Bottom of the PyramidReaching the Mass Market

Card Expo 2007Olu Akanmu

Divisional Director-Retail Banking, BankPHB

The Nigeria Social Economic Triangle

1%

4%

69%

25%

High Networth Individuals

Super Affluent

Mass Affluent

Mass Retail

Bottom of Pyramid

A

B

C1

C2 and D(9+60)

E

FRONTIER FOR GROWTH

Source: RMS 2003 and Augusto Banking Industry report 2006

37% of money in circulation is outside the banking system and it is estimated to be N1.35 trillion.

Banked Population

(Unbanked

0.05%

• Other Industries Studies have estimated that those who are classified as survivors of N300,000 per annum are about 43million people

• They represent 91% of the total estimated 48 million people in employment

• However they are estimated to have about 62% of the total household income in Nigeria

• On the long run, a successful retail franchise whether in banking, telecoms, entertainment or even consumer goods cannot ignore the lower Nigeria demographics given the its huge size which compensates for the low average household income.

Business Model Challenge

• There is no unprofitable market segment. There are only unprofitable business models in markets that could have been profitably served with the right business models.

• The challenge of successful retail franchises is to find profitable business models to play in the Nigeria lower income demographics a.k.a. bottom of the pyramid

The Peak Milk / Cowbell Lesson from Nigeria

• Peak Milk in the 80s and early 90s had concentrated at the top of the ABC1 demographic

• Virtually acted as if the milk market was saturated as sales were virtually stagnant

• WAMCO managers paradigm which it sold to its overseas parent was that the milk market was getting matured.

• Of course, market was “ peaking” in the ABC1 demographics which was Peak’s mental boundary of the milk market

• The paradigm was that the C2DE demographics cannot afford to drink milk

• Cowbell unlocked the lower market by walking-around the affordability problem with single-serve sachet at N5.

• Peak had a first world approach to a third world problem, Cowbell approached the problem with a new paradigm

• In three years, Cowbell caught up with Peak Milk in market volume

• The rest is history….

Profits at the Bottom

• Microfinance institutions outside Nigeria have shown a 40% ROE. Empirical evidence similar returns in Nigeria.

• Technology ( Self Service Technology) when specifically addressed to the needs of a third world environment like Nigeria can help deliver services cost-effectively to the BOP.

• However, this will not be automatic. There has to be concerted will to find technology solutions that will enable profitable service delivery at BOP.

Adapting technology solutions to BOP

• Pricing– Low Ownership costs. Recover from On-going usage

over time– Price discrimination

• Value Engineering– Functionality– Aligning price and performance to what the customer

values and can pay for

• Scalable solutions which enable to solutions to be delivered at low cost

Adapting technology solutions to BOP

• Divisibility and Affordability– Single serve solution (Sachets, N100 / N50

recharge• Easy to use solutions for customer groups

that are not sophisticated• Recognize our infrastructure constraints (

power, link/network, etc)• Open Interfaces / Interoperability• Cultural and Behaviour fit

Immediate Issues

• ATM solutions that cost 2000 dollars to drive ATM penetration

• Expand our acceptance network of PoS terminals. Target 50K – 100K Merchants.

• Non-ATM solutions to what has been defined as ATM problem

• Co-operation and Competition among players ( Co-opetition)– How do we co-operate in optimizing total industry ATM

deployment ensuring that we are not all concentrated in the same places while under-serving significantly other locations. While we co-operate in doing this, we shall compete for customers? (Reframe?

Thank You