This story begins with C.K. Prahalad. Since the late 1990s, the management guru has been speaking of something he calls the bottom of the pyramid (his recent book is titled The Fortune At The Bottom Of The Pyramid), a reference to the large number of people in the lower economic strata, people usually ignored by companies seeking to target the middle- or upper-classes. Prahalad's hypothesis about companies being able to make money, and lots of it, if they only know how to address this huge untapped market segment has struck a chord in India. Maybe it is because he himself is an Indian. Maybe it is because there are an estimated 500-700 million Indians residing in what Prahalad calls the bottom of the pyramid.

In 2001, this magazine featured an article on this theme (Selling To The Poor Profitably, Business Today, June 21, 2001). Since then, the inclusion revolution has gathered momentum. It still remains work in progress but now encompasses products such as rain gauges with inbuilt data storage capabilities, finance for low-cost housing, budget hotels, low-cost internet access devices, even automated teller machines. Not all companies are addressing the very bottom of the consumer pyramid, but each is moving aggressively to capture markets hitherto unaddressed by its offerings. Some of the stories in the pages that follow are not new (which is a good thing because it means they have emerged as sustainable and scalable solutions to tapping b-o-p, bottom of the pyramid, markets). Others are. And may their tribe increase.

The Doctor Is Logged On
Apollo Telemedicine Networking Foundation/Healthcare-for-all

A click in time: A doctor videoconferences with his patient

The way K. Ganapathy, a neuro-surgeon and Senior Vice President, Apollo Telemedicine Networking Foundation, a trust established by Apollo Hospitals sees it, the case for telemedicine is based on economics. "The government will need to create 750 hospitals, with 250 beds each, at a cost of Rs 25,000 crore every year to meet World Health Organisation stipulated standards of reach (of healthcare)," he says. "Given our expertise in software and medicine, much can be achieved through telemedicine." Apollo's 76 telemedicine centres are trying to do just this. At Rs 600-700 a pop, the cost is not exactly b-o-p material, but this should go down with volumes and lower broadband costs, one reason BSNL's big-bang broadband venture is important to the nation.

-Nitya Varadarajan

Rain-meter: Spatika's electronic rain gauge

Rainy Day SMS
Spatika Varsha/The intelligent (and low-cost) rain gauge

In a uniquely Indian irony, Indian agriculture, which is dependent on the monsoon, is yet to adopt modern rainfall measuring technology. This, when proponents of scientific agriculture insist that micro-climatic management is the ideal way to optimise crop yields. Karnataka, for instance, has 1,100 manual gauges, one for every 450 sq. km (V.S. Prakash, the head of the state's drought monitoring cell would like one every 40 sq. km). Then there are issues related to the collection and accuracy of data.

Prakash's department, in association with a clutch of NGOs, is trying out an electronic rain gauge developed by a Bangalore-based company, Spatika Information Technologies, that measures rainfall electronically, and then, using prevalent GSM technology, sends the data as an SMS to a central server at pre-programmed intervals. In terms of how this data can contribute to better agricultural practices, such gauges would be priceless.

-Rahul Sachitanand

Rural Relief
ICICI Lombard/Insurance against debt

Immediate relief: A policy-holder at narayana Hrudayalaya

Health and weather are the two high-risk sectors that pull farmers into the debt trap," says Smita Aggarwal, the head of insurer ICICI Lombard's rural and agricultural business group. The lady is convinced that insurance can help break the "vicious cycle perpetuated by high-cost borrowings from money-lenders". And do so profitably. That could explain the company's decision to ally with Biocon Foundation, the charity arm of biotech firm Biocon, and Bangalore-based hospital Narayana Hrudayalaya to launch a scheme that provides policy-holders cash-free diagnosis and treatment at select hospitals, and discounted medicines at BioCare Pharmacies, a Biocon offshoot. That fits in with Biocon founder Kiran Mazumdar-Shaw's objective of "providing affordable healthcare to 1 billion Indians". All this costs Rs 180 a year (for one person), and Rs 480 for a family of four. That's b-o-p.

