Innovative Business Models for the Middle of the Pyramid in Emerging Markets
In this book we study innovations for the middle of the pyramid, focusing on the experience of middle income countries in Latin America. This middle income segment, which is middle by the standards of emerging markets although low by the standards of advanced economies, has grown steadily in the last few decades and has become an attractive segment for firms to serve. These middle income countries in Latin America are a laboratory for understanding this phenomenon because despite being emerging countries, they have a large middle income segment that provide attractive and different opportunities, similarly to other regions like Eastern Europe or the Middle East. Additionally, by focusing on a region that has a common political, social and economic history we are able to draw cross-country conclusions more easily, while at the same time benefit from a variety of experiences and innovations that have appeared in multiple countries.
The book is based on case studies and examples of firms that have created innovations for the middle of the pyramid. The cases are detailed analyses of exemplar firms that have introduce innovations to address some of the most intractable challenges of emerging markets and that have been successful at creating a business proposition of something that was commonly addressed by the government or by non-for-profit organizations. The examples are presented within a general framework that provides detailed statistics of the challenge to help explain how the challenge can nevertheless become a large business opportunity for some entrepreneurial managers.
The book can provide useful and new insights to managers of both emerging economies who want to serve their growing middle classes that until recently were being served in the informal economy, as well as to managers of multinationals from advanced countries who may find that the growing middle classes in emerging economies are a profitable and expanding market segment to serve.
In this chapter, we dissect a series of case studies of MNCs who developed innovative business models overcoming geographical, infrastructural and social-cultural challenges and exploitingthe opportunity reflected in the social-commercial connectedness of the middle-income customers and the largest and most lucrative retail channel in the LAC emerging market – the traditional one. With our analysis we display how innovators incorporate previously ill-collaborating players, such as financial institutions, technology companies, (none)-governmental and (none)-profitorganizations,in their models producing benefits primarily for the MoPcustomers and retailers as crucial partners.Their models expand company´s value chains to the traditional retailers increasing their productivity gains through the provision of technology and modern retail practices, yielding a powerful impact on them and their communities. They employ and train locals with deep knowledge about the needs and aspirations of local communities, as well as access to rural, lower-income consumersout of reach of modern retailers, contributing tojob creation and MoP member´s income and improved quality of life. Innovative enterprises, thus, master multiple distribution schemes to bring an optimal range of products and services to those communities efficiently achieving distribution and overall business excellence as well as social impact.
In this chapter, we analyze the development, functioning and the effectiveness of business models innovator companies and managers use to champion the business opportunity reflected in the rising number of financially excluded people climbing the LAC middle-of-the-pyramid stratum from its bottom. These models intertwine economic and social objectives aiming primarily to improve the lives and financially include the new MoP members enabling their ¨dream purchases¨ deemed essential in the developed world, while simultaneously securing own scalability and profitability of stakeholders across the business ecosystem entailing financial institutions and consumer goods sellers. We use a series of case studies to show how these models simultaneously optimize social and financial returns through interchangeable use of stakeholder’s resources and capabilities and clear alignment of their interests rather than seeking trade-offs between the two. Hence, we demonstrate how financial institutions absorb consumer goods companies into the value chain as distributors of their (financial) products and services to middle-income segments using the company’s existing distribution channels and their reputation in terms of the MoP´s trust they possess. Oppositely, consumer goods companies expand their own offers with, for them unorthodox financial tools and services, financially formalizing and including MoP members while at the same time increasing their customer-focus flexibility and sales. Finally, we provide lessons and recommendations on how to develop inclusive businesses achieving direct developmental impacts through the provision of essential goods, services, and jobs, unlocking new forms of innovation and entrepreneurial activity critical to accelerating inclusive growth of emerging markets.