P&G finds fortune at the bottom of the pyramid

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Bop_entrepreneur Unlike in the U.S. market where large stores dominate, individual retailers in small kiosks and stalls, which shoppers visit several times throughout a day, prevail in developing markets.

These high-frequency stores, as Procter & Gamble calls them, according to a Wall Street Journal article [subscription required] are the company's largest customer, with Wal-Mart coming in second, accounting for $20 billion in sales.

P&G estimates that only 2.5 million out of 20 million high-frequency stores sell their products:

Mexico has 620,000 high-frequency stores. In most villages and cities there is one approximately every one-and-a-half blocks. Though the average shopper spends just 23 pesos, or $2.14, a day in high-frequency stores, annual sales total about $16 billion.

P&G created its own business strategy for the BOP market:

So P&G began lobbying for better shelf space, one tiny store at a time, by offering them special perks that rivals do not. P&G-employed merchandisers visit the stores about every two weeks to tidy the shelves of their products, post signs with the items' prices and hand out promotional items, including posters. Also, sales representatives deliver inventory to stores themselves, often sparing owners a trip to the local distributor.

In marketing goods to low-income shoppers, P&G tries to keep in mind their budget constraints and even the coins they carry. Because they are often paid a daily wage, Mexican customers generally carry five- and 10-peso coins. "If you want to sell to low-income consumers, you have to know what's in their pockets," Mr. Riestra says. "It doesn't make sense to have something cost 11 or 12 pesos."

To ensure satisfactory profit margins, P&G uses what it calls "reverse engineering." Rather than create an item, and then assign a price to it -- as in most developed markets -- the company first considers what consumers can afford. From there, it adjusts the features and manufacturing processes to meet various pricing targets.

The idea that selling to the poor can simultaneously be profitable and help eradicate poverty has its critics but Rob Katz promised a formal response.

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