This document discusses how companies are adopting "revolutionary marketing concepts" to view and engage with the poor as customers rather than just beneficiaries. It provides several case studies as examples: 1) Citibank catering to individual customers in India through banking packages accessible via phone and ATMs without physical branches. 2) Farmers in India using rented handheld devices and prepaid cards to access services like price comparisons, transport info, and banking online. 3) Grameen Bank providing loans for villagers to purchase cell phones and operate them as a business, generating income. 4) Cell phone companies in the Philippines finding success targeting the low-income segment through affordable prepaid services and small load increments

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THE POOR AS CUSTOMERS:
DEVELOPMENT THROUGH
REVOLUTIONARY MARKETING CONCEPTS
Revolutionary marketing concepts that revolutionize development
management do not require new sets of skills nor competencies; rather
they require a change in mindset and heartset: the poor is not just a
beneficiary, but also a customer with particular needs that can be
addressed by the for-profit companies.
THE ENTERPRISE VIEW OF MARKETING
In light of traditional marketing pedagogy, manufacturing companies and service
providers segment the market geographically and demographically, target the most
profitable segment, and then position themselves to cater to that particular segment in
order to make good business. The most profitable segment is generally defined as “that
which has large and/or growing members, with the desire to buy and the purchasing
power to do so.”
New products and services with no existing competitors usually capture a single,
large, homogenous segment. The trailblazing companies aim to sustain steady growth in
this market to be able to remain in the business.
Consequently, companies tend to pursue the same profitable market (see Figure
1) so that over time, competition penetrates the league of profitable businesses and
further segments it, and creates various niches. What used to be a single, large,
homogenous segment served by a single product is thereafter transformed into
fragmented, specialized markets with varying buying patterns. Further, once the varying
needs of the market niches have been served and as soon as all who could buy a product
Prof. Tomas B. Lopez, Jr. wrote this note with funding support from the Microfinance Management Institute (MMI), a joint
venture of the Open Society Institute (OSI) and the Consultative Group to Assist the Poor (CGAP). All case materials are
prepared solely for the purposes of class discussion. They are neither designed nor intended to illustrate the correct or
incorrect management of problems or issues contained in the case.
Copyright 2005, Asian Institute of Management, Makati City, Philippines. All rights reserved. Not for resale. Translation,
reproduction, and/or transmission of this material for teaching and non-profit purposes are allowed without written
permission from AIM. Please address requests for permission to use materials for purposes other than those cited above
to: Knowledge Resource Center – Library Casebank, Asian Institute of Management, 123 Paseo de Roxas, Makati City
1260, Philippines. Tel. No. (632) 892-4011 local 164/214/398; Telefax: (632) 817-2663; Website: http://www.aim.edu;
Email: krc@aim.edu. Copies of translated material must be sent to the same address.

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The Poor as Customers: Development Through Revolutionary Marketing Concepts 2
are already buying as much as they could, then the market stops growing. When this
happens, the market is said to have matured or is dying, if it is not already dead—a
classic marketing nightmare. But in fact, there are no dead or dying markets, only
deceased business strategies.
You might ask, so when the market has reached its plateau, where else could
growth come from? One source of growth is product innovation, following which the
cycle proceeds once more, just like before. However, several companies worldwide, in
their search for ways to grow their markets, have started doing business with the oft-
ignored, oft-untapped low-income group. Their experience in doing business with the
poor – who are often assumed not to have the desire nor the capacity to buy – have
proven one thing: the poor can be a profitable market.
Figure 2 shows that the poor comprise a large and growing market base and
possess the desire to buy and the capacity to pay; but they lack resources and access to
financial services. Several divides keep the poor from the economic mainstream, namely,
those that are economic, political, and digital in nature. Because the poor have no access
to resources, they do not appear attractive as customers.
Figure 1
Product Growth Cycle
Ideal growth
pattern
Sales Growth patterns
of various niches
Time
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The Poor as Customers: Development Through Revolutionary Marketing Concepts 3
Figure 2
World Population
MARKETS
EVERYBODY
FIGHTS OVER 100,000,000
> $20,000
2,000,000,000
> $2,000 - $20,000
4,000,000,000
< $2,000
THE DEVELOPMENT VIEW OF MARKETING
The poor are hardly considered customers to sell to. From the development
perspective, they are always treated as beneficiaries or victims to be helped. This
mindset, coupled with an unfriendly policy environment, limited resources, and the lack
of understanding of the behavior of the marginalized, results in unsuccessful development
initiatives.
