Marketing Social Impact Policy Sep 1, 2010

Refram­ing the Pover­ty Problem

Mar­ket­ing can help address social ills

Based on the research of

Bobby J. Calder

Richard Kolsky

Maria Flores Letelier

Listening: Interview with Bobby Calder

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With bil­lions of peo­ple liv­ing at the bot­tom of the income pyra­mid, some on less than $2.50 a day, the prob­lem of pover­ty is as wide­spread as it is press­ing. There are near­ly as many plans to tack­le pover­ty as there are char­i­ta­ble orga­ni­za­tions address­ing the prob­lem. But one of the lat­est is so vast­ly dif­fer­ent that is has some real pos­si­bil­i­ty: What if pover­ty could be approached as a mar­ket­ing oppor­tu­ni­ty rather than a social prob­lem? Bob­by Calder and his col­leagues argue that it should.

Com­pa­nies often approach issues like pover­ty as social prob­lems more than as mar­ket­ing oppor­tu­ni­ties,” says Calder, a pro­fes­sor of mar­ket­ing at the Kel­logg School of Man­age­ment, but the so-called bot­tom of the pyra­mid pro­vides a vast mar­ket­ing oppor­tu­ni­ty for inno­v­a­tive, social­ly-mind­ed companies.”

It is not break­through tech­no­log­i­cal inno­va­tions that are need­ed to pen­e­trate such mar­kets, but rather nov­el mar­ket­ing approach­es that turn social prob­lems on their head, allow­ing com­pa­nies to make mon­ey while improv­ing people’s lives and help­ing them rise out of pover­ty, explain Calder and his co-authors Richard Kol­sky, a lec­tur­er at the Kel­logg School, and Maria Flo­res Lete­lier, a Kel­logg School MBA alumnus.

Over the past decade, many com­pa­nies have tak­en a stand to address social prob­lems such as pover­ty. Typ­i­cal­ly, such ini­tia­tives unfold in the form of cor­po­rate social respon­si­bil­i­ty (CSR) pro­grams. CSR pro­grams can take many dif­fer­ent forms, but they are all based on the idea to make mon­ey while doing good by engag­ing in altru­is­tic ini­tia­tives” Calder says. Thus, most of the time CSR pro­grams are exe­cut­ed with a hands-off approach, by sim­ply pro­vid­ing mon­e­tary fund­ing to social­ly wor­thy ini­tia­tives such as Pepsi’s Refresh Project. Less fre­quent­ly, CSR prac­tices are embed­ded in a company’s core busi­ness oper­a­tions, such as Nike’s audits of con­tract fac­to­ries over­seas. Either way, CSR pro­grams typ­i­cal­ly oper­ate only on the side­lines of a company’s business.

By actu­al­ly chang­ing its busi­ness mod­el,” Calder argues, a com­pa­ny can bring CSR ini­tia­tives to the next lev­el,” open­ing up mar­kets where price, dis­tri­b­u­tion chal­lenges, or oth­er bar­ri­ers have made entry dif­fi­cult if not impos­si­ble. Most CSR pro­grams are exe­cut­ed in a top-down way, where­by a com­pa­ny offers a stan­dard­ized solu­tion to a social prob­lem with­out alter­ing its busi­ness mod­el. How­ev­er, by mar­ket­ing to the bot­tom of the income pyra­mid like any oth­er promis­ing sec­tor, com­pa­nies can cre­ate new con­sumers which in turn allows for prof­it and improves people’s stan­dard of living.

Pat­ri­mo­nio Hoy
Cemex, a Mex­i­can cement man­u­fac­tur­er with a $15 bil­lion mar­ket cap­i­tal­iza­tion, devel­oped an inno­v­a­tive CSR pro­gram named Pat­ri­mo­nio Hoy (Pat­ri­mo­ny Today). The pro­gram aims to reduce the Mex­i­can hous­ing deficit — which has left more than twen­ty mil­lion peo­ple with inad­e­quate shel­ter — while also ben­e­fit­ing CEMEX by stim­u­lat­ing con­sumer demand for hous­ing mate­ri­als in the low-income urban slums of Mex­i­co. The fam­i­lies in these com­mu­ni­ties gen­er­al­ly can­not afford to build a house all at once, but rather con­struct their own homes piece­meal by adding a room at a time.

At first CEMEX attempt­ed to mar­ket small­er bags of cement to low-income urban fam­i­lies as a more afford­able solu­tion. When the prod­uct failed to catch on, CEMEX real­ized that it need­ed to dras­ti­cal­ly rethink its busi­ness mod­el, rather than its prod­ucts. To do so, it need­ed to under­stand not only how peo­ple were liv­ing but also how they thought about con­struc­tion. For more than a year, CEMEX employ­ees and con­sul­tants immersed them­selves in the urban slum of Mesa Col­ora­da in the state of Jalis­co, where they con­vert­ed a tor­tilla shop into a gar­den office and con­duct­ed a series of learn­ing exper­i­ments and in-depth interviews.

