Bottom of the pyramid market stands at $1.

2 trillion
Economic Times of India — economictimes.indiatimes.com
Published on April 28, 2007
The base of the economic pyramid (BOP) in India representing the masses is an ov
er $1.2-trillion market, making up the biggest chunk of the global $5-trillion B
OP market excluding China, says a study by IFC and World Resources Institute (WR
I).
The term ‘bottom of the pyramid’ was coined by management guru CK Prahalad to descri
be the poor and the underserved section of the market. The BOP market in India,
about $1.205 trillion, in purchasing power parity terms, makes up 84.8% of the t
otal $1.42-trillion national household market.
The base of the economic pyramid (BOP) in India representing the masses is an ov
er $1.2-trillion market, making up the biggest chunk of the global $5-trillion B
OP market excluding China, says a study by IFC and World Resources Institute (WR
I).
The term ‘bottom of the pyramid’ was coined by management guru CK Prahalad to descri
be the poor and the underserved section of the market. The BOP market in India,
about $1.205 trillion, in purchasing power parity terms, makes up 84.8% of the t
otal $1.42-trillion national household market.
The BOP population of 924.1 million people — 78% of them in rural areas— makes up ab
out 95% of the country’s population. The IFC-WRI study that used data from nationa
l household surveys in 110 countries, the BOP was defined as all those with inco
mes below $3,000 in local purchasing power. China was not part of the study.
“CK (Prahalad) coined the term and he backed it by interesting stories about the m
arket. This study provides statistics and analysis of how big the BOP market is
and what is its buying power,” said WRI vice-president (innovation) Allen Hammond.
In India, BOP accounts for 88.1% of the total national household expenditure on
food, 87.2% of energy expenditure, 85.3% of health spend, 78.8% of household goo
ds expenditure and 52.6% of the country’s spend on information and communication t
echnology.
Of the global BOP market, Asia makes up the biggest chunk with a $3.47 trillion
market, followed by Latin America ($509 billion), Eastern Europe ($458 billion)
and Africa ($429-billion).
Sector-wise, food is the biggest BOP market ($2.8-trillion), followed by energy
($433 billion), housing ($332-billion), transportation ($179 billion), health ($
158-billion), ICT ($51-billion) and water ($20 billion). Compared to the BOP, th
e mid-market segment- those with incomes between $3,000 and $20,000- represents
a $12.5 trillion market globally.

Bottom Of The Pyramid – Nokia’s Second Act

The two-third of world’s 4.6 billon mobile users live in the emerging markets. Mil
lions of these users live below the poverty line and are part of the bottom of t
he pyramid (BOP). Nokia is the market leader in these emerging markets, at least
for now, with 34% market share. It’s clear from rapidly declining Nokia’s marketsha
re and an appointment of new CEO, €Stephen Elop, that Nokia needs a second act. I
believe the BOP is what could be the next big thing for Nokia.
The recent NYTimes story highlights a Nokia’s service, to supply commodity data to
the farmers in India, using a text message. So far, 6.3 million people have sig
ned up for this service. Nokia is planning to roll out this service, Life tools,
in Nigeria as well. This is part of their Ovi mobile business.
I have written before on impact of cloud computing and mobile on the bottom of t
he pyramid and the importance of public policy innovation in emerging markets. T
he BOP is one of the biggest opportunities that Nokia currently has. Nokia has b
een losing marketshare in the smartphone category, and it is going to get increa
singly difficult for Nokia to compete with Apple, Google, RIM, and now Microsoft
. However, the very same vendors will find it equally difficult to move down the
chain to compete with Nokia in the emerging markets.
One of the biggest business challenges to cater to the BOP is not a desire to ma
rket or a product to offer, but it is the lack of direct access to these consume
rs. The people at the BOP are incredibly difficult to reach. I have seen many go
-to-market plans fail because it is either impossible or prohibitively expensive
to market to these consumers. One of the biggest assets Nokia has is the relati
onship, the channel, with the people at the BOP. Now is the time to focus and le
verage that channel by providing them with the content and the services that cou
ld be served on these phones via a strong platform, built for the BOP, and a vib
rant ecosystem built around it.
My two cents: exit from the Smartphone category and double down the investment t
o serve the people at the bottom of the pyramid.
Nokia, that could be your second act.

