Wednesday, April 29, 2015

Unilever- Focusing on the bottom of the pyramid: a success story

Unilever is regarded as a most popular success story in tackling growth in emerging markets. It is the world’s second-largest consumer goods firm that made the decision to further take advantage of their resources by expanding into emerging economies.[1] This tactic is often called targeting the bottom of the pyramid populations. The bottom-of-the-pyramid population is the 4 billion people who make up the world’s poor and account for two-thirds of the world’s population.[2] This tactic requires corporations to “offer products at extremely low prices and margins, and hope to generate decent profits by selling enormous quantities of them.” [3]

Unilever has expanded into Africa, China, India, and Latin America; the most prominent market being in India. The Indian market is worth $300 billion a year. This growth is achieved through small shop owners who receive discounted goods from Unilever in exchange for prominent product placement. A Unilever sales rep conducts a weekly check-in with the shop owner to ensure that products are restocked and the presentation of the products are optimal. These stores have allowed Unilever to boost sales by 17 % in 2012, which is triple the growth rate of India’s GDP.[4]

Unilever’s success of utilizing this tactic was no easy feat.

In Reality Check at the Bottom of the Pyramid, Erik Simanis explains that a low price/margin and high volume technique will fail for those companies that are unable to “leverage an existing infrastructure that serves wealthier customers to offer a product or service to poor consumers, […] and the consumers already know how to buy and use the offering.”[5] Simanis provides the example of Unilever’s Wheel detergent, which was offered at a price that was 30% lower than Unilever’s other detergents but placed on the same shelves. In this way, Unilever was able to service both middle and low-income consumers without the need to introduce a new product.

This week’s reading, Strategies That Fit Emerging Markets, explains the reason for Unilever’s grand success. This article provides an outline of a system to diagnose institutional contexts. Unilever strategically approached the product market by answering the following questions: can you obtain reliable data on consumer preferences? Is there a deep network of suppliers? By forming relationships with local shop owners Unilever was able to receive direct data about consumer preferences and to make appropriate decisions.

My main takeaway is that culture is vastly important when entering new markets. Previously, we discussed entering markets when there are potential opportunities for growth. However, we have yet to analyze the importance of taking into account consumer's culture as it relates to the social and economic structures of their environment. I believe a focus on the bottom-of-the-pyramid population presents a greater change to empower those populations while increasing economic growth worldwide.

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