India’s Poor Is the New Market for Revitalizing the Country’s Economy and Possibly the World’s

Over the past couple years, we have heard from one source or another about China becoming the next “super power” of the world. Despite the buzz about China, in the background, India is quietly, slowly, but surely making its presence known. With the U.S. economy, along with the economies of other developed nations, making a tenuous recovery, the search for a new frontier of economic opportunity and growth is becoming more urgent; it appears that India is fast proving itself to be that frontier. In one of the October 20, 2009 WSJ cover stories, “Indian Firms Shift Focus to the Poor”, (Click here) by Eric Bellman, discusses how India’s burgeoning poor are the next untapped market for durable consumer goods and services.

The article features a discussion of three examples of durable goods that exemplify this shift toward engineering durable consumer goods designed, marketed, and priced for India’s poor. These items radically improve the basic standard of living for many of the poor and include Tata Motors’ $2,200 Nano (a small vehicle analogous to the American SMART car), First Energy’s $23 Oorja stove (which burns three times more efficiently than a regular wood fire and produces significantly less smoke), and the $70 Godrej Little Cool Refrigerator (which features small size, portability, and a simpler design compared with larger refrigerators).

What is emphasized in the article is that these are not cheap knock-offs of Western products. These are entirely different products. In many cases technology used for larger-scale applications are redesigned and reengineered to create a product that is marketable to the lifestyle needs of India’s poor. And while the profit margins are slim, companies are planning to take advantage of the huge volume potential offered by India’s growing population.

The service sector is also tapping into the wealth potential offered by this formerly ignored sector of India’s population. Indian cell phone carriers have begun to offer $20 cell phones with $0.02 per minute plans. These companies report that they are signing up more than five million new subscribers per month to meet the “unexpectedly strong demand . . . in India’s villages and slums”. One Indian entrepreneur, Anurag Gupta, has tapped into the demand of rural and village populations for banking services. His company, named Zero, offers simple mobile banking (similar to an ATM service) which allows villagers to withdraw or deposit a small amount of rupees using a smart-phone and a finger-print scanner. Gupta reports that “the running cost of his ‘branches’ is about $50 a month to serve hundreds of people daily”.

One of the main points that became clear to me from reading this article is that India’s poor, rural, and village constituents have money and they want to spend it. Furthermore, they have demands similar to consumers of developed nations; but in order for this great economic potential to be tapped, goods and services must be tailored to meet the specific needs and lifestyles of this sector of India’s population. India’s engineers have risen to the challenge and are taking a leadership role in meeting these demands, when formerly they had devoted a majority of their ingenuity and R&D capabilities to U.S markets and markets of other developed countries. Now, they are turning inward to their home country to take advantage of growing opportunities.

Indian engineers are “reinventing products to cut costs and reach billions of people world-wide who live on less than $2 a day”. Indian companies are gearing their market research to find out “what the poor want and how much they are willing to pay for it.” Once they’ve done their research, these companies then enlist their research teams to design new products at the necessary price points. All of this is made possible by one of India’s most notable assets- plentiful and inexpensive engineers. As an example, India’s Tata Motors is tapping into this source of ingenuity in developing its cars, “rethinking everything from the engine to the seats to the supply chain to keep the sticker price [low].” Furthermore, due to the growing number of TV networks, radio stations, newspapers, and magazines, India’s poorer population is becoming more aware of products and services available to it.

India is exploiting the very intimate and crowded nature of its slum, rural, and village communities to develop distribution networks for its new products. Door-to-door rural saleswomen have been very successful at selling inexpensive, portable water purifiers. Rural self-help groups and micro-lenders are leveraging their existing ties with smaller, poor communities to get products into consumers’ hands. Gupta’s mobile banking also reflects this ‘grassroots’ approach to distribution.

