Podcast Insight In Person
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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.
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.
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.