They dis­cov­ered that a sig­nif­i­cant bar­ri­er to build­ing homes in the area to build­ing was the inabil­i­ty to save enough mon­ey to col­lect all of the mate­ri­als required. The fam­i­lies explained that com­mit­ting to long-term projects was dif­fi­cult because of unsta­ble employ­ment in the area. They would rather not tempt fate” by under­tak­ing a large finan­cial com­mit­ment. More­over, even when they tried to pur­chase con­struc­tion mate­ri­als, Pat­ri­mo­nio Hoy par­tic­i­pants had nowhere to store them. Theft is com­mon in such impov­er­ished neigh­bor­hoods, and weath­er con­di­tions often spoil the prod­ucts before they can be used.

Addi­tion­al­ly, some res­i­dents acknowl­edged that even when they received larg­er sums of mon­ey, such as year-end bonus­es, they often spent the mon­ey prepar­ing for fes­tive cel­e­bra­tions or oth­er, more imme­di­ate­ly grat­i­fy­ing things.

The ulti­mate bar­ri­er to home con­struc­tion, how­ev­er, seemed to reside in one of the most deeply root­ed val­ues of these peo­ple: their com­mu­nal cul­ture. Giv­en their tra­di­tion­al val­ues involv­ing tight com­mu­nal rela­tion­ships between extend­ed fam­i­ly mem­bers and friend­ship cir­cles, the fam­i­lies gen­er­al­ly thought first of using their mon­ey for more social activ­i­ties. CEMEX came to under­stand that this cul­tur­al bar­ri­er was the key to chang­ing people’s atti­tudes toward home construction.

Refram­ing the Task of Home­build­ing
CEMEX rec­og­nized the prac­ti­cal and cul­tur­al bar­ri­ers that were pre­vent­ing fam­i­lies from build­ing homes and devel­oped their busi­ness mod­el accord­ing­ly. The com­pa­ny framed the goal of build­ing a home as build­ing a stur­dy, long-last­ing pat­ri­mo­ny that can be passed down to the next gen­er­a­tion. To cre­ate a sense of part­ner­ship in the con­struc­tion process, CEMEX orga­nized low-income fam­i­lies into self-financ­ing cells where mem­bers were able to share frus­tra­tions and suc­cess­es with oth­er mem­bers of the com­mu­ni­ty while at the same time receiv­ing much need­ed social sup­port. Final­ly, to over­come the prac­ti­cal bar­ri­ers, CEMEX imple­ment­ed a struc­tured sys­tem that pro­vid­ed both prod­ucts and exper­tise, allow­ing fam­i­lies to quick­ly add a room.

Par­tic­i­pants in Pat­ri­mo­nio Hoy pay about $14 a week for sev­en­ty weeks. They receive con­sul­ta­tions with CEMEX archi­tects and sched­uled deliv­er­ies of mate­ri­als that coin­cide with the build­ing phas­es. All build­ing mate­r­i­al prices are kept sta­ble for the life of the project. This shields con­sumers from sud­den price hikes and sup­ply short­ages that are com­mon in free mar­kets. More­over, if work becomes scarce, con­sumers can store their mate­ri­als in a secure CEMEX facil­i­ty. Con­sumers found that the pro­gram enabled them to build homes more cheap­ly and three times faster than they could on their own. Thus far, more than 70,000 Mex­i­can fam­i­lies have com­plet­ed their projects.

CEMEX’s suc­cess can be part­ly attrib­uted to their nov­el approach. The process involved com­plete immer­sion into the community’s cul­ture so that the com­pa­ny could devel­op an under­stand­ing of the pop­u­la­tion from the inside out, rather than the oth­er way around,” Calder says. Set­ting up shop in their tar­get mar­ket brought to light the rea­sons why con­ven­tion­al mar­ket­ing approach­es had failed in the area. Calder and his co-authors con­clude that if com­pa­nies can mar­ket to the bot­tom of the income pyra­mid in ways that reflect the cul­ture and val­ues of their audi­ence, the com­pa­nies will be reward­ed with new mar­kets and new consumers.

Relat­ed content:

Inter­view with Pro­fes­sor Bob­by Calder: Refram­ing the Pover­ty Prob­lem. Down­load Audio Inter­view (MP3).

Serb, Chris. 2010. Lead­ing the Field. Thor­ough­ly revised for 2010, the sec­ond edi­tion of Kel­logg on Mar­ket­ing offers the lat­est insights from the discipline’s top thinkers. Kel­logg School of Man­age­ment Web page, August 14.

About the Writer

Andrea Bonezzi is a doctoral student in marketing at the Kellogg School of Management.

About the Research

Calder, Bobby J., Richard Kolsky, and Maria Flores Letelier. 2010. Marketing to consumers at the bottom of the pyramid. Kellogg on Marketing, Second Edition. Alice M. Tybout and Bobby J. Calder, eds. Hobokken, NJ: John Wiley and Sons, Inc. [Buy the book]

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