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 socio-economic 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 called ChotuKool. It provides all the
functionality of a normal refrigerator but can run on a battery
and doesn’t need continuous power supply unlike the traditional
refrigerator. Priced at Rs.3250 ($69), weighing just 3-4Kgs 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
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 The Great Debate:
Win-Win or Misguided Strategy?
Win-Win Misguided
 Latent market for goods  Poor lack income and jobs;
and services should produce before consume

 Large growth  Vulnerable to poor purchasing

opportunity, due to size decisions; income should be spent
of BOP on shelter not ice cream.

 Catalyst for economic  Sale of MNC products does not

development through clearly improve social indicators
providing affordable
products and services  MNC profits flow abroad, do not
help local economies
 Case Study: BOP Strategy Gone
Wrong at Nestle
 Project: In 1970’s, 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 Nestle’s 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.
Case Study: BOP Strategy Gone
Wrong at Nestle
 In addition to the incorrect assumption about sterile water,
Nestle used questionable marketing tactics with BOP
consumers:
 Health agencies condemned Nestle for marketing instant
infant formula in developing countries.
 Nestle’s marketing implied that Western women substituted
mothers’ milk with formula.
 Promoting infants’ milk as a product that was more beneficial
to both mother and child than natural breast milk.
 Clearly violated the WHO/UNICEF’s International Code of
Marketing Breast-Milk Substitutes.
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 can’t 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/day¹ to estimate $0.3
trillion.
 Low margin; high fixed costs
 Distribution challenges
 High price sensitivity and per
unit transaction costs
¹World Bank 2005 estimate
Opportunities
 BOP consumers suffer a  At the same time, BOP
poverty penalty:
 Lack of access to
competitively and
efficiently-provided
goods and services
 Higher prices for some
goods and services (i.e.
manufactured goods,
credit)
 Poorer quality goods and
services
consumers:
 Are brand-conscious
 Have well-connected
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; internet-connected
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.
Tailor Local Solutions:
Reevaluate Price-Performance-Process Matrix

 Incorporate local know-how.

 Rethink the entire business process – from product
development to production to logistics – with a
focus on meeting functionality needs.
 By Prahalad’s estimates, BOP innovations must
achieve a drastic price reduction (30 – 100x) in order
to be locally competitive.
Improve Access: Identify Innovative
Distribution & Communication Strategies

 BOP communities are often physically and

economically isolated.
 Create direct distribution and word-of-
mouth mechanisms to educate consumers
and expand access and availability.
 Add value by finishing product
manufacturing within the community.
Improve Access:
Create a Scalable Model
 Design solutions for adaptability across markets.
 Scalability is key to profitability since BOP products
tend to be low margin.
 BOP profits are driven by volume and capital
efficiency.
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 company’s product or service
offerings are its core competency,
but BOP strategies require a higher BOP
level of engagement.

 Develop partnerships with NGOs,

local governments, financial
institutions and local entrepreneurs
to expand training, development,
micro-finance and other expertise. NGO’s &
MNC’s
Gov’ts
 Building a base of local support can
also help to establish credibility
within local communities, gain
insight into a country’s culture,
increase local knowledge and
overcome opposition when entering
a new market.
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.