-Rahul Sachitanand

Over the hump: HLL distributor Shanti Devi in Rajasthan's Neora Road village is doing her bit for the cause of growth

Women Power
HLL's Project Shakti/Reaching Out

Project Shakti is HLL's three-year old initiative to reach customers in villages with a population less than 2,000 (there are over 6,00,000 such in India and distributors largely ignore them because household incomes rarely go beyond Rs 1,000 a month). "We had to re-look at the consumer paradigm and the means for delivering the product," says Sharat Dhall, Business Head, Rural Ventures, HLL. "We had to literally catalyse growth." That it did by identifying women (they could gain easy access to households) who were part of self-help groups (this provided them with the micro-capital required) to operate as distributors. Now, Project Shakti has reached a scale that makes it a successful example of b-o-p marketing. It operates in 12 states, contributes 15 per cent to the company's total rural sales in these states, and its 13,000 distribution agents sell, on an average, products worth Rs 10,000 every month (they earn Rs 800 on this).

-Priya Srinivasan

Hand-held Intelligence
Pico Peta/The Simputer

Guiding light: The simputer pioneered low-cost computing

Four years after it was developed by four professors from IISC, Bangalore, the Simputer, a universal access device, is available in the market at prices between Rs 10,000 and Rs 20,000 (as the Amida Simputer, manufactured by public sector firm Bharat Electronics Limited). Swami Manohar, CEO, Pico Peta, the company that owns the Simputer franchise now, believes it is an "appropriate computing device for most of India and not a replacement for a pc", a reference to the fact that most people who buy a pc use only a fraction of its abilities. Manohar speaks of aggressive nation-wide marketing plans, but fact is, low-cost mobile telephones and low-cost computers (they have even broken the Rs 10,000 barrier) may have already stolen much of the Simputer's thunder. However, the Simputer, and Pico Peta remain b-o-p pioneers.

-Supriya Shrinate

Budget hotel? Well, IndiOne doesn't quite look like one

Travelling Salesman's Solution
Indian Hotels (IndiOne)/Rooms at Rs 850 a night

Budget hotels bring to mind stained sheets, dingy restaurants, drunk salesmen and poor service. So, when Indian Hotels decided to get off its lofty perch (high-end rooms costing upwards of Rs 5,000 targeted at the top five per cent of customers) and address the chunk (the remaining 95 per cent of the market), it junked the classification: budget became smart basics. The tariff remained strictly 'budget' (Rs 850), though. Now, buoyed by the success of its first IndiOne hotel in Bangalore-it opened for business last year and has an occupancy rate of around 85 per cent-it is opening 10 more in cities such as Thiruvananthapuram, Bhubaneshwar, Varanasi and Durgapur. "No national chain has tapped the (budget segment) opportunity," says Sheila Nair, coo, Roots Corporation, a wholly-owned subsidiary of Indian Hotels that manages the IndiOne initiative. The hotel has been configured for travelling pros (think ATMs and Wi-Fi), focusses on weeding out non-revenue generators (room service, corridors and banquet halls) and follows the self-service model that, according to Nair, "makes people want to conform to the offering".

-Priya Srinivasan

Affordable Bundle
Tata Indicom/Broadband access plus device

Access for all: Tata Indicom's personal internet communicator

Broadband is a commodity. And the cost of the access device, the biggest hurdle to universal connectivity. "We are clearly in a position to offer broadband connectivity, but what was holding us back was the cost of the access device," explains Sashi Kalathil, coo, Tata Indicom. Tata Indicom opted for a bundled offering; its choice of device was unique. While most other telcos have gone in for PCs, it opted for a no-frills internet access device powered by AMD whose total cost (including monitor) is a mere Rs 14,000. Tata Indicom sells it for an upfront payment of Rs 5,000 and charges between Rs 500 and Rs 1,000 a month towards payback, the cost of broadband and maintenance. Now, the company has a slew of value-added plans on the drawing board, including a fairly revolutionary one involving software that resides on a central server and can be paid for on a per-use basis.

