Decision Making Process for Bottom-of-the-Pyramid Consumers: A Case of FMCG products

Abstract

The purpose of this paper is to examine the nature of family purchase decision making at the Bottom of the Pyramid (BOP) using a study of BOP consumers in India. The primary objective is to identify the purchase approach of BOP consumers for Fast Moving Consumer Good (FMCG) products depending on the role of each family member and the types of roles assumed by different family members, given the constraints they face in the dynamic environment that characterizes the BOP. The paper qualitatively investigates the family decision making or FMCG products based on the model prosed by Engel et al., 1973 and also includes the children’s influence and participation at specific stages of the decision making process. Moreover the unique point of differentiation of the research is the comparative study between the people living in rural and urban areas of Jammu, J&K (India). Although the results highlight the dominance of the husband in the purchase of products in BOP markets in India, the role of the wife and children are also very well emphasized in the findings.

Introduction

International business research has increasingly focused on emerging and underdeveloped markets as areas from which new insights can be drawn (Ni and Wan, 2008). At the bottom of the pyramid (BOP) are the roughly four billion people who live at bare-bones, subsistence level. Indeed, three billion of them live on $1-$3 a day, and another 1.3bn live in extreme poverty, on less than $1.25 a day (Ruvinsky, 2011). BOP markets tend to be concentrated in Asia, Africa and Latin America, with an estimated 60 percent in India and China. Although the tendency has been to treat these markets as one that displays similar consumer behavioural trends and processes, this approach does not acknowledge differing characteristics in such markets. The research conducted for development using the framework of BOP, has argued that poor people are well aware of the products and services they use. If firms are innovative to tailor goods and services that meet the economic realities and needs of the BOPs, a mutual benefit exists for the private sector and the BOPs, which in turn, results in a more stable urban economy (Aspen Institute, 2007). Here, the rural Indian BOP market is defined as households in the bottom four expenditure quintiles (based on data from the National Sample Survey Organization, India) that spend less than INR 3,453 (US$75) on goods and services per month. This definition represents a market of 114 million households, or 76 percent of the total rural population. However, there have been other attempts to classify this market in view of changing world demographic and economic circumstances. Consensus has been to use the World Bank classification which, when rounded up, classifies BOP consumers as those who live on less than US$1 a day (Banerjee and Duflo, 2006; Mahajan and Banga, 2006; Prahalad, 2005).

Evolution of the literature on the BOP raises the need for researchers to investigate consumer behaviour in these markets, without necessarily treating BOP consumers as homogeneous, but acknowledging common constraints that can be found in these environments (Hart, 2002; Prahalad, 2002; Prahalad and Hart, 2002). The call for increased business attention towards the BOP was primarily advocated by Prahalad (2005) although Hart (2002) is credited with initiating discussion of the concept. Prahalad also claims that the BOP potential market is $13 trillion at PPP. This grossly over-estimates the BOP market size. The average consumption of poor people is $1.25 per day. Assuming there are 2.7 billion poor people, this implies a BOP market size of $1.2 trillion, at PPP in 2002 (Karnani, 2007).

Today, while it is increasingly accepted that the BOP marketing offers opportunities to create value for both the poor and for companies that engage this market, the early promises of a “fortune” seem to have been overstated (Karnani, 2007b). Two reasons for this are apparent including disagreement as to the real income of BOP consumers and the sheer size of the BOP market itself. These markets are characterized by informal economic sectors that are unprotected by established institutional rules (Feige, 1990; de Soto, 2000) and therefore represent significant challenges to service providers (London and Hart, 2004; London et al., 2010). The success stories of MNCs serving poor customers cited in the B O P literature are predominantly in fast-growing economies such as India, where the GDP per capita remains low, as well as in countries like Brazil and Mexico with higher percapita income. Not surprisingly, BOP advocates fail to provide cases of MNCs serving the BOP population in LDCs. These market-based approaches to poverty reduction differ from traditional approaches in that, rather than thinking in terms of aid, charity and public assistance, the focus is on using business models and tools to solve BOP problems (Sachs, 2005).

The purpose of this paper is to examine the nature of family purchase decision making for FMCG products at the BOP using a study of BOP consumers in India. The primary objective is to identify the purchase approach of FMCG products. For this, we used the role of the family members in decision making and the types of roles assumed by different family members, given the constraints they face in the dynamic environment that characterizes the BOP. This focus on the family is because of the claim that it constitutes one of the most important influences on consumer decision making (Brown, 1979; Hawkins et al., 2004). However, this study seeks to establish how differences in family make up and the role the family members play in individual lives, shape their decision making in day-to-day buying. The primary motivation is to expand knowledge about how BOP consumers behave in rural Indian markets. This is an area that existing literature, in Indian markets, does not extensively cover. Further motivation is driven by Thomson et al.’s (2007) argument that qualitative investigation will enable researchers to learn more about the processes and complexities of family purchasing given the opportunity it provides researchers to study consumers in their environment.

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