Fair-trade shops have been credited for procuring products at fair price from farmers from less developed countries for products like coffee. What really is a fair price and for whom is a different question. However this kind of Not for Profit model rang loud bells among the customers in the western world especially in western European countries. Customers in these markets were ready to pay premiums to buy these products. Eventually companies such as Starbucks started adopting the same ‘Ethical supply chain’ practices and their revenues soared.
Customers today especially in the developed world provide good incentives to products that are procured ethically. Similarly the Indian subsidiary of Unilever and the British American tobacco company also have employed ethical yet innovative procurement practices such as the ITC’s ‘e-choupal’ which helped them position themselves as socially responsible in the Indian market.
Many other companies also engage Not for Profit models at the touch points with respect to procurement or marketing or sales. The ideas envisaged by CK Prahlad in his bottom of the pyramid concept have been seen as not of something aligned to CSR, but something of a business imperative. After all, no company can forget 4 Billion potential customers albeit having presently poor purchasing power.
The rapid progress in some of the less developed countries and the new economic giants- India and China is bringing a lot of people out of poverty. This rising middle class can become a huge loyal customer base in future if companies already today work on the ‘value based‘ touch points with them and take a life cycle approach to these customers.
This might mean selling shampoos in smaller sasches, launching local language search engines over the internet, investing in processed food market, but with a solid backing of market and anthropological groundwork in the local markets, investing in R&D centres in local markets, procuring products ethically or giving heavy discounts on products to educational institutes or to support noble causes.
Intel’s has done phenomenal work in this respect in funding labs as well as educational programs in a number of developing countries. One needs to see which touch point needs to be embedded with CSR- in a developed market, it might mean a fair trade model where customers are in masses sometimes better educated or where there is more transparency with respect to important information. On the other hand, in emerging countries and markets with high elasticity, a more market based proactive approach might bring better results.
In terms of innovation, this approach gives a ‘value focus’ as companies tend to focus on the poorest of poor. Most of the ‘Performance overflow’ related features of many western products, for which customers are forced to pay a premium without understanding them or even being able to use them, could be adapted in a very minimalistic value focus. Similarly if R&D projects related to peripheral or auxiliary technology capabilities are envisaged and are related to some public good or cause, they can be funded through public institutions.
Discomforting or even sometimes vulgar it might seem, but the truth is that many companies seek and get funding through institutional mechanisms such as of the European commission for research projects which not only help solve problems of public nature (technology standards, orphan drugs, knowledge platforms, policy tools and technology support etc) but also help gain technological knowhow for furthering product development for business needs as well.
Hence this pure CSR that is embedded in the business model, really helps build credibility and reputation; furthering business performance and innovation.
Gunjan Bhardwaj, advisor, senior editor and member of the editorial board. Gunjan is the leader of the Global Business Performance Think-tank of Ernst&Young. He is also the solution champion for Pricing strategy and effectiveness as well as Innovation management in the advisory services of Ernst & Young with a focus on Pharmaceutical and FMCG sector.Gunjan is also a guest professor for Growth and Innovation management at European Business School (EBS) in Germany and a member of the scientific advisory board of Plexus Institute in the US which researches on complexity in health sciences.
Gunjan has published a number of papers and articles in various Journals and magazines and has been a frequent speaker in conferences on marketing and innovation related topics. He is also the chief editor of the quarterly journal of Ernst & Young’s advisory practice called Performance.
