This is the eighth in a series of posts discussing themes raised in The Fortune at the Bottom of the Pyramid by C K Prahalad. In chapter 1 the author asserts that the task of converting the poor into consumers is one of market development. One challenge in developing the market is creating the capacity for the poor to consume. This can be done by distributing products in small unit packages so that affordable prices can be achieved.
While the average unit cost can be kept down by buying in larger quantities, consumers at the bottom of the pyramid often do not have the luxury of predictable income streams. Accordingly, whereas wealthier consumers tend to purchase larger quantities of goods to reduce the need for frequent trips to a store, the poor tend to buy only when they have cash, and only what they need for the day. Hence single-serve sachets are very popular, although they create their own problems with disposal of used packaging.
Another capacity-creating approach is used by Casas Bahia in Brazil. The company allows credit even for customers with low and unpredictable income streams, using a sophisticated combination of credit control and financial counselling in order to keep the default rate low. In Mexico, Cemex creates groups of customers who build savings and access to credit together, with peer pressure being used to control credit.
Creation of capacity to consume is based on affordability, access and availability. The product or service must be affordable, distribution patterns must take into account where the potential consumers live and work, and the product or service must be available when the consumer has the cash on hand to buy it.