BOP: a business strategy

Summary

Over the past few years, Danone’s main strategic priority has been to address consumers at all levels of the pyramid, including those at the bottom. Below you will find a quick overview of this new business approach, which has already become a tremendous tool for innovation.

22Août.
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What is BOP? Other than being the significant other of the word “be” in the name of the jazz style made famous by Ella Fitzgerald and Thelonious Monk? It also means “bottom of the pyramid” and is the name of a new business model that Danone developed in 2010 in order to widen its range of consumers. In fact, as Danone’s mission is

to bring health through food to as many people as possible,

it was only logical that the group tried its utmost to design products that are available to everyone, including those in lower income categories (who are often not targeted by the industry’s offers). 2011 has been a crucial year for the “for all” portion of Danone’s mission…and here’s why and how.

 

Reaching out to neglected parts of the population

Danone’s first BOP business was created in India in 2010 “with a production plant for dairy products dedicated to this new business model”. Inspired by the Grameen Danone plant in Bogra, Bangladesh, the Indian project

aims to provide very low-income populations with products whose nutritional qualities meet the needs of children.

The new products had to be developed in accordance with a certain number of constraints: matching local specificities in terms of tastes and nutritional needs, finding a price suitable to the population’s living standards and buying power, and offering a “balanced nutritional benefit”. This challenge left room for a great deal of innovation at the production stage as well as on every other level of the supply chain. “The BOP team innovated not only by creating a very flexible production unit from scratch, able to produce a high-nutrition product at low cost, but also in the distribution model which was designed entirely based on the habits of the targeted consumers. The entire distribution model was aligned with consumers’ movement through various locations (schools,  public spaces, etc.) at different times of the day, and implemented using local transportation methods (such as carts), with a multi-functional approach to vehicles and a preference for local access. Specific local communication methods were also implemented in the cities to create direct contact with consumers: awareness in schools, door-to-door, city tours, nutrition-based events, etc.” 2011 was the first year of full activity for this BOP business, which provides a good example of the methods used by Danone to move closer to its consumers: assess and evaluate their nutritional needs, develop a healthy product that matches their tastes and buying power, and develop local distribution channels to reach as many people as possible. It is a tangible result of a strategy that is, in fact, not new to Danone, and that has been guiding its activities for a few years now.

 

Innovation: a contagious virus

The BOP approach, even if it was not called as such, was truly born with the creation of Grameen Danone Foods in Bangladesh. This led to the creation of the danone.communities fund, whose activities we have already covered on several occasions (see here, here and here). The Danone Ecosystem Fund (see here and here) and Livelihoods Fund (see here and here) then followed, constantly widening the range of activities carried out by Danone to reach consumers at the bottom of the pyramid. This is the “social business” approach: making profitable businesses with ideas that have a positive social impact. And it is not only about product innovation but also

innovative project execution involving the creation of new tools and processes.

This is a model that works: in 2011, “all Danone’s growth took place in the new regions, reflecting the transformed geographic footprint of the group’s business.”  Emerging markets now represent more half of the group’s revenues and its geographic expansion is set to continue in Asia and in Africa, which are both “characterized by their economic and socio-demographic emergence and the appearance of middle classes and so-called medium cities (more than one million inhabitants).” This business approach is not only profitable for the group, thus bringing the goal of having 1 billion consumers world-wide closer every day; it also provides traditionally-neglected parts of the population with more choices for their nutritional habits. In addition, it is an essential tool for what is known in the business world as “reverse innovation”: any new ideas discovered through these projects in the developing world can be adapted to other markets, including in northern countries.

Strong positions developed in these countries have led to the sharing of best practices throughout the group and illustrate Danone’s strategy of relying on local expertise to drive its growth and development.

Ultimately, what Danone intends to show with the projects supported by its Funds or the businesses created by the BOP organisation is that these new models can be replicated even in the most distant of new regions. A perfect example of how innovation, which is often driven by necessity and constraints, can be the most contagious of all viruses.