Marketing: Selling to The Poor

The poor need innovative models of financing too. When cement supplier Cemex, based in Monterrey, Mexico, was looking to kick-start sales after Mexico's mid-1990s financial crisis, it founded Patrimonio Hoy, a combination builder's "club" and financing plan that targets homeowners who make less than $5 a day. It recruited 510 promoters to persuade new customers to commit to building additions to their homes. The customers paid Cemex $11.50 a week and received building materials every 10 weeks until the room was finished (about 70 weeks--customers were on their own for the actual building). Patrimonio Hoy attracted 42,000 new customers and is expected to turn a $1.5 million profit this year. Cemex plans to expand the program into Colombia, Venezuela, Egypt and the Philippines. Diega Chavero, 38, of Zapopan, Mexico, thought the scheme was a scam when she first heard of it, but after eight years of being unable to save enough to expand the one-room home where her family of six lived, she was willing to try anything. Four years later, she has five bedrooms. "Now I have a palace," she says. "This has changed our life."

Three years ago, officials at India's second largest bank, ICICI Bank, met with microfinance-aid groups working with the poor and decided to give them the capital to start making small loans to the poor--at rates that run from 10% to 30%. That sounds outrageous, but it's lower than the 10% daily rate that some Indian loan sharks charge. ICICI's money has helped 1 million households get loans that average $120 to $140. The bank's executive director, Nachiket Mor, says the venture has been "very profitable."

Not everyone agrees with Prahalad's theory that the lower classes will benefit from being part of mainstream global trade. "To suggest this is a panacea for poverty reduction is really not justified," says Ashvin Dayal, East Asia director for the antipoverty group Oxfam UK. "Selling to the poor and serving the poor are not exactly the same thing." Oxfam is wary that aggressive corporate marketing might displace existing local products or encourage overspending by those who can least afford it. He cites potential for harm, for example, in unhealthy but heavily marketed candy and sodas replacing juice and fruits as children's snacks. "Companies have power to create needs rather than respond to needs," Dayal says.

Prahalad calls those arguments patronizing. "The poor are very value conscious. They have to be," he says. "If people have no sewerage and drinking water, should we also deny them television and cell phones?" And if companies bolster the bottom line in the process, so much the better. "It's absolutely possible to do very well while doing good," he says.