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5 Product Categories Seeking Billion-Person Markets and High Revenue Growth

HIPInvestor | Wednesday March 21st, 2012 | 0 Comments

3nd in a series of excerpts from the book The HIP Investor (John Wiley & Sons, 2010). See other articles in the series here.

In his 2011 State of the Union Speech, U.S. President Barack Obama called for the nation’s business leaders and entrepreneurs to “out-innovate, out-build and out-compete” the world to grow its economy. Embedded in that call for action is recognizing the 4 global trends (outlined in part 2 of the series) to solving what historically have been viewed as seemingly intractable human problems — for profit. In this excerpt, we examine 5 human needs – health, wealth, earth, equality and trust (see part 1 of the series) – that have potential to generate high growth of top-line revenue and innovative leadership in billion-person markets.

No. 1 – Health: Affordable Care Saves Lives

In 2005, General Electric’s (NYSE: GE) products in the Africa-Middle East region generated about 3 percent of its world revenue. To effectively deploy the $20 million corporate donation promised by CEO Jeff Immelt to Africa based on staff advocacy, GE engineers traveled across Africa and were startled to find little to no GE technology in many health care facilities. By the trip’s end, the engineers determined not only how to allocate their charitable contributions, but more importantly had identified new market opportunities that included affordable health care access for GE to explore.

Previously GE’s Healthcare products were built and priced for specific higher-income developed markets. This resulted in a limited number of customers who could afford health care. If GE could adapt their products for these markets, then in-country hospitals would become a new source of customers –creating positive human impact as well as profit potential. We call this “HIP” for “human impact and profit.”

With an energy and focus on serving a new, untapped market, GE identified specific challenges including the continent’s high infant mortality rate and lack of prenatal care. The GE engineers invented a new product to increase health—a portable ultrasound machine that sold for 30 percent of the original cost. Using a rugged portable laptop and an ultrasound wand, the machine was built to be electronically reliable without continual technological support and to easily move from location to location, allowing for collective purchasing and efficient implementation. Ultrasound machines were sold across the continent, generating $175 million in global revenue as of December 2007 and dramatically improving health care for millions across Africa.

By 2011, GE’s sales to the Africa–Middle East region totaled more than $10 billion, or 5 percent of global revenue. GE is innovating a wider set of affordable products based on global trends that are designed to serve new consumers, rely on renewable resources, offer transparent information to their customers, and serve the demand for products that do “good.”

No. 2 – Wealth: Building Customers’ Net Worth

Adding net worth to customers as your product’s mission can generate large market share – which of course is HIP. Before its acquisition in 2010, financial website and iPhone application Mint.com attracted 1 million active users tracking $200 billion in transactions and $50 billion in assets. Mint claimed $600 in savings per active user, having identified over $300 million since its inception in 2005 to 2010. Intuit (Nasdaq: INTU) acquired the firm for $170 million (after unsuccessfully competing with it) to tap into its earned revenue through referral fees on a marketplace designed to give customers better deals such as lower interest-rate credit cards or higher-rate deposits. Mint.com developed out of the basic human need for active personal financial management, an opportunity for financial firms to serve clients before themselves.

No. 3 – Earth: Conserving Energy and at the Pump

While the word “hybrid” often brings to mind the Toyota Prius, the best-selling hybrid vehicle globally, Ford (NYSE: F), the only major US auto firm to avoid a “bailout,” is a strong competitor. However, while competing in the retail channel, the two companies have co-developed engine technologies that are used in both brand’s vehicles. Ford offers a suite of hybrids including the Ford Escape, while Toyota produces the Highlander; both models feature an innovative technology co-developed jointly by Ford and Toyota. Most recently, we can also look for newer HIP cars on the road, such as electric cars like the Chevy Volt (NYSE: GM), the Nissan Leaf (ADR: NSANY) and the Tesla (Nasdaq: TSLA).

No. 4 – Equality: Distributing Globally at Local Prices

Developing countries around the world struggle to provide reasonably priced health care to their citizens. To address this head on, Gilead Sciences (Nasdaq: GILD), a $35.5 billion biotech firm known for its HIV and AIDS treatments, has developed an innovative pricing approach that results in better health, affordable products, and improved access to medicine. Gilead has built partnerships with at least 13 companies in India to produce lower cost generic versions of its medications. Distributed in 95 countries where partners can price according to the market, Gilead collects a 5 percent royalty on purchases. This new market came at a small cost, is growing revenue, and brings a positive human impact to millions who had not accessed those health solutions previously, a HIP solution for business and investors.

No. 5 – Trust: Expanding Transparency in All Trading

The Intercontinental Exchange (NYSE: ICE), by the firm of the same name, was launched to transform over-the-counter energy markets with an open, accessible, around-the-clock electronic marketplace, a huge transition from the previously fragmented and opaque market. ICE gave energy price transparency, offers greater efficiency, liquidity, and lower costs. In 2008, ICE’s revenues totaled $813 million, and it continues to push forward electronic marketplaces for energy. ICE has also expanded into commodities including sugar, cotton, and coffee, and in 2010, it acquired Climate Exchange (parent company to CCE, CCFE, and ECE) for $600 million. ICE’s products facilitate increased transparency which leads to trust, and efficient pricing for customers buying and selling materials and commodities, a combination of positive impact and potentially higher profit, which is quite HIP.

The 4th installment of this series will focus on quantifiable metrics of environmental, social and human impact. These leading indicators of profit and shareholder value are used by strong companies to manage people, resources and risk more effectively. Higher performance on these metrics also tend to correlate with more attractive portfolio performance, increasing potential for more profit, less risk and greater positive human impact on our global world – a HIP solution for citizens, business and investors.

To navigate this series, please use this table of contents.

***

R. Paul Herman is CEO and founder of HIP Investor Inc. Herman is the author of “The HIP Investor: Make Bigger Profits by Building a Better World,”  published by John Wiley & Sons in 2010. Herman is a registered representative of HIP Investor Inc., an investment adviser registered in California, Washington and Illinois.

NOTE: This feature, excerpted and adapted from the HIP book, is not an offer of securities nor a solicitation. The information presented is for information and education purposes, and is not an investment recommendation. Past performance is not indicative of future results. All investing risks losing your principal. The author may invest in the companies mentioned above, and several are included in the HIP 100 Index portfolio. Details and full disclosures are at www.HIPinvestor.com

Follow on Twitter @HIPInvestor

Photo by Robert Scoble/flickr/Creative Commons


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