutions from limited resources. Jugaad essentially conveys a way of life, a worldview that embodies the quality of making do with what you have to meet your needs.
But jugaad is not about pirating products or making cheap imitations of global brands.
It is about innovation; finding inexpensive solutions, often improvised on the fly, within the constraints of a resource-starved developing country full of poor people.
An Indian villager constructs a makeshift vehicle to transport his livestock and goods by rigging a wooden cart with an irrigation hand pump that serves as an engine. That’s jugaad.
Common machines and household objects are reincarnated in ways that their original manufacturers never intended.
Everything is reusable or reimaginable. If you cannot afford your cellphone bills, you invent the concept of the “missed call” – a brief ring that is not answered but that signals your need to speak to the recipient.
Indian ingenuity has produced a startling number of world-beating innovations, none more impressive than the car - Tata Nano, which, at $2,000, costs roughly the same as a high-end DVD player in a Western luxury car.
Of course, there’s no DVD player in the Nano (and no radio, either, in the basic model) but its innovations (which have garnered 34 patents) are not merely the result of doing away with frills (including power brakes, air conditioning, and side-view mirrors).
Reducing the use of steel by inventing an aluminum engine, increasing space by moving the wheels to the edge of the chassis and relying on a modular design that enables the car to be assembled from kits proved conclusively that you could do more with less.
Then there’s the GE MAC 400, a hand-held electrocardiogram (ECG) device that costs $800 (the cheapest alternative costs more than $2,000), and the Tata Swachh, a $24 water purifier (10 times cheaper than its nearest competitor).
The GE MAC 400 uses just four buttons, rather than the usual dozen, and a tiny portable printer, making it small enough to fit into a satchel and even run on batteries; it has reduced the cost of an ECG to just $1 per patient.
Given that some five million Indians die of cardiovascular diseases every year, more than a quarter of them under 65, and that about two million die every year from drinking contaminated water, these innovations’ value is apparent.
Many other examples of frugal innovation are already in the market, including:
- a low-cost fuel-efficient mini-truck,
- an inexpensive mini-tractor being sold profitably in the U.S.,
- a battery-powered refrigerator,
- a $100 electricity inverter, and
- a $12 solar lamp.
An Indian company has invented a cheaper Hepatitis B vaccine, bringing down the price from $15 per injection to about 10 cents.
Insulin’s price has fallen by 40 per cent, thanks to India’s leading biotech firm.
A Bangalore company’s diagnostic tool to test for tuberculosis and infectious diseases -costs $200, compared to $10,000 for comparable equipment in the West.
Even the financial sector has seen innovation:
Just three years ago, there were only 15 million bank accounts in a country of 1.2 billion people.
Indians concluded that if people won’t come to the banks, the banks should go to the people.
The result has been the creation of brigades of travelling tellers with hand-held devices, who have converted the living rooms of village homes into makeshift branches, taking deposits as low as a dollar.
More than 50 million new bank accounts have been established, bringing India’s rural poor into the modern financial system.
Frugal innovation pervades the Indian economy.
It is one of the reasons why there is more dynamism in the Indian economy than those who look only at the macroeconomic data believe.
Sometimes it is important to stop looking at the forest and focus on the trees.
India still offers hope, but, to understand why, you have to leave macroeconomic indicators aside and go microeconomic.
Indian companies have long recognized the opportunities in meeting previously overlooked demand at the “bottom of the pyramid.”
Shampoo sachets originated in India more than two decades ago, creating a market for a product that the poor had never before been able to afford.
Indians without the space or money to buy a whole bottle of shampoo for 100 rupees could spend five for a sachet that they’d use once or twice.
But India’s leadership in “frugal innovation” goes beyond downsizing:
it involves starting with the needs of poor consumers – itself a novel term (who knew the poor could be consumers?)
– and working backward.
Instead of complicating or refining their products, Indian innovators strip them down to their bare essentials, making them
affordable, accessible, durable and effective.
Indians are natural leaders in frugal innovation, imbued as they are with the jugaad system of developing makeshift but workable solutions from limited resources. Jugaad essentially conveys a way of life, a worldview that embodies the quality of making do with what you have to meet your needs.
