What makes the "Bottom of the Pyramid" (BOP) such an exciting concept for many sustainabilty-minded folks? It's that simple changes in business model can open up markets where price, distribution challenges, or other barriers have made entry difficult. It's that breakthrough technologies are not always needed for radical innovation. And it's that a re-thought out business approach that caters to people who are typically priced out of or overlooked in a market economy can both make money and help raise people's standard of living. This is fairly idealistic talk -- so what does a BOP business model actually look like?
The current Stanford Social Innovation Review (Summer 2005 issue) explores a BOP case in an article entitled "Block by Block" [PDF] that has been in practice for several years: Cemex's Patrimonio Hoy program. Cemex is a Mexican cement manufacturer with a $15 billion market cap. It's celebrated Patrimonio Hoy (Property Today) initiative seeks to make customers of primarily rural low-income Mexicans who can not afford to build a house all at once, but rather do construction piecemeal -- often over a period of years. From Social Innovation Review:
Here’s How Patrimonio Hoy Works:
Would-be homebuilders pay about $14 a week, for 70 weeks. What the roughly $1,000 buys is consultations and inspections by Cemex staff architects, and scheduled deliveries of materials divided into building phases that cover the 70 weeks. All building materials, purchased with the Cemex advisers and using the company’s considerable buying power, are kept at stable prices through the life of the construction project, shielding Cemex’s “partners” from sudden price hikes and supply shortages common on the open market. And, if partners run into shallow employment periods, they can bank their materials for a while. Partners found they were building homes faster, and generally cheaper, than they could on their own.
If you haven't read about the Cemex case before, "Block by Block" is a good place to start. For a bit more detail, see this older Changemakers feature on Patrimonio Hoy. Most interesting is an accompanying Changemakers interview with two consultants who "helped develop the blueprint" for Patrimonio Hoy. They talk candidly about some of the difficulties in executing the program, and both the hazards and opportunities for social entrepreneurship programs in general.
Changemakers (CM): Cemex's Patrimonio Hoy program is growing rapidly, but I noticed last month that many people had dropped out of the program in one Guadalajara neighborhood. A local resident told me that her neighbors were not making much progress in their housing construction projects as a result. Does Cemex need to do more to retain customers and maintain the program's momentum?
Maria Letelier (ML): Definitely. I think customer retention is important. This is a difficult market to retain customers in, and to have customers complete the whole project. There is far too much temptation [for potential customers] to spend the money on something else, and to feel trapped into a contract.
There are pressures from friends and family that make people feel as if they are not showing solidarity, as if they are trying to separate themselves from others in the community. No matter how excited people are – there are segments here.
We have found that support groups are extremely important for solving the issue of customer retention in lower income communities. People must give each other ongoing motivation, and listen to each others challenges in keeping with their goals. Any kind of grassroots community development or local partnerships that facilitate these support groups and local networking make a difference in retention.
Now if only Cemex were pushing cement alternatives. That would really be WorldChanging.
Many people here in Mexico believe that Cemex and other cement manufacturers are keeping prices artificially high.
Just last week, a ship carrying cement from Russia decided afret many months of legal fighting to give up trying to unload their product in Mexico and set out for Africa.
Thoughts from the linked interview on artificially high pricing:
CM: Some of Cemex's competitors and social activists have criticized Cemex by saying they charge high prices for cement in Mexico and make excessive profits. What do you say to people who criticize companies like Cemex by suggesting that the best way to help poor people is to reduce the price of their products so they are more affordable?
ML: My view is I would rather see companies spend money on programs like Patrimonio Hoy than on reducing the price of the product itself. I don't think that price reductions will help make people more productive. And creating systems, like Patrimonio Hoy, that help make people be more productive in the long term requires lots of resources on the part of the company. I believe the media should also note that tremendous amount of time, energy, and resources that companies such as Cemex put into introducing services like Patrimonio Hoy.