Moneycontrol Pro Panorama | The real fortune is at the top of the pyramid

Focus on the top creates room for a disruptor to enter the lower end of the market.

Dear Reader,

Renowned academician CK Prahalad popularised the notion of a vast business opportunity present in the lower rungs of society through his book Fortune at the Bottom of the Pyramid. Over the years, business enterprises tapped this huge consumer market through competitively priced products, and many have achieved commercial success.

But along with changing consumer preferences, companies in certain sectors are making a slow retreat from low-priced mass-market products. Consider automobiles. Except Maruti Suzuki, no manufacturer has a car priced less than Rs 5 lakh in their product portfolio. Large automobile groups Škoda Auto Volkswagen, Toyota, Honda, Mahindra and Mahindra no longer sell small cars in India.

The portfolio of Tata Motors, which tried to tap demand at the bottom of the pyramid launching a Rs 1 lakh car, is now heavily tilted towards premium vehicles. The focus among all these automobile manufacturers is on higher priced cars, utility and electric vehicles. Even Maurti is seeing rising contribution of utility vehicles to its domestic sales.

In two wheelers, the market share of entry level 75-110 cc bikes dropped from 49 percent in FY12 to 28 percent this fiscal, show data collated by Jefferies India. Demand is moving to higher powered bikes, electric vehicles and scooters. Hero MotoCorp, which once dominated the market, is losing share.

In alcoholic beverages, another industry with high consumer touchpoints, companies are reducing their exposure to low margin mass market brands. Last week came reports that Pernod Ricard has put its large mass market brand for sale in India. This follows a period of premiumisation and brand rationalisation at peer United Spirits. Even home-grown companies Radico Khaitan and Allied Blenders & Distillers are increasingly launching higher priced products.

In housing, developers are striking gold in premium and luxury dwellings. Affordable housing, which was a buzzword before the COVID pandemic, is no longer in fashion. The market capitalisation of DLF, Godrej Properties and Sobha, which primarily sell premium houses, has soared amid rising demand.

In healthcare, many multinational corporations scaled back their operations in the Indian pharmaceutical market due to stiff competition and lower price realisations vis-à-vis their home markets, points out Glenmark Pharmaceuticals in its latest annual report. While the domestic market is seeing increasing adoption of pure generic products, the focus at leading pharma companies is on strengthening the better-yielding branded product portfolio. “Despite the increasing influence of Trade Generics and Jan Aushadhi, Branded Generics are expected to remain predominant,” adds Glenmark.

The trends underline two important points. Tapping the shallow bottom-of-the-pyramid demand is no longer a priority for companies in all sectors. Profitability and return ratios are increasingly driving their business strategies, which is a good sign. This is also partly driven by the consumer upcycle.

On the flip side, the excessive focus on premium products skews the market and leaves limited product choice for consumers in the entry level and economy segment. But this focus on the top creates room for a disruptor to enter the lower end of the market with a well-positioned product and business model, that can grow into a bigger threat for the incumbents.

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