It was Franklin D. Roosevelt who referred to “the forgotten man at the bottom of the economic pyramid” in a radio address in 1932, but the late CK Prahlahad who brought it into the business arena with his book the Fortune at the Bottom of the Pyramid. The idea was compelling. The Bottom of the Pyramid, or just BoP; is the largest, but poorest socio-economic group globally, who live on less than $2.50 per day. Prahlahad’s book triggered a huge debate on developing new models of doing business targeting this demographic group – selling low margin products in high volumes to consumers at the bottom of the socio-economic ladder.
Several others joined the debate. Hart’s Capitalism at the Crossroads (2005) opened up the debate highlighting the interplay of three economies: the money economy, the familiar globalised world of industry and commerce; the traditional economy, the village and subsistence-based way of life made up of over four billion (or two thirds of humanity) and a third; nature’s economy, which consists of the natural systems and resources that support the money and traditional economies. Hart argues that the three are on a collision course which is setting a pressing agenda.
Then, Karnani (2007) questioned the numbers with a critique of the BoP trillion dollar market and the central proposition that large companies can make a fortune by selling to poor people and simultaneously help eradicate poverty. While a few market opportunities do exist, the market at the BOP is generally too small monetarily to be very profitable for most multinationals. At the same time, the private sector can play a key role in poverty alleviation by viewing the poor as producers, and emphasize buying from them, rather than selling to them.
The ongoing economic crisis and, in particular, stagnation in mature markets has brought this debate back to the boil and shareholders are increasingly active in demanding that businesses across the developed world – branded consumer goods in particular – should have a clear understanding and commitment to expansion in fast growth and frontier markets. This is not the place for a literature review but, it is important to explore the challenges that the BOP agenda faces.
1. Triple bottom line. This Blog has highlighted the need to champion an ethical dimension to economics with reference to Adam Smith’s earlier work Theory of Moral Sentiments and Amartya Sen’s position on the benefits to society of such a stance. Fast forward and the triple bottom line urges business to balance their drive for financial results with the social and environmental impacts generated. This is a BoP perspective.
2. Producers not consumers.CKP’s BoP ideas helped me to form the ideas around T L and yet, with more exposure to the realities on the ground I am more in tune with the point made by Karnani () who argues against the BOP as a consumer market and urges an alternative approach to focus the poor as producers. The only way to alleviate poverty is to raise the real incomes of the poor. We must be careful not to confuse the need to build livelihoods and local stakeholders with a drive to feed lifestyles and shareholder short-termism.This point has been fundamental to the switch in thinking of many early adopters of CKP’s BOP ideas. Godrej, an innovative Indian business with wide interests, involved rural folk in the design of a refridgerator, ChottuKool, that would meet the needs of the poor – small enough for rural homes; 20 instead of 200 parts and a price point to match the pocket. Results did not meet expectations and they realised that affordability was key and a clearer understanding of the lifestyle that a poor livelihood can afford. For example, the food don’t store food – they eat it. Godrej decided to re-position these BOP products around helping customers generate income. Hence, the shift to producing a version for small kirana stores to store water and drinks they sell and, neighbourhood pharmacies to store vaccines.No everyone is re-positioning their efforts into the EM territory. Hindustan Unilever Ltd (HUL), India’s largest marketer of home & personal care goods, claims success at the BOP. Project Shakti develops self-help groups selling low-priced opacks of detergents in sachets for 1 rupee and, altering their advertising campaigns for media dark villages in remote rural areas.There are other examples. As Fortune reported on November 15, 2006, since 2005 SC Johnson has been partnering with youth groups in the KIbera slum of Nairobi, Kenya. Together SC Johnson and the groups have created a community-based waste management and cleaning company, providing home-cleaning, insect treatment, and waste disposal services for residents of the slum.
3. The demographic diamond.This emphasis on the pyramid distorts reality and the diamond makes more sense. Here, we highlight the growing middle class.