-Priya Srinivasan

Click for money: ICICI Bank's low cost rural ATM

Rural Teller
ICICI Bank/An ATM for rural areas

ICICI bank has a vision for rural India, one that revolves around Rs 2,00,000 crore in assets and 200 micro-finance partners servicing a million customers each. One touchpoint the company will depend on is a low-cost internet-based automated teller machine (ATM), developed in association with IIT Chennai. The ATM, set for an imminent rollout, incorporates the ability to handle used currency notes, crucial given that the transaction value in the rural areas is too miniscule to justify transportation costs of cash to the ATMs (transaction value being anywhere between a tenth to a twentieth of that in cities). It also costs far less than the ATMs that proliferate the cityscape. "The cheapest ATMs in the city cost Rs 3-3.5 lakh each, the rural ATM will cost a fraction of this," says Nachiket Mor, ED, ICICI Bank. "The idea is to bring financial services to every individual."

-Priya Srinivasan

Three-wheel Drive
Sriram Transport and Dewan Housing Finance/Loans for lower income classes

The Sriram secret: Every tempo is micro-entrepreneur

The three-wheeled tempo is the preferred carrier of goods for a host of Indian micro-entrepreneurs. Sriram Transport, a Chennai-based financial services firm, saw in this humble vehicle a source of self-employment for thousands of people. And so, the company started financing such vehicles a few months ago. "Warehouses in major metros will be moved to the outskirts, and three-wheelers will be used more and more to transport goods," says R. Sridhar, MD, Sriram Transport. Another company that is tapping low-value loan requirements is Dewan Housing Finance. Almost 95 per cent of its customers earn less than Rs 20,000 a month (the company still has the lowest proportion of bad loans in the business) and MD Kapil Wadhwa says incremental disbursements are growing at 40 per cent a year. No wonder IFC and ADB are funding its foray into smaller towns.

-Priya Srinivasan

Selling@eChoupal: Also a rural retail outlet

Rural Reach
ITC e-Choupal/Game Changer

In June 2000, ITC launched its first e-Choupal. Today, there are 5,050 such covering 31,000 villages and three million farmers. And six months ago, the company launched its first Choupal Sagar, a rural hypermart. Already some 70 companies ride the choupal infrastructure, and Rs 50 crore worth of products are sold through it. "The idea was to first increase the size of the rural wallet, then garner a larger share of it," says S. Sivakumar, Chief Executive, ITC International Business Division.

-E. Kumar Sharma

Direct Selling
DCM Shriram's Hariyali/A logical extension

A Hariyali outlet: It's the same customer

For a company into businesses such as fertiliser and sugar, rural retail makes great sense. That is why DCM Shriram Consolidated (DSCL) launched Hariyali Kisan Bazar stores. Today there are 16 of these (each is 7,000-10,000 sq. ft.) across up, Punjab and Rajasthan-the number will double by 2006-stocking seeds, fertilisers, farm-fuel and farm-equipment. "We focus on providing the right product at the right time at the right quality and the right price," says Ajay S. Shriram, Chairman, DSCL.

-Supriya Shrinate

The right product: Low-end TVs at LG's Noida plant

Durable Play
LG and Electrolux/Rural market campaigners

The efforts of LG to tap non-urban markets has been extensively chronicled. Smart distribution and the strategy of picking frills-free products for smaller towns helped it grow its revenues from Rs 3,315 crore in 2002 to Rs 6,500 crore in 2004 (2005 target: Rs 9,000 crore); almost 65 per cent of this comes from Class B and C towns. "We will be more aggressive in the semi-urban and rural markets that should grow at a rate of 40 per cent," says K.R. Kim, MD, LG Electronics India. Swedish durable major Electrolux has jumped into the fray too with its frills-free products like a refrigerator with a 12-hour battery back up priced at Rs 10,900.

-Supriya Shrinate

Really Personal Computing
Xenitis & HCL Infosystems/Low-cost PC makers

Xenitis' Nair: The Amar PC may look classy but it is really cheap

It is called Amar PC in West Bengal, Aamchi PC in Mumbai and Apna PC in Delhi. And prices, including a colour monitor start at Rs 9,900. Founded by childhood friends Santanu Ghosh and Tathagata Dutta, the 'personal' computers from Xenitis Group have stormed every market where they have been launched. "We want the computer to reach the masses," says D.N. Nair, CEO, Xenitis. According to it research and consulting firm Gartner, India is the fastest growing pc market in the Asia Pacific region; by 2008, says Sameer Kochhar, CEO, Skotch, an it consultancy, "it will be a 10 million units a year market". Xenitis, which forged a joint venture with Chinese firm Unitek to manufacture PCs, will close this year with Rs 160 crore in sales. Established players have not been lax in launching low-cost PCs either. HCL Infosystems has one priced at Rs 12,990. "We are looking at the low-end segment because it is the fastest growing," says Ajai Chowdhry, CEO, HCL Infosystems.

