The bottom of the (economic) pyramid consists of the 4 billion people living on less than $2.50 per day. For more than 50 years, the World Bank, donor nations, various aid agencies, national governments, and, lately, civil society organizations have all done their best, but they were unable to eradicate poverty. This concept is also called “Base of the Pyramid” or simply “BoP.”
Several books and journal articles have been written on the potential market by members of business schools offering consultancy on the burgeoning market. They include The Fortune at the Bottom of the Pyramid by C.K. Prahalad of the University of Michigan, Capitalism at the Crossroads by Stuart L. Hart of Cornell University and the first empirical article, Reinventing strategies for emerging markets: Beyond the transnational model, by Ted London of the University of Michigan and Hart. London has also developed a working paper, commissioned by the United Nations Development Program, that explores the contributions of the BoP literature to the poverty alleviation domain.
Aware of this frustrating fact, C.K. Prahalad begins his book: “The Fortune at the Bottom of the Pyramid” with a simple yet revolutionary proposition: If we stop thinking of the poor as victims or as a burden and start recognizing them as resilient and creative entrepreneurs and value-conscious consumers, a whole new world of opportunity will open up. Prahalad suggests that four billion poor can be the engine of the next round of global trade and prosperity, and can be a source of innovations. Serving the Bottom of the Pyramid customers requires that large firms work collaboratively with civil society organizations and local governments. Furthermore, market development at the Bottom of the Pyramid will also create millions of new entrepreneurs at the grass roots level.
Prahalad presents his new view regarding solving the problem of poverty as a Co-Creation solution towards economic development and social transformation (figure), of which the parties involved are:
- Private enterprises
- Development and aid agencies
- Bottom of the Pyramid consumers
- Bottom of the Pyramid entrepreneurs
- Civil society organizations and local government
12 Principles of Innovation for Bottom of the Pyramid Markets
Prahalad provides the following building blocks for creating products and services for Bottom of the Pyramid markets:
- Focus on (quantum jumps in) price performance.
- Hybrid solutions, blending old and new technology.
- Scaleable and transportable operations across countries, cultures and languages.
- Reduced resource intensity: eco-friendly products.
- Radical product redesign from the beginning: marginal changes to existing Western products will not work.
- Build logistical and manufacturing infrastructure.
- Deskill (services) work.
- Educate (semiliterate) customers in product usage.
- Products must work in hostile environments: noise, dust, unsanitary conditions, abuse, electric blackouts, water pollution.
- Adaptable user interface to heterogeneous consumer bases.
- Distribution methods should be designed to reach both highly dispersed rural markets and highly dense urban markets.
- Focus on broad architecture, enabling quick and easy incorporation of new features.
Origin of the Bottom of the Pyramid
Before his 2005 book, Prahalad published two articles regarding this framework about alleviating poverty:
- Jan 2002: The Fortune at the Bottom of the Pyramid (Strategy+Business), with Stu Hart
- Sep 2002: Serve the World’s Poor, Profitable (Harvard Business Review), with Allen Hammond
Usage of the Bottom of the Pyramid
- This framework provides an impetus for a more active involvement of the private sector in building the marketing ecosystems for transforming the Bottom of the Pyramid.
- Helps to reconsider and change long held beliefs, assumptions and ideologies.
- Provides clues on developing products and services for Bottom of the Pyramid consumers.
Strengths of Bottom of the Pyramid thinking
The biggest strengths of the Bottom of the Pyramid approach by Prahalad is, that it helps to reconsider and change long held beliefs, assumptions, and ideologies, which are all based on and are supporting victim- and burden thinking:
- There is money at the Bottom of the Pyramid: it is a viable market.
- Access to Bottom of the Pyramid markets is not necessarily difficult. Unconventional approaches such as the Avon ladies approach may work.
- The poor are very brand-conscious.
- The Bottom of the Pyramid market has been connected (mobile phones, TV, Internet).
- Bottom of the Pyramid consumers are very much open towards advanced technology.
Assumptions of the Bottom of the Pyramid
- The poor can not participate in the benefits of globalization without an active involvement of the private sector and without access to products and services that represent global quality standards.
- The Bottom of the Pyramid market provides a new growth opportunity for the private sector and a forum for innovations. Old and tried solutions cannot create markets at the Bottom of the Pyramid.
- Bottom of the Pyramid markets must become an integral part of the work and of the core business of the private sector. Bottom of the Pyramid markets can not merely be left to the realm of Corporate Social Responsibility (CSR) initiatives.
Source: C.K. Prahalad – The Fortune at the Bottom of the Pyramid: Eradicating Poverty through ProfitsBusiness frameworks like Bottom of the Pyramid are invaluable to evaluating and analyzing various business problems. You can download business frameworks developed by management consultants and other business professionals at Flevy here.