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| A sari-sari (neighborhood convenience) store offering mobile phone reload services. From asiasociety.org. |
Snapshot
of the BOP in the Philippines
According to AsianSocial
Enterprises Incubator (ASEI) Director Markus Dietrich, majority of the
Philippine population belong to the base of the pyramid (BOP). BOP consists of
those with monthly income below Php18,000 for a family of 5, or below $3 per
day, which includes not only the poorest of the poor, but also the lower middle
class in the Philippines.
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| The Philippine BOP market. From rappler.com. |
Dietrich says that there are about 57.4 million BOP
customers in the country (or 62.5% of the population), and that those living
below $2 per day reach 38.1 million (or 41.7% of the population). The poorest
of the poor who live below $1.25 account for 16.9 million (or 18.4%).
Altogether, they comprise a market worth $33.4 billion,
according to the Asian Development Bank (ADB), or around 50% of the country’s
total expenditure.
Mobile
Access
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| A fisherman uses his mobile phone while on the boat. From arbroath.blogspot.com. |
Mobile technology – particularly cellphones – has played
a critical role in reaching this segment of the market, and has made it easier
for the BOP to join the global economy. In 1992, the Philippines had one of the
lowest levels of telephone penetration in Asia: slightly more than 1 per 100
inhabitants. With more than 7,000 islands in the country, it was a difficult and expensive endeavor to connect remote areas into the national telecommunications infrastructure. It was common for members of the BOP to go to the neighborhood
convenience store (called a sari-sari
store), to access a landline. Mobile phone postpaid plans could only be
afforded by those in the upper classes, and were mostly available in urban areas.
Globe Telecom, one of the two major telecom firms in the
country, stated in this article that it realized the importance of developing a
nationwide system of infrastructure in order to ensure a high quality of
service to its subscribers, and came to the conclusion that it needed to cater
to a larger segment of the market to support its growth strategy. However, as
Karnani stated, the costs of serving the markets at the bottom of the pyramid
are very high – the cost of the handsets alone were very steep.
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| A rice farmer uses his mobile phone to send an SMS. Photo: IRRI Images. |
As cellphone technology progressed, handset prices began to decline, and telecom firms in the country offered prepaid cards to attract low-income consumers, expanding the market by 56 times. Prepaid cards allowed consumers without a credit history to be able to enjoy mobile phone service. The prepaid cards were not enough to alleviate affordability concerns of the BOP, however, and this led to rivaling innovations by the two major telecom firms – Smart Communications, the largest telecom firm in the country, launched PasaLoad, the world’s first service that allow subscribers to give unused minutes or texts (known locally as “load”) to another subscriber. Globe soon followed suit. Text messaging was the preferred mode of communication, primarily because of its affordability. By the end of 2010, mobile phone penetration was at 90% -- 97% of which were on a prepaid system.
Impact
of Mobile Innovations on the BOP
As telecom firms competed for market subscribers, they
came up with innovations that benefited both BOP consumers and BOP
entrepreneurs, two of which are the following:
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| A remittance center rep for Globe and SMART. Credits here. |
- Subscribers were given a new way to earn income through services like SmartLoad, which was introduced by Smart
Communications as an “over-the-air prepaid airtime reloading service in
sachet-like retail packages,” and was, again, the first of its kind in the
world. Instead of buying a prepaid card from the retail store, subscribers
could pay an individual retailer to send credits from his/her phone to the
subscriber’s phone. The individual retailer could be the owner of the
neighborhood store, or even an enterprising colleague or classmate, and would
have applied for a retailer SIM card to conduct the transaction. As Globe Telecom
launched a similar service, it tapped into a distribution channel composed of public
transportation drivers, street vendors, and fast-food workers, giving them
another source of income.