Changing the mindset on the poor—that is, treating them as customers to be
served and sold to—is no easy to task, but it is one that must be done. After all, initiating
a change in mindset could transform not only the way development is pursued, but also
the way business is conducted. The following cases illustrate how.
THE REVOLUTIONARY HOT SPOTS
Case 1: Banking without Branches
As an offshore bank prohibited from engaging in branch banking in many
countries, Citibank must limit its operations to corporate transactions. It thus makes
money by maximizing its spread that is, paying low interest rates on its various sources
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The Poor as Customers: Development Through Revolutionary Marketing Concepts 4
of funds—deposits, equity, or loans—and charging high interest rates on loans to its
corporate clients.
Corporate clients are generally more sensitive to interest rates compared to
individual clients or depositors because they take out loans on in large amounts so that
interest on these loans have a major impact on their financials. As well, they can and do
take out the money they have deposited in banks as soon as they are able to find a venture
that can generate returns higher than the interest paid them for their funds placement or
deposits by their current banks. This scenario and the stiff competition in the market give
Citibank pressure on its spread while it maintains its large clientele base. But since
operating expenses are minimal as each of the account managers handles several
transactions and there is no fixed overhead associated with branch operations, corporate
banking becomes profitable.
During economic downturns, however, companies refrain from borrowing funds
to keep their financials from being strained by interest expenses on loans. Consequently,
Citibank experiences over-liquidity, as none of its corporate clients are willing to take out
loans. On the other hand, it is also during hard times when individual clients need loans
or credit lines. With information technology available for facilitating banking
transactions, Citibank is thus able to grab this particular market opportunity: it caters to
individual clients’ need for financial services without resorting to branch banking.
In India, for example, Citibank has a banking package, the Suvidha Account,
specially designed for all employees of small- and medium-scale enterprises (SMEs). The
package requires individual employees to open an account with a minimum deposit of
$20, after which all banking transaction are to done over the phone or through automated
teller machines (ATMs). After four years of operations, Citibank now serves 250,000
depositors in Bangalore alone. The same scheme has also been launched in Mumbai and
Delhi.
Case 2: Farming Online Et Al.
In India, farmers, usually in groups, rent out Personal Digital Assistants (PDAs)
or handheld devices that are operated by using icons shown in a simple touch screen.
These farmers use prepaid cards to pay for online services. Programmed to recognize a
number of Indian dialects, the PDAs are used by farmers for a number of tasks: to
compare commodity prices in the market, inquire about transport schedules and booking,
apply for government programs, perform banking transactions, or consult their doctors.
Case 3: The Cellular Phone Working as a Cow
The Grameen Bank of Bangladesh extends credit to the poor villagers to enable
families to raise cows to supplement family incomes through the sale of milk to their
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neighbors, as well as meat when possible.
Following the same principle, Grameen Telecom launched Village Phone (VP)
which extends credit to the villagers to enable them to buy and operate cellular phones,
through which they could receive and make calls to their relatives working in the
Bangladeshi cities and abroad. Launched in 1997 when the cellular phone market was
almost exclusively urban, the Village Phone already had 39,000 operators serving more
than 50 million people in 2003. The average monthly phone bill of a VP operator was
US$125, or twice the amount of the bill of urban users. Income thus obtained earned the
operator a net profit of around US$41 a month.
The program does not only provide extra income to families but also facilitates
the flow of funds to the rural areas. It has also elevated the status of women because the
new communication facilities made their homes the center of social activities in the
villages thus increasing their community involvement.
On the other hand, the program earns for Grameen Telecom some US$5.7 million
a month, making Village Phone the company’s most profitable product in its portfolio.
Case 4: The Digital Filipino
As of 2004, there were 33 million cellular phone owners in the Philippines,
sending around 300 million text messages everyday, reflecting a 50-percent increase over
last year’s numbers.
Of the said users, 95 percent belonged to the low-income class who availed of
prepaid services. Given the cost of text messages—Php0.50 (US$ 1 cent)—these prepaid
users easily gave cellular phone companies a daily revenue of Php88 million
(US$157,000) from text messages alone.
