intellecap presentation on inclusive business...

Intellecap Presentation on

Inclusive Business Strategy

Sankalp

May 5th, 2011

© Intellecap. All rights reserved • www.intellecap.net • [email protected] Proprietary and Confidential

Inclusive business – what do we mean?

2

Bottom of the

Pyramid (BOP)

Creates wealth for the poor

Improves their quality of life

Builds resilience against the changing climate,

income shocks

as Producers

as Consumers

as Actors in the Value Chain

For-profit commercial

enterprise……

Could engage the poor

With development

outcomes……


The viability of inclusive business still evolving

3

Annual household income

Household annual

income of INR <75,000

INR 150,000

– 300,000

INR

>300,000

36%

31%

23%

10%

Total %. of HHs

INR 75,000

– 150,000

* Using the Tendulkar Committee BPL definition for 2004-5 data

37.2%

are BPL*

HH with INR

<1.5 lakh p.a.

are defined

as BOP

Case: Micro-Insurance

Mainstream insurance: Lowest end

products have a coverage of ~INR 1-2

lakhs per annum targeting the top

segment of the Pyramid

Missing the middle: ~30% of people

not being served in this segment

Micro insurance: Driven into the

market by policy; coverage of household

of INR 10,000 – 30,000 per year; Viability

unestablished

Demand for re-definition of ‘micro

insurance’

Targeting the very poor is yet to make business sense for many...........


A sound business rationale is critical for success

4

• Pull products, few existing substitutes

• Slowed growth in traditional markets

• Existing infrastructure expansion to

maximize capacity utilization

• Need for regular supply and aggregation in a

fragmented market

• High interest from producers given:

• Information asymmetry

• Tenuous market linkages

Other FMCG products

4 Cs

Consumer driven models Procurement models


Culture

• 78% of India’s coffee consumption is in the South

• Fairness products sell better in the South

• Gold loans; popular in the South, taboo in the North

Awareness

• Lifebuoy’s Swasthya Chetana Programme

• No Toilet-No Bride campaign: coverage increased

from 20 to 57% in the last decade

Transfer/ Opportunity costs

• Difficult to convey long-term cost advantages of

solar power – lanterns have high upfront costs

• Immense efforts required to sell water purifiers

‘Poor’ is not a homogeneous market; demand not explicit

5

Note: The socioeconomic classification (SEC) groups urban Indian households on the basis of education and occupation of the chief wage earner

R2 R3

R4

Rural Urban

D – 26%

E – 22%

There exists many ‘markets’ within the BOP market Market size is not demand

~38% of Urban HHs~79% of Rural HHs


Ensure customer service

Successful products are more than just low cost

6

Surf was modified to

adapt to hard water,

frills such as softeners

and bleaching agents

were removed

Use appropriate technology

Mobile VAS are voice

based. SAS Motors

customized tractors for

the rural market – lower

hp, easier to service

Despite higher fees

than SHGs, MFIs

achieved higher growth

in a shorter time span

due to improved

customer service

Factor in the context

Maintain quality

Shoktidoi has to maintain

a balance between cost

and quality as it requires

refrigeration and lower

quality substitutes exist


Need for last mile reach make channel choice critical

• Distribution and procurement is a challenge: Aggregators reduce transaction costs

• Local knowledge and customer insight

1,000 Mn(No. of people that can

be reached)

Post offices

35 Mn(No. of people travelling annually)

Railways

150 Mn(Jobs to be created)

Micro

Enterprises

0.2-1 Mn(Reach of largest NGOs)

NGOs

0.5-5.7 Mn(Reach of top 10 MFIs)

MFIs

> 600 Mn(Mobile users)

Mobiles


Right partnerships can drive scale

• May not be the ideal sales, logistics partner

• New partnerships takes time to see viability

and scale

• There is risk involved for the MFI:

reputational and credit

• On-lending funds difficult to come by, esp.

for smaller MFIs

• Substantial work to align MFI systems and

processes to partnership needs

MFIs: Popular but Challenging

Partnerships are not silver bullets; require investments in time and money

Fab India – Community Owned Companies

$ 66 Mn

$ 2 Mn


Key Highlights

10

• Despite a potential addressable market that comprises 67% of the country’s population, viability of

inclusive businesses is still evolving in India

• Targeting very poor segments of the population still not a viable proposition for many businesses

• For instance, micro-insurance, driven into the Indian market by regulatory requirement, however

its viability is yet to be established

• Some key success factors for inclusive businesses:

• Selecting the target customer segment

• Contextual product design with focus on the target customer segment

• Low-cost and effective distribution channel

• Design of distribution channel is crucial because this not only functions as a medium for delivery but

also a medium for marketing, communication and after-sales service


Demand-side and Supply-side challenges in BOP market

11

▪ Traditional mindset, cultural issues and mistrust

among BOP population are key reasons that

negatively impact the uptake of new products and

services

▪ Influence of local intelligence drives the adoption of

products/services

▪ Consumer’s limited knowledge of financial

management

▪ Availability of cheaper substitutes in local market

▪ Consumer is not always the purchase decision maker

▪ Market-making effort involves both capital and human

resource expenditure

Demand-side Challenges Supply-side Challenges

▪ Needs of consumers are not uniform and vary across

and within segments

▪ Consumers are price sensitive as well as quality

conscious

▪ Pricing and retail distribution margin impacts product /

service design and availability of retail shelf space

▪ Financing of high-value items is still an unresolved

issue

▪ Transactions costs for serving the BOP market is high

▪ Village Entrepreneur Model has few takers because of

substantial financial and revenue risks


Some solutions to key issues

12

• During the initial market roll-out, invest on converting small pocket customers, generally the early-

adopters to demonstrate proof-of-concept

• Leverage existing Government Program Network and/or opinion leaders such as panchayat head

• Self-Help-Groups can be used as effective channels for distribution of products and services

• Strategically, blend several products and services to offer value to multiple stakeholders involved in the

purchase decision

• Emphasize on non-financial incentives offered by the products and services by collaborating with faith-

based organizations

• Tap into the local talent pool for last-mile reach

• Use local media local media channels for awareness generation and marketing efforts – key objective

of the media campaign must be building consumer trust and supply chain partner’s trust

• To avoid “eco-system fatigue” continuously engage with the market participants and stay long term to

improve credibility among stakeholders

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