Bottom-of-the-pyramid once again in focus

The coronavirus pandemic-led economic shock just shrunk the lucrative middle class market by 32 million people, according to a recent report by the Pew Research Centre based on the World Bank data

Move over comparative advertising and woke campaigns. Indian marketers have a far bigger and serious marketing challenge staring them in the face. The coronavirus pandemic-led economic shock just shrunk their lucrative middle class market by 32 million people, according to a recent report by the Pew Research Centre based on the World Bank data. Between 2011 and 2019, almost 57 million were added to the middle class to take the number to around 100 million pre-coronavirus. So the loss of over a third of the middle class in just one year is colossal. And what’s worse, as many as 75 million people were pushed below the poverty line—taking the absolute number of poor from 59 million pre-pandemic to 134 million now—effectively taking them out from the mass of the consuming classes.

Pew defines poor with an income or consumption of under $2 per day, low-income between $2.01 and $10, and middle class between $10.01 and $20. All dollar figures are expressed in 2011 prices, on purchasing power parity terms. So effectively, 32 million people have slipped down from $10.01 to $20 middle-class consumption bracket. Low-income rank has also shrunk by a similar number, around 35 million. For comparison, the national capital territory that includes Delhi and its adjoining satellite towns of Gurugram, Noida, Ghaziabad and Faridabad or the Greater Mumbai region, which includes suburbs and Thane, will have a similar population size of around 30 million! As growth recovers sharply this year and next, some of these people will climb back to their pre-pandemic ranks, but such has been the livelihood devastation wrecked by Covid that a sizeable proportion may stay stuck to the low-income or poor category for years if not decades.

This change in consumer income pyramid has huge implications for all sorts of marketers, anything from colas to cars. Bottom-of-the-pyramid or BOP—a concept of treating dirt-poor people as a profitable, addressable market, made famous in the 1990s by management guru C K Prahalad—is back in vogue. Already one is witnessing firms making brands available at lower prices and/or convenient single-serve packs, from aerated drinks, biscuits, dairy to soap and shampoo makers.

Many of the tens of millions of migrant workers who returned to their homes across India’s 600,000 villages in the wake of Covid-led lockdown last year are yet to return, and fresh Covid surge of late will delay their return even further. Therefore, it is no surprise that rural is outpacing urban India on growth rates across a host of consumer goods in the last six to nine months. What is perhaps driving rural growth is higher farm income coupled with the presence of millions of these returnees from cities, who may not be indulging in conspicuous consumption but are still picking packaged necessities. No wonder, then, marketers from Nestle, Britannia to Coca-Cola are renewing their rural thrust, with BOP-led prices and low unit packs, with a vengeance.

However, this sudden bunching up of consumers at the bottom-of-the-pyramid has more long-term implications beyond just BOP-led pricing. If incomes and livelihoods have been upended and 75 million thrown back into poverty, it is unlikely they will have much to spare for packaged goods after meeting subsistence needs. The government has cast the security net wider and poured more money into social schemes like the rural employment programme, with demand to start a job guarantee programme in cities too. Mass marketers too will need to come up to the table here and help create, and not just reap demand by offering livelihood opportunities. And this will mean reimagining and resetting their business models.   

Remember Hindustan Unilever’s ambitious programme in collaborating rural women in its distribution effort and in the process creating hundreds of thousands of “Shakti Ammas” across the country in the early 2000s. Or ITC’s two decade-old successful effort at establishing a rural focused click & mortar-trading platform in e-Choupal that enables over four million-odd farmers buy and sell a host of products and commodities.

More such measures like “Shakti Ammas” and e-Choupals will be needed now across products and services consumed by the teeming masses across rural and urban landscape. And this will mean that India Inc, which is sitting on historically high profits in the last quarter or two thanks to huge cost rationalisation, will have to learn to work and live with thinner margins as they adapt and hawk their mass-market wares to consumers with relatively less disposable income post-Covid. HUL has already started speaking about providing living wages as against minimum wages to all people who directly provide goods or services to it by 2030.