Can "Heavy" Firms "Push" Products to the Bottom of the Pyramid and Still Turn a Profit?
Over the past 10-15 years, entrepreneurs, impact investors, incubators and accelerators, foundations, development banks, major donors, and even some large-scale corporations have been working hard to reach those living at the BOP by building, investing in, and supporting for-profit businesses that reach BOP customers. Unlike traditional development projects that often rely heavily on government or philanthropic grant funding (which often suffer from finite funding streams), for-profit enterprises can both sustain themselves and grow over time as long as the product offered elicits sufficient demand and revenues from its buyers.
While these enterprises have offered promising examples of reaching the Bottom of the Pyramid (BOP), the question remains whether “asset-heavy” companies can be sustainable and scalable in serving the BOP long-term by selling “push” products. Asset-heavy companies tend to have a higher cost structure over asset-light companies due to the need for a physical presence, complex distribution channels, and/or a skilled workforce. Pull products have a high value and a ready demand, whereas push products have less obvious value and provide uncertain benefits in the future (e.g., insurance). Either characteristic can make it difficult for a company to achieve profitability and financial sustainability. A report by Monitor Deloitte in collaboration with the Omidyar Network, The Rockefeller Foundation, and the MacArthur Foundation analyzed 20 case studies of enterprises across sectors to determine what variables affect the ability to reach deeply in low-income markets, including “asset-light” vs. “asset-heavy” and “push” vs. “pull” products.
While it is commonly accepted that asset-light companies, such as M-Pesa, a mobile phone-based money transfer, and microfinancing service, can successfully reach deep into the BOP, this report brings to light that even asset-heavy and push companies are able to successfully reach deep down into the income pyramid while achieving scale and profitability. This is a critical finding for organizations working in development, as one of the greatest unmet needs for those living in the BOP is access to products that require significant infrastructure and investment—clean water, sanitation, medicines, primary health care, and more.
A closer look at two firms, Burn and Envirofit, operating in the energy sector selling cookstoves provides intriguing insights that contradict what was generally considered necessary for reaching deep in the income pyramid. Burn and Envirofit are both rapidly scaling cookstove businesses developing asset-heavy push products, and have shown that they can be successful in reaching the BOP. Burn has sold 200,000 cookstoves across East Africa since it began operations in 2013, with 43 percent of its customers earning less than $4/day. Envirofit has sold 1.2M stoves across Asia, Africa, and Latin America since it began operations in 2007, serving both low- and high-income earners in rural and urban settings. How are they able to do that?
Selling asset-heavy push products to low-income markets can be challenging, no doubt. Yet it is possible by offering high-quality products with the end user in mind; conducting market research to understand and meet consumer needs; and making investments in customer education about the benefits of the product relative to the costs—such as savings on fuel and health benefits, in the case of cookstoves. Products that come with multi-year warranties, post-sales support, and financing options are important to low-income households that are looking for a durable and affordable product that will deliver value for their money. Financing options are especially useful to help ease the financial tradeoff that people at the BOP are often forced to make between immediate needs, like food, and longer-term investments, like school, cookstoves, solar energy, etc.
Of course, questions remain. For instance, how ‘pushy’ are cookstoves? In urban areas where people have to buy fuel as opposed to collecting wood, cookstoves save a family significant money—so in some urban contexts, they could be deemed more of a pull product, which may explain some aspects of their success.
As the debate continues, the implications from the report provide critical insight into innovative ways to reach deep into the BOP to provide critical goods and services to those most in need. The potential scalability and sustainability of for-profit enterprises merit additional attention—for push, pull, asset-heavy, and asset-light products alike.