The use of cellular phones has become a hit among the low-income class for three
reasons. First, the very short product life of cellular phones (averaging 12 to 24 months)
has brought down the cost of old units, making them affordable to the masses. A second-
hand unit, for instance, may sell for as low as Php800 (US$14.50). Second, the cost of a
text message suits the lower class’s daily budget of Php110 (US$2.00). Finally, lowering
the minimum prepaid load from Php250 (US$ 4.46) to Php25 (US$0.45), which is
roughly the average daily load of subscribers, and allowing increments of Php1 loads
thereafter have made cellular services affordable to the lower class; even more so after
the cellular companies enabled practically any subscriber to send loads via SMS (Globe’s
Share-A-Load and Smart’s Pasa-Load) at Php1-increments.
The telecommunications technology now accessible to the poor has also produced
new small techno-prenuers: subscribers registered as authorized loading centers earn
extra income by selling over-the-air load to the public. Further, the same technology has
introduced a breakthrough in the financial market where remittances and other banking
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transactions are processed through the cellular phone system. In essence, a cellular phone
now serves as a wallet, a financial conduit. It has allowed the masses to perform financial
transactions without going through a bank.
Case 5: Patrimonio Hoy
Around 60 percent of the population in Mexico is considered poor. In
Guadalajara, Mexico, specifically, extended families of six to ten adults live in one or
two do-it-yourself rooms, which serve as the bedroom and kitchen. They usually spend
US$1,527 and take four years to complete a 100-square-foot room. The members of these
families are usually not part of the formal economy, as they do not have regular jobs.
Cemex Corporation, a cement manufacturer, came up with Patrimonio Hoy in
1998 a program patterned after the Grameen model. Capitalizing on the traditional saving
system called “tanda,” which requires its participating members to pool their savings
weekly, the program encourages the poor women to save 120 pesos per week for their
house construction. It then extends credit to them by advancing building materials even
before they are able to accumulate sufficient savings to fully pay the bill. The program
promotes reciprocal responsibility in the sense that Cemex delivers quality materials and
services so that the customers get better housing within a shorter period (1.5 years) and at
a lower price (US$ 1,038) by merely paying their weekly share on time and constructing
the house by themselves.
Thus, after four years of operations, Patrimonio Hoy has been able to provide
decent housing to 20,000 families (this number has grown to 75,000 families by 2004).
On Cemex’s part, it has tripled its sales to low-income customers: whereas 2,300 pounds
of cement was formerly consumed by the same market in four years, the same amount of
materials is now consumed within 15 months. And since Cemex sells its products at
market price—it does not provide subsidies to the poor—its bottom line has improved as
a result of this program.
Case 6: Revenues from Retailing
Several manufacturers in the Philippines have registered remarkable increases in
their sales by simply coming up with smaller store keeping units (SKUs) of their
products.
The shampoo is a classic example. Shampoos used to be sold in bottles, but since
the low-income class could not afford to include a relatively costly bottle of shampoo in
their daily basket of goods, the shampoo manufacturers came up with shampoos packed
in single-use sachets (although some extend the use of a sachet to two washings).
Although shampoos come out more expensive per unit when sold in sachets than when
packed in bottles, the cost per sachet better fits the budget of the low-income users.
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A processed meat manufacturer has also come up with a 100-gram can of corned
beef, small enough to match the price of a 155-gram can of sardines at Php14 to Php16 or
US$0.25 to US$0.29 per can. The idea was initially received with skepticism as other
manufacturers wondered who would buy such a small serving of meat. However, guided
by the fact that low-income families extend their consumption by adding potatoes, water,
and other extenders to corned beef so that a 100-gram of meat could make five to six
servings, the meat manufacturer’s newly-packaged corned beef turned out to be a winner
It increased the company’s sales by 18 percent and relegated sardines, commonly known
as the poor man’s viand, to the back seat after the latter lost its market to corned beef.
The same principle lies behind the success of cigarette vending on the streets and
in the sari-sari or corner store for although smokers from the low-income class could not
afford to make a one-time purchase of a cigarette pack, they are willing to buy a stick of
cigarette from street vendors, even if this means paying Php1.00 (US$0.017) higher than
if they bought cigarettes one pack at a time from supermarkets Because of the large
number of small buyers and higher margins per stick of cigarette derived via this mode of
selling, the cigarette manufacturers enjoy more profit from the small buyers’ market than
from those who buy by the pack.