This market segment in emerging markets opens up a new target market – which PricewaterhouseCoopers call the “emerging middle” (EM). This is a lucrative market with incomes within the range of many consumer products. In India, at 470 million, this is the largest chunk of the population; projected to become 570 million or 47 per cent by 2021. By then the EM base is expected to account for $1 trillion of consumption – up from $450 billion currently. This not to abandon the BoP position; it is to acknowledge that there is a need for more specific segmentation to sharpen the focus on real needs – livelihoods not lifestyles; ways to earn and not just to consume.
4. Design.Paul Polak has highlighted the irony that 90 per cent of designers focus the needs of the 10 per cent with the wealth and, BOP has been a catalyst to challenge this.The BOP poster child often cited has been Chennai based Cavinkare’s single use shampoo sachet which reduces upfront costs. Though Hindustan Lever’s version that works best with cold still water followed it is a salutary reminder that not all innovation will come from the MNCs with all their technological and marketing prowess.”A single-serve revolution” swept through poor countries, as companies learned to sell small packets of various products such as shampoo, ketchup, tea, coffee, biscuits, and skin cream. The poor might not have the money to buy a bottle of shampoo, but could buy shampoo sachets for occasional use.And yet, Karnani (2007) cautions that these moves have exacerbated the environmental issue in poor villages and slums where trash collection facilities are grossly inadequate. it has been over twenty years since the first introduction of shampoo in sachets, and companies have not yet solved the environmental problem caused by plastic packaging.
5. Sustainability as the catalyst.Sustainability is no longer a CSR (Corporate Social Responsibility) agenda. Irrespective of the view on climate change the fact is that population is rising; we are moving to over three-quarters living in increasingly crowded urban spaces and, with more mouths to feed food production has to double.The way we use and dispose of waste is increasingly relevant and, much of this is about behaviour change. However, the argument does not tackle the real scope of the question and, the wider implications of a solution. For example, the fact that over 40 per cent of the harvest in India wastes on the way to market is cited as an illustration of the need to improve supply chains performance. Rarely do we hear the wider context – that waste in the developed world is worse. Consumers throw away perfectly good food that they buy but don’t eat. It is worse to throw away something that has been through several stages of value addition than something that has just been harvested.
6. The nature of business.Again, we have noted the tendency for MNCs to dominate their category with the top ten companies in products from cars to fertilizer controlling anything from 55 to 85 per cent of global market share – hardly a recipe to bolster competition.Cooperatives – with dairies world-wide offering excellent illustrations of the point – can play a much bigger role in this drive for inclusivity. Businesses have to add value but they don’t have to do this for profit. Several businesses are shifting parts of their structure into charity status – for example, P&G have done this with bottle water; Philips allow local stakeholders to use intellectual property and design for free as part of the company’s contribution to sustainable development. The returns are not measured in terms of profit but in building brand equity and trust.
7. Technology. Einstein made plain that a sign of madness was to do the same thing and expect a different result. Technology can be a game changer in the BoP agenda. As a means to aggregate demand and supply capacity, mobile technologies are playing a significant role and this can be accelerated as smart phone price points fall. The same technology is challenging the banking paradigm and could play a significant role in transforming a legal system that clogs up legal title to property and consigns more than needed to the margins of society. The same opportunities open up with skills training and, a range of improvements open to traditional industries from artisan fisheries to local produce so enjoyed by tourists. World Music is one example that is rarely explored where technology can provide market access and the cost of production falls.
Overall, the BoP proposition has opened our eyes to the realities that the world’s poor face; highlighting a focus on livelihood and not just lifestyles. Specifically, that business needs to help the poor produce rather than entice them to consume. Karnani argues that one way to do this is to make markets more efficient such that the poor capture more of the value of their outputs – this opens up the debate on inclusive value streams broached by Malcolm Harpers work in Orissa. The T L perspective is to argue that logistics and inclusive value streams can play a decisive role in this quest – less as consumers but more as producers. This is a huge agenda that can transform livelihoods and bolster efforts towards inclusive and sustainable growth.