Bottom of the Pyramid

Marketing:

Overview
Defining the Bottom of the
Pyramid
The Great Debate
Opportunities
Risks & Challenges
Guidelines and Leading Practices
Conclusion
Appendix

Defining the Bottom of the

Pyramid: A Visual
Representation

Source: Prahalad, C.K. and Stuart L. Hart, The Fortune at the Bottom of the Pyramid, strategy+business, Issue 26, first quarter 2002

The BoP is the largest, but poorest socioeconomic group.

In global terms, there are 3.7 billion people

who are largely excluded from formal markets,
the group earns less than $2 per day and 60%
of the 3.7 billion people live in China and India.

The Year 2010 saw many new innovations

coming from corporations like Tata, Hindustan
Unilever (Indian Subsidiary of Unilever), Godrej
& Boyce, Narayana Hrudayalaya, and Vortex
among others who have been working on
innovative offerings to the BoP.

The most remarkable innovation of Tata Swach range

of Water Purifiers from Tata Chemicals-A Tata Group
Company satisfying the essential necessity of purified
water for the BoP for as low as Rs.499 ($10).

Another landmark innovation was in the area of

refrigerator from Godrej & Boyce calledChotuKool.
It

provides

all

the

functionality

of

normal

refrigerator but can run on a battery and doesnt

need continuous power supply unlike the traditional
refrigerator. Priced at Rs.3250 ($69), weighing just 34Kgs and works on just 20 parts as compared to over
200 parts in a traditional refrigerator it is the
ultimate game changer, not only for the BoP.

Defining the Bottom of the

Pyramid: Changing Attitudes

Modern View Incorporates Both

Historic
View

The Great Debate:

Win-Win or Misguided
Strategy?
Win-Win

Latent market for

goods and services
Large growth
opportunity, due to
size of BOP
Catalyst for
economic
development
through providing
affordable
products and
services

Misguid
Poor ed
lack income and
jobs; should produce
before consume

Vulnerable to poor
purchasing decisions;
income should be spent
on shelter not ice cream.

Sale of MNC products

does not clearly improve
social indicators

MNC profits flow abroad,

do not help local

Case Study: BOP Strategy

Gone Wrong at Nestle

Project: In 1970s, Nestle began marketing

infant formula to mothers in the developing
world, with the argument that bottled milk
is better for infant children.
Assumptions: Sterile water and bottles, no
dilution.
Impact: Babies using Nestles product in
developing countries were 25X more likely
to die of diarrhea, and mothers developed
an addiction to the product after prolonged
use stopped lactation.

The Great Debate:

Conclusion

Merely selling to the BOP does not solve

poverty, it depends what you sell, how you
sell it, and where it was produced.
BOP strategies have the potential to bring
positive benefits to companies and
communities, but improper application can
have devastating consequences.
Understanding the local situation is crucial.
The key to resolving the debate is a better
understanding of both the risks/challenges
and opportunities presented by the BOP
market

Risks & Challenges:

Operating
Environment

Exposure to new
political and economic
risks
Resources, capabilities
and knowledge of the
complexities and
subtleties of
sustainable
development are
required.
Consumers cant
afford differentiated
products
Competing with local
business can threaten
the existing power
structure.

Economics

Market size unclear:

estimates range from
$0.3 trillion to $13
trillion.

Prahalad uses purchasing power parity

and assumes 4 billion BOP spending
$4/day to estimate $13 trillion.
Aneel uses financial exchange rates
(that MNCs would use to expatriate
profits) and assumes 2.7 billion BOP
spending $1.25/day to estimate $0.3
trillion.