VALUE CHAIN INNOVATIONS IN THE EMERGING MARKET
Several private companies are realizing that, to sustain their businesses, the next
logical move is to tap the “bottom of the pyramid” or BOP. From their perspective, this
move is more strategic than philanthropic. (see Figure 3)
Figure 3
The New Market
100,000,000
> $20,000
2,000,000,000
> $2,000 - $20,000
THE NEW
DARLINGS OF
4,000,000,000
ENTERPRISE
< $2,000
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Experience of various companies cited earlier proves that the emerging market
could indeed be lucrative; however, penetrating the new market requires changing the
way they do business in various areas. For while selling to the poor uses the same
marketing principles as selling to the rich, selling to the poor involves a different
platform.
• Marketing – knowing customers’ behavior, their psycho-social patterns or
cultural practices, spending patterns, cash flow or paying capacity, among other
things, and developing products and services that suit their needs. 1 A person
earning Php 250 a day (roughly US$ 5), for instance, would not spend, say
Php150, on a single purchase, even if his total monthly salary amounted to
Php7500 (US$134). This person’s wage being budgeted to fit his daily living
expenses determines his real purchasing power and disposable income.
• Operations – driving down costs (both production and operating costs) to make
products and services affordable while maintaining high quality; replicating
successful business models. Companies can make their products and services
affordable to the poor by managing their servicing costs in the same manner that
information technology has done the banking and mobile phone industries.
• Distribution – making products and services accessible and available to the
market which is normally done by partnering with local individuals or groups
(e.g. NGOs, micro-businesses).
• Making the products and services affordable (or financing, for lack of a
better term) - enabling the customers to pay for the products and services either by
lowering the price or by designing an appropriate financing scheme (without
necessarily lowering the price, as in the case of CEMEX). In some cases,
companies have designed socialized pricing schemes, which effectively mean that
the rich subsidize the price of products or services provided to the poor.
Innovation also has to be introduced in the organizational culture – that is, the
new mindset and heartset about the poor as customers have to be espoused by each unit in
the organization to ensure the success and lasting impact of the marketing revolution.
Finally, to make the business sustainable in the BOP market, the model has to be
scalable, as the small absolute value of per unit profit becomes significant when
multiplied by the big customer base at the bottom. On the customers’ part, their capacity
1
In the case of social entrepreneurship, the model remains the same except that relatively more
investment is necessary in product development than if a product has already been developed for the top of
the pyramid and is altered to fit the BOP.
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The Poor as Customers: Development Through Revolutionary Marketing Concepts 9
to consume 2 likewise has to be increased, either by increasing their access or their
capacity to pay or both.
One way of increasing the customers’ capacity to pay is to allow them to take part
in wealth-creation by making them partners or co-producers in the value chain. Taking
the revolution one step further, the poor people can be elevated from being mere
consumers to being producers in the mainstream economy. Multi-level marketing has
gained popularity because participants in the network are not just customers buying
goods, but have also become business people earning additional income by selling
products to others (normally to their social circles). This way, the resulting snowballing
of income would sustain the growth of the middle class and, from the social development
perspective, alleviate poverty. Figure 4 summarizes these points.
The microfinance institutions (MFIs) are one of the first groups to get into the
“poor” market and have strengthened their distribution network (or clientele reach) over
the years. The MFIs, however, need to intensify product development to meet the various
growing needs of their customers while tapping their existing channels to scale up
operations and strengthening their financial services to enable the customers to consume.
The private companies and MFIs can therefore benefit from each other’s
experience: while the corporations can learn from the vast network and financing
schemes of the MFIs, the latter can learn from the former’s experience in product
development and service delivery. Combining MFIs’ heartset and the corporations’
mindset would expand the both entities’ understanding of the value chain innovations
required by the emerging market.
2
Defined as the access and the capacity to pay of customers (Prahalad, 2005).
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Figure 4
Value Chain Innovations in the Emerging Market
Market Profile
• How they buy
• How they use
• How big really is their
purchasing power Customer Insight
Innovations in
Operations Marketing Distribution Financing
Value Company’s Value
Networking capacity to scale Networking
Common Mindset and Heartset
The poor customers’
capacity to consume
The poor customers’
capacity to produce
The poor as distributors and/or
suppliers
The poor as entrepreneurs
(Lopez, Chua, and Sebastian, 2005)
References
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Richardson, Don, Ricardo Ramirez, and Moinul Haq, Grameen Telecom’s Village Phone
Programme in Rural Bangladesh: a Multi-Media Case Study, 2000.
www.changemakers.net
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