But jugaad is not about pirating products or making cheap imitations of global brands.
It is about innovation; finding inexpensive solutions, often improvised on the fly, within the constraints of a resource-starved developing country full of poor people.
An Indian villager constructs a makeshift vehicle to transport his livestock and goods by rigging a wooden cart with an irrigation hand pump that serves as an engine. That’s jugaad.
Common machines and household objects are reincarnated in ways that their original manufacturers never intended.
Everything is reusable or reimaginable. If you cannot afford your cellphone bills, you invent the concept of the “missed call” – a brief ring that is not answered but that signals your need to speak to the recipient.
Indian ingenuity has produced a startling number of world-beating innovations, none more impressive than the car - Tata Nano, which, at $2,000, costs roughly the same as a high-end DVD player in a Western luxury car.
Of course, there’s no DVD player in the Nano (and no radio, either, in the basic model) but its innovations (which have garnered 34 patents) are not merely the result of doing away with frills (including power brakes, air conditioning, and side-view mirrors).
Reducing the use of steel by inventing an aluminum engine, increasing space by moving the wheels to the edge of the chassis and relying on a modular design that enables the car to be assembled from kits proved conclusively that you could do more with less.
Then there’s the GE MAC 400, a hand-held electrocardiogram (ECG) device that costs $800 (the cheapest alternative costs more than $2,000), and the Tata Swachh, a $24 water purifier (10 times cheaper than its nearest competitor).
The GE MAC 400 uses just four buttons, rather than the usual dozen, and a tiny portable printer, making it small enough to fit into a satchel and even run on batteries; it has reduced the cost of an ECG to just $1 per patient.
The Swachh uses rice husks (one of India’s most common waste products) to purify water.
Given that some five million Indians die of cardiovascular diseases every year, more than a quarter of them under 65, and that about two million die every year from drinking contaminated water, these innovations’ value is apparent.
Many other examples of frugal innovation are already in the market, including:
- a low-cost fuel-efficient mini-truck,
- an inexpensive mini-tractor being sold profitably in the U.S.,
- a battery-powered refrigerator,
- a $100 electricity inverter, and
- a $12 solar lamp.
Moreover, medical innovations are widespread.
An Indian company has invented a cheaper Hepatitis B vaccine, bringing down the price from $15 per injection to about 10 cents.
Insulin’s price has fallen by 40 per cent, thanks to India’s leading biotech firm.
A Bangalore company’s diagnostic tool to test for tuberculosis and infectious diseases -costs $200, compared to $10,000 for comparable equipment in the West.
Even the financial sector has seen innovation:
Just three years ago, there were only 15 million bank accounts in a country of 1.2 billion people.
Indians concluded that if people won’t come to the banks, the banks should go to the people.
The result has been the creation of brigades of travelling tellers with hand-held devices, who have converted the living rooms of village homes into makeshift branches, taking deposits as low as a dollar.
More than 50 million new bank accounts have been established, bringing India’s rural poor into the modern financial system.
Frugal innovation pervades the Indian economy.
It is one of the reasons why there is more dynamism in the Indian economy than those who look only at the macroeconomic data believe.
Sometimes it is important to stop looking at the forest and focus on the trees.
Shashi Tharoor is an an author and member of India’s Parliament.
SOURCE:
http://www.theglobeandmail.com/report-on-business/small-business/starting-out/lessons-i-learned-from-three-startup-failures/article4377100/
India’s frugal revolution - The Globe and Mail
C.K. Prahalad Describes the Growth of Microfinance, UCLA
by UCLA
on Sep 26, 2008
Best-selling author shares his vision of world-class products for the world's poorest customers.
Visit UCLA Anderson School of Management
http://www.anderson.ucla.edu/
Click here for more Distinguished Speaker Videos from UCLA Anderson School
of Management
http://www.anderson.ucla.edu/x17389.xml
Visit UCLA Anderson School of Management
http://www.anderson.ucla.edu/
Click here for more Distinguished Speaker Videos from UCLA Anderson School
of Management
http://www.anderson.ucla.edu/x17389.xml
He wrote the Book!!!
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