ESG Matters, Issue 5, April 2013 - Allianz Global Investors

ottom of thepyramid/ section 1typically classified as ‘BoP 1.0’ or ‘BoP 2.0’. BoP 1.0 focuses on theproduct or the service itself by adapting it to meet the BoPpopulation needs and to facilitate access to it. This can be achievedby various means:• Price reduction is the most simple – making a product or aservice affordable for the BoP population.• However, innovation in distributing the product/service isoften required to reach people in remote areas.• Further to this, product/service adjustments may be needed tomeet the BoP’s specific needs, such as a milk based productthat can be stored at room temperature (this example isexplained more fully below)It may be that a company can simply address one of these factors toservice the BoP or it may be that a company will have to adapt two orall three of them.Price reduction is a mechanism commonly used by thepharmaceuticals sector, with companies selling medicines at lowerprices in emerging countries in order to reach more patients. Forexample, Novo Nordisk sells insulin in 49 less developed countries ata price 20% lower than the one in force in the developed world.An example of innovation in a company’s distribution channels canbe seen with the subsidiary of the cement group Holcim in Mexico.The subsidy decided to do away with the middlemen from the saleschain, as they drove up prices and restricted supply. Instead theyopened distribution centres in remote areas where cement can bebought in small quantities at lower price by people from localcommunities.Another example is the way Essilor sells spectacles in India. Usingmobile vans, specialists from Essilor travel into rural regions andprovide free eye exams and low cost lenses and glasses (from US$3to US$5) that are assembled on site immediately. This allows peoplewho would have never gone to a city, as the transportation alonemay cost them US$6 on average, to benefit from a free consultationand affordable glasses. This should have a positive impact oneducation and ability to work.Procter & Gamble is a good example of a company adjusting itsproducts to meet BoP’s needs. The company sells a hand wash thatrequires less water for rinsing. This is distributed in water stressedregions. Nestlé makes food products reinforced with vitamins forcountries where people have deficiency. Microcredits developed bythe banking sector are another good example of services adaptingto meet specific BoP needs. Microcredit loan cycles are shorter thantraditional loans and payments are made weekly or even daily insome cases.BoP 2.0 goes beyond BoP 1.0. Not only does it adapt products orservices for the BoP but it also encourages the involvement of thelocal population as producers, suppliers and distributors. Localpeople are seen not only as consumers but also as business partners.With the BoP 1.0 strategy there is some concern that offeringunderprivileged people affordable products is not addressing thecore issue of poverty. BoP 2.0, by developing a business model basedupon local resources and local partners, addresses this concern andhelps sustainable development.Danone is one of the most advanced companies in this field. Forexample, in India Danone launched Fundooz, a milk based productfor children that is reinforced with vitamin A, iron, zinc and iodine –the four nutrients that Indian children have most deficiency. Notonly is it sold at affordable price, the group also innovated at allstages of the business chain from supply to distribution to involvethe local population. Danone formed partnerships with local milkproducers, produced the product locally and relied on a network ofnumerous small distributors to sell the products in schools and inthe streets to reach children more easily. Fundooz has also beendesigned to be kept at room temperature to prevent any food safetyissue.The Bipbop program developed by Schneider Electric is anothergood example of a BoP 2.0 strategy. Schneider Electric creates6