In thinking about the direction of the global economy, what role do you see India playing? How will India’s success in leveraging the untapped growth potential of its’ poor constituents influence the direction of innovation and marketing for other countries? What do you think this will do for the standard of living in India and abroad? Do you think it’s sustainable? What kind of impact will India’s success in these aspects help or impede the recovery and revitalization of the way the world lives and does business?

I encourage you to read this article if you have the chance. The article discusses how India’s innovation in product development and economic strategy is starting to revolutionize the availability of affordable healthcare for the country and how it may be the source for lowering health care costs in the U.S. Find out which big U.S. company is taking notice!

-Erika Bylund

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9 Responses to India’s Poor Is the New Market for Revitalizing the Country’s Economy and Possibly the World’s

  1. Thank you for directing us to such an intriguing article. I read an interesting statistic that half of the entire population of the world lives on less than $2.50 per day. Eighty percent of the population lives on less than $10 per day. Talk about an untapped market! My view is that poverty is not necessarly defined by income, but rather what one can afford with the income they have. One of the main reasons so many people have sub-standard quality of life is because price inflation of goods have caused them to not afford their basic needs. These companies that are tapping into the “poor market” have realized there is a huge demand for essential products, providing they are at as price that is affordable for the poor. As the article states, the profit margins are low, but the volume is high enough to balance it out.

    My only concern regarding the sustainability of this approach is the threat of cannibalism. The poor are the low-value customers. Engineers are designing quality products at affordable prices for the poor. This is clearly price disrimination. So the question is how these companies can prevent their high-value consumers from purchasing the products at prices set for the low-value consumers? In respect to healthcare, one of the biggest contibutors to the rising U.S. healthcare expenditures is the cost of medical devices and pharmaceuticals. If it is clear that GE can develop of device, such as an electrocardio graph for the one-tenth the cost is has done in the past, will they pass those savings on to all consumers? If they don’t, how will high-value consumers react? If high-value consumers cannibalize the products priced for low-value consumers, the companies serving the “poor market’ may not be able to sustain profitability.

    I think there is a place in the business world to serve and profit from the “poor market”. As mentioned earlier, inflation has played a key role in dimishing the quality of life for our underserved populations. By making products available to the poor at affordable prices, we can fight the war on poverty. However, It will be interesting to see how this trend can maintain economic stability…if at all.

  2. Your post reminded me a lot of some consumer goods they created in Kyrgyzstan. I spent two years there (July 2006-July 2008) living with a Kyrgyz family in a small village. The car for $2,200 and the cell phone for $20 with $.02 per minute are very similar to items they have in Kyrgyzstan.

    The car in Kyrgyzstan is called the Tico. It is $2000 and very small, similar to the Smartcar, only with a tiny backseat and four doors. They are affordable to the villagers and everyone wants one. It is a sign of pride and modernization to drive a Tico.

    Cell phones are inexpensive with inexpensive plans. Usually people buy pre-paid phone cards with a set amount of units. They use the phone until they run out of units and can afford to buy more. Similar to the Tico, it is a mark of pride and modernization to own a cell phone.

    The villages have very little heat, very little food variety, and very few possessions. But they are anxious to join the “modern” and more specifically, “western” world. The money they have, they are willing to spend on these inventions and this type of commerce.

    You posed some interesting questions…”How will India’s success in leveraging the untapped growth potential of its’ poor constituents influence the direction of innovation and marketing for other countries?” I don’t know if Krygyzstan is being influenced by India directly, but it seems that there is an emerging market and growth potential of commerce for the poor constituents. As you mentioned, these are not poorly made items either. They are made to be less expensive, but also made to last.

    “What do you think this will do for the standard of living in India and abroad?” As far as standard of living, it increases in someways and it stays the same in others. A Kyrgyz family may own a car and phone, but still not be able to afford proper winter clothes or proper heating. As far as basic standard of living, they made a life choice to own a car, instead of heat their house for the winter. One would think that heat and warm clothes would increase their actual standard of living, but the Kyrgyz family seems to think that owning a Tico and a cell phone does. I guess this brings up another issue… What increases the standard of living? What factors do we include when measuring?