-Amanpreet Singh and Supriya Shrinate

STRENGTH IN NUMBERS

"If we take nine countries-China, India, Brazil, Mexico, Russia, Indonesia, Turkey, South Africa and Thailand-collectively they are home to about 3 billion people representing 70 per cent of the developing world population. In PPP terms this group's GDP is $12.5 trillion.... It is larger than the GDP of Japan, Germany, France, the UK and Italy combined. This is not a market to be ignored."
C.K. Prahalad,
The Fortune At The Bottom Of The Pyramid

There are four billion people across the world in the bottom layer of the consuming pyramid. Each of these has a purchasing power (normalised for parity) of $1,500 a year (Rs 66,000). In India, this segment includes people who earn less than $2 (Rs 88) a day; they are usually completely ignored by most companies.

That's surprising; the market at the bottom of the pyramid in India is not something that can be ignored. The 500 million people who live in over 600,000 villages are ideal targets for fast moving consumer goods and micro-finance, just as India's 700 million rural residents are for insurance. In value terms, there is a Rs 25,000-crore market for telemedicine for the taking and just one company planning a major micro-finance foray is looking at a potential asset base of Rs 2,00,000 crore. A few rungs up the pyramid, some 65 million households are ready for broadband access and 150 million, for desktop PCs. And there is a market worth Rs 14,000 crore per year there for the taking for consumer durable makers willing to offer products at the right price.

For companies, all these markets are within reach and they aren't. The distance between the middle reaches of the pyramid and its nether regions can be bridged only through innovation. How, for instance, can one sell a PC for Rs 5,000 and still make money? For, make no mistake, making money is an integral part of the game (charity isn't sustainable, you see). To answer that question, curious as it may sound, the solution may involve adopting a model where all software and storage would be on a central server. This is a concept entrepreneurs such as Rajesh Jain, the man who famously sold his dotcoms to Sify for Rs 500 crore in 1999, are exploring. Tata Indicom is tweaking the concept a trifle with an access plus broadband offering (with the promise of software-on-a-server to come) in 40 cities. The clear message? Flip the premise. This is a model that works across sectors (as some of the examples on the previous pages show).

Meanwhile, the country's largest consumer goods company, HLL, has seen an opportunity in the deplorable state of drinking water in India. The result is a water purifier branded Pureit that involves a capital cost of Rs 1,500, a recharge cost of Rs 250 every 1,500 litres, and a running cost of Re 1 for six litres. At the consumer end, the way these costs can be split between households and how the purifier can become a shared resource is limited only by imagination.

It is not just large companies, even unorganised players are beginning to get a hang of this game. Remember the neighbourhood video-cassette library chap who ran a small business in the 80s? Guess what he and others of his ilk are doing today? You will probably run into them if you are looking at some very inexpensive options to upgrade your mobile phone. They are innovators of sorts with the ability to take the phone apart and refurbish it at rates that a dealer cannot dream of doing. It's a sub culture of mobile fanatics, if you will, and more importantly, it stars trend-setters in terms of third party innovation and entrepreneurship.

Still not convinced it's time to shed the developed market view of the world and consumers?

Look at what is happening in the area of micro finance, even housing finance for the middle and lower income group. Almost all entry-level consumers in this market come from the unorganised sector where interest rates are astronomically high. In housing finance alone it can be as high as 25 per cent as opposed to 7.5-9 per cent in the organised sector. Prahalad has an interesting term to explain what's happening here; he believes consumers are paying 'poverty premium' or 'poverty penalty'. In markets such as these, the organised sector can charge a risk premium and therefore a higher interest rate (which is still not likely to exceed 10 per cent); it can also restore dignity to consumers who have hitherto been marginalised.

In fact, all it takes to tap that vast, tradition defying, teeming market of a half a billion or more people is a rethink. Then, innovation has always been the bugbear of Indian enterprise. Still, if the case studies listed here are any indication, some Indian companies seem to be innovating in tandem to create the next inflection point for the Indian economy.

Priya Srinivasan