A jewelry store accepting mobile money for transactions. Credits here. - Mobile loading also assists BOP consumers and entrepreneurs who do not have bank accounts, or access to banking services. Mobile loading has become the backbone of the M-commerce platform. Globe Telecom’s GCash allowed subscribers to use their mobile phones for “purchases and payments, P2P transactions, and domestic and international remittance.” GCash (and its counterpart Smart Money) became preferred methods of payment in online shopping sites in the Philippines (where credit cards have a low penetration rate), and even allow users to pay utility bills. Through Globe’s partnership with companies like Paypal, Filipinos abroad can fund GCash-registered mobile phones in the Philippines.
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| A UN World Food Programme Cash-for-Work beneficiary listens attentively while a Globe representative explains how GCASH mobile money transfer works. From allvoices.com. |
There are other examples of how mobile access transformed the landscape
for the Philippines’ BOP segment, and how innovative services made the
arrangement a win-win for both the BOP consumers and the telecom firms. With
services like SmartLoad, telecom
firms were able to reach more BOP consumers, who could themselves choose to
earn income by applying as service retailers. Telecom firms were providing
banking services over mobile phones to previously unbanked customers. This is
one example that debunks the BOP assumptions listed in Prahalad’s article, and,
interestingly did not involve NGOs or nonprofits in the initial phase of creating opportunities and
benefits for those of the BOP.
Written by C. Favorito
Univ. of Notre Dame MBA 2014
References:
“Bottom of pyramid market in PH worth $33.4-B — ADB.” Rappler.com. n.p., 05 Oct 2013. Web. 04 Apr. 2014. <http://www.rappler.com/business/170-features/39058-bottom-of-the-pyramid-market-in-phiippines-adb>
“Inclusive business in the Philippines.” ADB.org. n.p., n.d. Web. 04 Apr. 2014. < http://www.adb.org/themes/poverty/inclusive-business-base-pyramid/country-work/inclusive-business-philippines>
- Ordinario, Cai U. PHL needs more firms catering to ‘BOP’ group. businessmirror.com.ph, 16 Sept. 2013. Web. 04 Apr. 2014. <http://www.businessmirror.com.ph/index.php/en/news/top-news/19505-phl-needs-more-firms-catering-to-bop-group>
- Uy-Tioco, Cecilia S. TEXTING CAPITAL: Mobile Phones, Social Transformation, and the Reproduction of Power in the Philippines. George Mason University, Summer 2013. Web. 4 Apr. 2014. <http://digilib.gmu.edu:8080/xmlui/bitstream/handle/1920/8343/UyTioco_gmu_0883E_10383.pdf?sequence=1>
- World Resources Institute. The Next 4 Billion – Market Size and Business Strategy at the Base of the Pyramid. wri.org, 2007. Web. 4 Apr. 2014. <http://pdf.wri.org/n4b_full_text_lowrez.pdf>
- Zobel, Jaime A. Doing business with the bottom of the pyramid: The Ayala Group experience. abs-cbnnews.com, 13 Oct. 2008. Web. 04 Apr. 2014. <http://webcache.googleusercontent.com/search?q=cache:MQW0WPlnWyYJ:www.abs-cbnnews.com/business/10/13/08/doing-business-bottom-pyramid-ayala-group-experience+&cd=2&hl=en&ct=clnk&gl=us>
It's amazing how much telecommunications has changed the world. And I think it's so interesting that you mentioned how telecom companies are able to affect BOP customers without needing NGOs or nonprofits. In class, we talk about how nonprofits should be working to put themselves out of business. So this seems like a great situation where nonprofits aren't needed to affect and effect change.
ReplyDeleteIf I were asked to give one word that summed up social entrepreneurship, it would be "access," or more specifically, "providing access." The microfinance and telecom industries have reshaped how we think about access. Mobile loading, in my mind, epitomizes what it means to provide access.
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ReplyDeleteThis is an interesting and insightful article. It leads me to wonder what the next phase will be for Filopinos. I wonder if the cellular companies will offer small credit lines to individuals with proven track records over time as a potential income market.
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