Chasing the 'base of the pyramid'

Veteran cleaning-product firm SC Johnson seeds startups in the poorest parts of Africa. Socially responsible? Yes, but also good business, reports Fortune's Marc Gunther.

By Marc Gunther, Fortune senior writer

NEW YORK (Fortune magazine) -- Do the slum-dwellers of Nairobi, Kenya, really want Windex and Ziploc bags?

You might not think so. But SC Johnson Co., the family-owned company with $7 billion in global sales that brings us Windex, Pledge, Raid and Ziploc bags, is setting up shop there. It's part of an attempt to build profitable businesses that reach the 4 billion poorest people on earth, those who live on less than $5 a day.

It won't be easy. "Kenya is never the same, day to day, week to week," says Scott Johnson, vice president of global environment and safety at SC Johnson. "It's never what it appears to be, at least to someone sitting in headquarters."

SC Johnson's experiment will test a theory about doing business at what's called the "base of the pyramid". That's where the 4 billion poorest people live. At the top of the pyramid are the 600 million people earning more than $15,000 a year, where most big companies do business. In the middle are the 1.4 billion earning $1,500 to $15,000 a year.

Behind the theory are two of the most innovative business thinkers in academia: Stuart Hart of Cornell, author of "Capitalism at the Crossroads: The Unlimited Business Opportunities in Solving the World's Most Difficult Problems" (Wharton, 2005) and the University of Michigan's C. K. Prahalad, author of "The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits" (Wharton, 2004).

Hart is helping to guide the SC Johnson project. The goal, he explained last week at Business for Social Responsibility's annual conference, is to help the company serve a vast market in ways that are sustainable and culturally appropriate.

Companies that do it right, he argues, will not only reach new customers; they will develop innovative products, business models and technologies, and they will help lift people out of poverty. "The question is, can multinationals figure it out?" Hart asks. "It takes a very different mindset."

Detergent for the poor

More than a few are trying. Hindustan Lever, a Unilever (Charts) unit, sells small packets of detergent to India's rural poor by decentralizing production, marketing and distribution.

The Solae Company, an alliance between DuPont and Bunge Limited, wants to bring foods made with soy to India.

French-based Groupe Danone (Charts) recently announced a partnership with microcredit institution Grameen Bank to create a small plant in Bangladesh that will make nutrient-rich yogurt for 6 cents a serving, creating jobs and supporting local dairy farmers.

And Microsoft (Charts) plans to roll out 50,000 computer kiosks run by entrepreneurs throughout India.

SC Johnson's Kenya adventure began in the summer of 2005 when a six-person team of company employees and interns went to live in Kibera, east Africa's largest slum (the word they use). They stayed in people's homes, soaking up the culture, learning to milk cows or make a Kenyan staple called "mandazi," a sweet fried bread.

Eventually, the newcomers, working with about a dozen people who were already selling SC Johnson products in Kenya, formed connections with youth groups that collected garbage in Kibera.

Together they came up with plans to create a "community-based cleaning and waste management company," which would sell pest control, cleaning services, and garbage pickup. "It was about creating a service from the products that SC Johnson has," explains Justin DeKoszmovsky, a leader of the Kenya project for the firm.

Some marketing surprises

Not long afterwards, youth groups in two other Nairobi neighborhoods formed similar cleaning companies with the company's help. They've run into the problems faced by many startups, and then some. They weren't sure what services people wanted, or how much to charge.

"These aren't communities where you run focus groups," DeKoszmovsky says. Some customers want their TVs and windows cleaned using Windex, while others are more focused on ridding their homes of pests using Baygon.

The company didn't expect much of a market for Pledge, a premium-priced furniture cleaner, but it turned out that people liked the lemony scent. Pricing's another issue. All the business is transacted in cash, and customers like to haggle. Some services cost as little as $1.40. Says DeKoszmovsky: "Some groups are doing fantastically. Others are struggling."

The youth groups have laid out big goals: to improve living standards and hygiene, create jobs and improve communities. Will this evolve into a real, profitable business? It's probably a long shot, but the risks are relatively low and the rewards could be big. "If we can crack this market, the model could easily be spread to many of our subsidiaries around the world," says Scott Johnson, who is no relation to the family that has run SC Johnson for more than a century.

The company operates in more than 70 countries, and it has a tradition of environmental and social responsibility. Among other things, the company supports Hart's base-of-the-pyramid research at Cornell, where he is the Samuel C. Johnson Chair of Sustainable Global Enterprise.

Fortunately, no one involved expects instant results. "We always take the long view in our decisions," Johnson says. "We're very patient. And I can see that working at the base of the pyramid is going to test our patience."

Windex, Pledge, Raid and Ziploc are registered trademarks of S.C. Johnson & Son, Inc.

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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.