  3. @ Emily

    With regards to cannibalism, it seems to me that these goods are different from the products that high-value consumers use.

    A $70 Godrej refrigerator is undoubtedly a great value for India’s poor who are willing to sacrifice size for dollar savings. In the United States, however, this refrigerator would probably be too small to satisfy a family of five, despite the low price.

    Consequently, individuals with large disposable incomes will value more expensive products enough such that little cannibalism occurs.

    In addition, I do not think that the ultimate goal of these companies is the production of inexpensive/more efficient products. Instead, they are building a base from which to enter high-value markets.

    In the 1970s Japanese cars were very much like Tico’s and Tata Motors’ present cars. They were small, cheap, and functional, but unappealing to the wealthy consumer. All the Japanese auto manufactures began on the low end and worked their way up, improving their technology along the way. Auto companies like Tico and Tata Motors are likely following a similar path. In the future, we will likely see them produce cars that compete directly with the current major auto manufactures.

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  5. yoges says:

    1- Among sources of innovation that are listed, in your opinion, which source of product innovation is suitable for poor consumers in india and elaborate it.

    2)what several search strategies for innovation. In the context of poor customers in india, explain which search strategies is the best.

  6. Joshua Bingham says:

    Selling to India’s poor is a double-edged sword. Companies that are making products which will benefit the poor will definitely find success. However, as an American, I can also see the negatives in selling products that will not benefit them. For example, in the U.S., you can walk into any corner convenience store and find cheap, unhealthy products (normally food) that lower income people buy because they are so cheap. Yet, those unhealthy products are not benefitting them. Now I know there aren’t a bunch of corner convenience stores hawking unhealthy food products to the lower classes in India, that’s not the point. What is the point is that some producers will simply find a cheap product that they can sell to people of lesser means and make a lot of money doing it; all the while doing nothing to help improve the situation. Of course in a free market you cannot control everything that is produced, there will be bad eggs just looking to make a quick buck. It is on the shoulders of responsible businesses and entrepreneurs to create products that are cheap enough for the lower classes to buy, yet will also benefit them some way in their lives. That is what will make India successful. By improving the lives of millions of their fellow countrymen, smart businesses and entrepreneurs will create even bigger markets and find more success.

  7. Austen Diliberto says:

    This is an interesting aspect of the world economy. Markets differ throughout and it is any successful business’s job to figure out what defines one market from another. In India’s case it is a very large population of people who don’t have a lot of extra money. Just like anywhere else, this population has needs to be met. In America, companies might aim for a small segment of a population to sell a more expensive product. The other outlook in India is to market an inexpensive product to almost everyone. This has been an interesting challenge for American companies trying to duplicate what they do in the US, in India. As companies in developed countries look to India and China to increase sales, they will have to think about the differing needs of those customers. This is an interesting challenge that many of us will likely face in our careers.

  8. Stephen Allison says:

    Right now there are one billion people in India wanting for products and services tailored just for them. 1 billion customers living on $2 a day translates to a $2 billion market. The right product for this market must satisfy a need, must be produced in ultra-high quantities, and variable costs must be reduced to pennies.

    Also important to consider are that these are people who in time will experience the trickle-down effects of a strengthening economy. Once their buying power grows, they will remember the brands who catered to them in their times of need. Building brand loyalty now may not be a bad strategy for an Indian Entrepreneur.

  9. AliyaZ. says:

    The article begins with comparison of Chinese and Indian economies. As we learned even though both countries are developing and are considered very important players on the world arena. However the strategic paths both countries chose are very different.
    India has chosen a slower strategy. It is well known that India provides developed countries with white-collar employees at a significantly lower cost. Outsourcing has been a huge part of Indian growing economy. However as we can learn from the article, India also focuses on improving the life standards of the majority of Indian population – the poor by creating affordable, high quality products that people with all levels of income need. I think this is a right direction, because strong economy needs to be based on internal stability, which India is trying to establish.

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