THE IMPOVERISHMENT OF EUROPE: A NEW OPPORTUNITY FOR MULTINATIONALS?

The impoverishment of Europe : a new opportunity for multinationals?

Following the European debt-crisis, European states bailed out the banks. Instead of investing in the real economy, banks chose to use this capital in financial markets. There is no doubt that it is more profitable for banks to invest in financial markets as they are more remunerative. As a result, banks make a profit while states have no money left to help small and medium-sized businesses. Tax rates increase and people have less money to provide for themselves.

The European debt-crisis has had a considerable impact on the population, especially on the middle classes and has led to a more flexible labour market and to less job security. This is why today we are seeing a resurgence of poverty in Europe.

Companies are adapting to this new configuration of the European market

To deal with the pauperization of Europe, companies have begun to market their products in a different manner. To make products more accessible for low-income consumers, companies have modified the format of their products: they have reduced product size in order to sell them at a lower price. This new packaging enables poorer consumers to buy product units or in very small quantities as they cannot afford large volumes. In actual fact, it is the same model that some companies already use in Asian countries. In Great Britain, smaller sized products already exist for food to help people that cannot afford family packs. Therefore, there is nothing new in this practice. Unilever, the world's leading retailer in consumer goods, has already implemented this strategy. For example, in Spain, the multinational markets Surf detergent boxes for only 5 washings at a reduced price. In Greece, the group also sells mashed potatoes in small proportions. Then, in Italy, yogurt is no longer sold in packs but by individual units.

 

The Bottom of the Pyramid Strategy (BoP)

Actually, companies that adapt their products for tighter budgets use a specific strategy. This strategy is called the 'Bottom Pyramid' strategy.

What is the Bottom of the Pyramid Strategy (BoP)?

The 'Bottom Pyramid' strategy can be represented as a pyramid.

As illustrated above, the top of the pyramid represents the mature markets. It is composed of people with higher incomes in the world: the upper classes. The base of the pyramid indicates the proportion of the world's population with low incomes. It is estimated that nearly 4 billion people have an average annual income lower than 4 billion dollars. Therefore, it is clear that income distribution is highly unequal in the world.

For many years, international companies focused essentially on consumers with a high purchasing power. But when they wanted to grow their market share, they decided to enter new markets and focus their attention on emerging countries such as Africa or India. To enter this new market, companies use a strategic model called the 'Bottom of Pyramid" strategy (in abbreviated form, BoP). This model is based on the book, The Fortune of the Bottom of the Pyramid written by the famous economist C.K Prahalad. In this book, Prahalad states that on a global scale, firms mainly target the wealthiest people that compose the top of the pyramid. According to this economist, firms can play a role in reducing poverty. If multinationals were to target the poorest population with products accessible to them, that is to say less expensive and in smaller sizes, they could reduce poverty. Consequently, the poorest people represent a significant potential market. In other words, poverty does not eliminate people's needs. That is the reason why companies have decided to start selling goods adapted to the needs of poorer people. The purpose of the BoP strategy is to fight poverty by making a profit.

Here is a video to better understand the BoP strategy.

Multinationals such as Unilever and Procter & Gamble first begun to apply the Bottom Pyramid strategy in emerging countries. Then they quickly realized that this strategy works well and today they try to use the same pattern in Europe.These considerations lead us to ask ourselves if companies really want to help poorer consumers in Europe or if it is only a major marketing tool? What should we think about this? Are there any other solutions to help lower income households?

Margaux. D