Case Study: Bottom of Pyramid
Bottom of pyramid (BOP) is a term that refers to the poorest people in society who live by less than $2.5 a day. It is the largest social economic group. The term is used mostly by businesses which target this as a potential market (Prahalad, 2006).
Corporate social responsibility (CSR) is a companies’ policy geared towards helping society by means of taking care of its needs such as environment, education, and security among others. In this way, the companies impact positively to society by elevating its social welfare.
Ethical concern is the expected behavior of a person or an entity in a particular society. In regards to BOP, it stipulates that firms should not avoid doing business in the BOP areas because profits are small, instead they should find better mechanism of doing business with this group intending also to uplift their living standards. A question of ethics arises whenever a company provides commodities to people, and the commodities do not play a part in alleviating their problems (Hughes & Beatty, 2005).
(a) Definitions and components of critical elements of the ethical concern that apply to the real world situation in the Gas natural BAN case.
Distribution concern; Gas natural BAN had developed a gas distribution network in the neighborhoods of Argentina’s Buenos Aines province a low income sector providing service to almost 3000 families with plans to continue expanding. To expand its existing networks to neighborhoods, it engaged the families and local administrators who offered support. For example in La Juanita, the municipal administration was very supportive and active (Berger & Darmohraj, 2009).
The company provided skillful certified technicians who would make installations at an affordable price for the internal connections to the people. The external connections were also supported by the local administration in Tigre’s municipality. Proper distribution is a critical issue while investing in low income sector (LSI).The areas occupied by the poor especially in towns have poor accessibility network. Firms should make every effort to ensure that their products are accessed by customers (Berger & Darmohraj, 2009).
Advertising and promotion; this is a way of creating awareness to the communities about your products. People cannot buy goods and services without their knowledge, it is necessary for them to be informed about them, means and terms of accessing them should also be made available (Hughes & Beatty, 2005). Gas natural BAN came up with very good ways of reaching out to communities. For example, in the mid and late1990s, the company initiated a campaign advertising and promoting access of piped gas service. It connected the service to approximately 100,000 families. The company, also, approached poor neighborhood areas to market and educate families on how to consume the gas efficiently in order reduce their consumption bill; this made the service affordable and sustainable over time. In Los Troncos, Las Tunas, and Los Tabanos neighborhoods, Tigre’s municipal administration provided financial support (Berger & Darmohraj, 2009).
While further expanding the program, the company used other methods of reaching out to people, for example by social organization identification and neighborhood engagement for briefing meetings. These social organizations provided it with access to the neighborhoods (Berger & Darmohraj, 2009).
Appropriate product refers to a commodity that provides solution to people in need. Providing the piped gas to LIS (low income sectors) in Argentina was a very noble idea because it was cheaper than bottled gas and it would raise their standards of living. Therefore, the project by Gas natural BAN was very important, it provided appropriate product to the people because the piped gas was affordable and more economical to use than the bottled gas.
Fair pricing. Even though this remains a challenge to investors who provide services in low income sectors, Gas natural BAN came up with a good strategy of enlightening the families on how to use the gas appropriately to avoid high bills which they would not afford to pay and hence lose the noble service. It was an ethical and a social responsibility issue to the company; it went ahead and extended its break even duration from 68 months to 83 months while providing service to the poor. Providing the same service to regular customers took approximately 68 months to break even. With financial support from local administration like the Tigre’s municipal, connections to the neighborhood became even cheaper (Berger & Darmohraj, 2009).
BOP as vulnerable market. It is a vulnerable market because it has many risks, and the cost of running business is very high compared to the middle income market. Habitants of this segment of a market also have low purchasing power. In this case, it refers to the poor neighbourhoods of Argentina’s Buenos Aines province. Their demand power is very low but despite this, a firm can make massive profits out of their big population. It may happen by providing the service in smaller packages that are affordable and sustainable over time. Shying away from LIS areas because their purchasing power is low is unethical. Firms should come up with profitable ways of providing the essential services to the poor (Berger & Darmohraj, 2009). The products should be provided to the poor in small quantities to make it cheap and affordable, otherwise selling it in bulk would make it hard for the poor to access it.
(b) Whether Gas Natural BAN’s LIS strategy properly addressed the specific Ethical Concern.
The company provided gas to the poor in small affordable quantities; it invested in proper gas piping network that made gas accessible to most of the people. With the help of the community and the local administrator, the cost of providing the service was reduced. For example, in Los Troncos, Las Tunas, and Los Tabanos neighborhoods, Tigre’s municipal administration provided financial support that helped in easing out the cost burden to the community. The company also offered corporate social responsibility program to the people by initiating several programs such as gas at school, breast feeding promotional program and community orchard project. Gas natural BAN properly reached out to people by raising the awareness about the gas supply, this made it to be accepted by the locals (Berger & Darmohraj, 2009).
(c) Discuss why you do or do not think Gas Natural BAN’s strategy to serve the Low-Income Sector is a BOP strategy, considering that BOP strategies use non-tradition product delivery strategies, serve as CSR strategies that impact poverty and they are profitable.
Gas Natural BAN’s strategy to serve the Low-Income Sector is a BoP strategy because it successfully served the low income sector. The company was able to provide piped gas to the people at a more convenient and efficient method than the bottled method used previously. It would not be ethical failing to provide gas to this class of people simply because the profit margin of doing business there is so small when compared to high and middle level classes. The project also helped in improving the living standards of people hence it had a direct impact on poverty. It is done by lowering the cost of energy. It paved way for other companies to provide services to these people using the same method Gas natural BAN had used. It had involved local people in solving challenges that it faced such as collecting installation fees and debts. As observed from the financial data analysis, the total net revenue from sales and service was Ar$ 492.7 in 2006 and Ar$ 559.7 in 2007. It shows the company was making profits which were increasing annually (Berger & Darmohraj, 2009).
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