http://en.wikipedia.org/wiki/Bottom_of_the_Pyramid
In economics, the bottom of the pyramid is the largest, but poorest socio-econom
ic group. In global terms, this is the four billion people who live on less than
$2 per day, typically in developing countries. The World Bank estimates the num
ber of people under this criterion to be 2.7 billion as per its 2001 estimates.
The phrase “bottom of the pyramid” is used in particular by people developing new mo
dels of doing business that deliberately target that demographics, often using n
ew technology. This field is also often referred to as the "Base of the Pyramid"
or just the "BoP".
The phrase “bottom of the pyramid” was used by U.S. president Franklin D. Roosevelt
in his April 7, 1932 radio address, The Forgotten Man, in which he said “These unh
appy times call for the building of plans that rest upon the forgotten, the unor
ganized but the indispensable units of economic power...that build from the bott
om up and not from the top down, that put their faith once more in the forgotten
man at the bottom of the economic pyramid”
The Bottom of the Pyramid (BOP) has emerged as a dominant concept in business, p
ropelled by C.K Prahalad’s (2005) The Fortune at the Bottom of the Pyramid. Given
the enormous attention the concept has attracted, it has the potential to impact
the world’s billions of poor people—as well as the managerial practices of multinat
ional corporations. This double potential makes it important to analyze how larg
e corporations can serve low-income customers profitably (Jaiswal-IIMA, 2007). F
or several years, serious study has demonstrated that there is an untapped marke
t among the very poor that can be served through market-based approaches in ways
that elevate the quality of their lives. BOP markets are often very poorly serv
ed, dominated by the informal economy, and—as a result—relatively inefficient and un
competitive. €
There is huge purchasing power at the bottom of the pyramid. Private companies c
an make significant profits by selling to the poor.€ By selling to the poor, priva
te companies can bring prosperity to the poor, and thus can help eradicate pover
ty. According to the concept of BoP, corporations stop thinking of the poor as v
ictims or as a burden and start recognizing them as resilient and creative entre
preneurs and value-conscious consumers, a whole new world of opportunity will op
en up for future marketing. There are huge potential profits to be made from ser
ving approximately 4 billion people -an economic opportunity which are valued gl
obally at $13 trillion a year.€
Take Indian rural markets for example. Rural markets in India constitute a wide
and untapped market for many products and services which are being marketed for
the urban masses.€ Till now it was government which was trying to reach the villag
es through various initiatives but the rural penetration can be improved signifi
cantly with participation from MNCs. India lives in villages, close to 72 percen
t of Indian population lives in rural areas. The rural economy contributes nearl
y half of the country’s GDP (ETIG 2002-03) which is mainly agriculture driven and
monsoon dependant.€ The McKinsey report (2007) on the rise on consumer market in I
ndia predicts that in twenty years the rural Indian market will be larger than t
he total consumer markets in countries such as South Korea or Canada today, and
almost four times the size of today’s urban Indian market and estimated the size o
f the rural market at $577 Billion.€
Since World War II, Nestlé s milk has by and large been produced by thousands of s
mall farmers in developing countries. And their supply chain efforts have gone w
ay beyond just sourcing. Nestlé has provided the technology, training, and supply-
chain investments to make it possible for the small farmer to produce good-quali
ty milk, transport it, and sell it to the company. This makes sense for the comp
any because it needs fresh, locally produced milk, and for the small farmer, an
assured steady source of income. €
Unilever is another important example. In 2003, the company s Indian subsidiary
refocused its efforts on the country s rural poor in the face of growing competi
tion from new market entrants. By training and hiring low-income, community-base
d saleswomen, the company successfully expanded the reach of its products to an
additional 60,000 rural villages. By relying exclusively on low-income women as
their frontline sales force, it also provided a significant source of income to
a traditionally marginalized group. €
The bottom is the middle class of tomorrow, hence they are important as consumer
s, even though if enterprises do not have an immediate impact due to economies o
f scale as relative to the other classes which give them more business than the
bottom-they will be beneficial in the future. Again these are cheap labors so as
producers as well these are beneficial for the enterprises.
Innovation is another factor to harness the bottom of the pyramid; it is a matte
r of mutual benefit to both the enterprises and the people. Initiatives like eCh
oupal by ITC in India is elimination of middleman in the business between buyer
and real producer the farmers. In this manner both the companies and farmers are
getting right price, that too without any exploitation and undue interests from
the middle man. Business and community partnership is in this manner proving to
be an important factor in the social upliftment of the poor and immediate benef
it for the enterprise.
The only way to alleviate poverty is to raise the real income of the poor. C K P
rahalad proposes that businesses, governments, and donor agencies stop thinking
of the poor as victims and instead start seeing them as resilient and creative e
ntrepreneurs as well as value-demanding consumers. He proposes that there are tr
emendous benefits to multi-national companies who choose to serve these markets
in ways responsive to their needs. €
Traditionally, leading companies—both in the West and in developing countries—have o
perated under the assumption that the world s poor majority—those four billion peo
ple on the planet with a disposable income of $5 a day or less—were simply a non-m
arket, just a void. Writing off four billion potential customers was short-sight
ed, because even if their individual incomes are tiny, collectively they represe
nt a massive business opportunity.€
But the myopia of the past toward this market is starting to correct itself. Mor
e and more companies now see the possibilities of undertaking traditional value
creation activities—from sourcing to engaging the poor in production to distributi
on and sales—in low-income markets. To the degree that these ventures empower the
poor—either by improving their quality of life (clean water, for example), providi
ng them with productivity tools and services (cell phones, for example), or crea
ting jobs—that s where the goals of poverty reduction and economic profit can alig
n. More companies should be looking to leverage the productive capacity of the p
oor as an input to business. We have several great examples of that. €