Selling to the Poor

When the Indian industrial and technology conglomerate ITC started building a network of Internet-connected computers called "e-Choupals" in farming villages in India's rural state of Madhya Pradesh in 2001, soy farmers were suddenly able to check fair market prices for their crops. Some farmers began tracking soy futures on the Chicago Board of Trade, and soon most of them were bypassing local auction markets and selling their crops directly to ITC for about $6 more per ton than they previously received. The same ITC network enables farmers to buy seeds, fertilizers, and other materials directly, at considerable savings, as well as to purchase formerly unavailable soil-testing services. Today, the growing e-Choupal network reaches 1.8 million farmers, and ITC is receiving demands from rural farmers for new products and services -- the beginnings of consumer market power at the poorest level of Indian society.

The ITC network is one example of how access to information can increase productivity and raise incomes. It also reveals what happens when large businesses stop regarding the world's 4 billion poor people as victims and start eyeing them as consumers. For decades, corporate executives at the world's largest companies -- and their counterparts running wealthy governments -- have thought of poor people as powerless and desperately in need of handouts. But turning the poor into customers and consumers is a far more effective way of reducing poverty.

Why hasn't the business world caught on? The explanations are well known: Infrastructure in the developing world is often poor or nonexistent, creating the need for substantial upfront investment. Illiteracy tends to be high, requiring nontraditional marketing approaches. Tribal, racial, and religious tensions, as well as rampant crime, complicate hiring and business operations. Governments -- especially local and provincial authorities -- often do not function effectively or transparently. Corruption is widespread.

Yet many multinational companies already overcome such problems to serve middle-class customers in developing countries. The fundamental barriers to serving poor customers in low-income nations exist within companies and governments in rich nations, where leaders have uncritically accepted the myth that the poor have no money. In reality, low-income households collectively possess most of the buying power in many developing countries, including such emerging economies as China and India. If businesses ignore the bottom of the economic pyramid, they miss most of the market. Another myth is that the poor resist new products and services, when in truth poor consumers are rarely offered products designed for their lifestyles and circumstances, leaving them unable to interact with the global economy. Perhaps the greatest misperception of all is that selling to the poor is not profitable or, worse yet, exploitative. Selling to the world's poorest people can be very lucrative and a key source of growth for global companies, even while this interaction benefits and empowers poor consumers.

The market for goods and services among the world's poor -- families with an annual household income of less than $6,000 -- is enormous. The 18 largest emerging and transition countries include 680 million such households, with a total annual income of $1.7 trillion -- roughly equal to Germany's annual gross domestic product. Brazil's poorest citizens comprise nearly 25 million households with a total annual income of $73 billion. India has 171 million poor households with a combined $378 billion in income. China's poor residents account for 286 million households with a combined annual income of $691 billion. Surveys show that poor households spend most of their income on housing, food, healthcare, education, finance charges, communications, and consumer goods. Multinational corporations have largely failed to tap this market, even though the rewards for doing so could be substantial.

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