Low margin; high

fixed costs
Distribution
challenges
High price sensitivity
and per unit
transaction costs

Opportunities

BOP consumers suffer

a poverty penalty:

Lack of access to
competitively and
efficientlyprovided goods
and services
Higher prices for
some goods and
services (i.e.
manufactured
goods, credit)
Poorer quality
goods and services

At the same time,

BOP consumers:

Are brandconscious
Have wellconnected
communities
(word-of-mouth)
Readily accept
advanced
technology
Collectively have
purchasing power
Are always trying
to upgrade from
their existing
condition

Opportunities

BOP consumers get cheaper products, access to

technology, and opportunities to become
entrepreneurs, and educate themselves.
BOP markets present companies with a new source of:
Top-line revenue growth
Cost-savings and innovations that can influence
existing business models and management practices
But selling into BOP markets is difficult and even
harder to do responsibly.
In order to market to the BOP in a way that brings real
benefits to impacted communities, companies should
follow some important guidelines and lessons from
leaders in the industry.

4 Keys to Unlocking BOP

Markets to Corporate
Products

Source: Prahalad, C.K. and Stuart L. Hart, The Fortune at the Bottom of the Pyramid,
strategy+business, Issue 26, first quarter 2002

Shape Aspirations:
Engage the BOP as Joint
Problem Solvers
Focus on the poor as producers,
not just consumers.
Upgrade skills and productivity
to improve lives and increase
purchasing power.
Channel resources back into
local communities to improve
standards of living.

Case Study: ITC

Enables Market Pricing

Geography: Rural India

Industry: Agricultural trading
Product: E-Choupals; internetconnected computers
Background:
Farmers sold grain to middlemen
at below market prices.
Lack of information led to
exploitation of farmers.

Case Study: ITC

Enables Market Pricing

Innovation:
ITC developed E-choupals; network of
computers which provided web access in
rural farming villages, each manned by a
literate host farmer to support illiterate
farmers.
Farmers check trading price of their
produce and sell directly to ITC.
Farmers also order raw material at an
aggregate level, thereby saving money
(economies of scale)
Impact: Farmers receive 2.5% higher price
($6/ton).

Tailor Local Solutions:

Innovate from the BOP up

Reorient R&D efforts to create appropriate

technologies and new products and
services that consider the unique needs of
the poor, by region and by country.
Nurture local markets and cultures and
leverage both local solutions and global
best practices to meet identified needs.
At the BOP, capital not labor is the
scarce resource, and focusing on that
difference can lead to greater productivity
and higher returns.

Improve Access: Identify

Innovative Distribution &
Communication Strategies
BOP communities are often
physically and economically isolated.
Create direct distribution and wordof-mouth mechanisms to educate
consumers and expand access and
availability.
Add value by finishing product
manufacturing within the community.

Create Buying Power:

Identify Innovative Financing
Schemes

Provide financial services that focus

not only on access but building
financial literacy and encouraging a
habit of savings.

Do not provide credit for luxury

purchases (note: definition of luxury
items is controversial.)

Encourage investment in
productive assets (tools,
agricultural materials, preventative
health).

Community credit pooling with a

revolving loan fund is one
successful strategy proven to
reduce default risk.

Build the Commercial

Infrastructure: Develop
Partnerships

A companys product or service

offerings are its core
competency, but BOP
strategies require a higher
level of engagement.
Develop partnerships with
NGOs, local governments,
financial institutions and local
entrepreneurs to expand
training, development, microfinance and other expertise.
Building a base of local support
can also help to establish
credibility within local
communities, gain insight into
a countrys culture, increase
local knowledge and overcome
opposition when entering a
new market.

BOP

MNCs

NGOs &
Govts

Conclusion:
For those combating
poverty

IF corporations can
without causing the very
poor to divert income from
pressing needs,
sell products that make
people more productive,
that are produced in a way
that create local jobs and
increase local human capital,
without driving out local
industries,
and reinvest locally instead
of repatriating profits,

THEN, they can be an important

part of the solution to poverty,
which is excellent CSR.

Conclusion:
For corporations interested
in BOP

IF corporations can

create low price, quality

products,
that can be scaled across
many BOP markets and
achieve high volume,
while creating means for the
capital constrained poor to
buy,
and building relationships
and infrastructure that allow
them to reach poor
consumers,
and finally, follow the
directives on the previous
slide (at least enough to
avoid becoming a publicized
bad example)

THEN, they can serve BOP

markets profitably.