In his book The Fortune at the Bottom of the Pyramid, Dr C K Prahalad of the University of Michigan suggested that the very poor people in a society are actually resilient entrepreneurs and value-conscious consumers. By encouraging entrepreneurship at this level and developing products needed by this group, not only can companies make profits from a new market but levels of poverty in society can also be reduced. And when the poor become "middle class," the extent of market for all companies gets expanded.
Bottom of the Pyramid
In terms of economic power, societies typically resemble a pyramid. There are a few super rich at the narrow top and a vast section of comparatively poor at the wide bottom. In the third world with no social security, the people at the bottom of the pyramid (BOP) tend to be extremely poor, with an income of less than $2 per day.
Persons growing up in desperately poor environments will typically continue to work their whole lives for subsistence, even if some of them possess the intellect of an Einstein. Some might become underworld dons while many will be cannon fodder for the dons and other ambitious individuals. The situation is unsustainable from ethical, social and political viewpoints.
Many world and national organizations have been engaged for years in poverty eradication efforts. Despite decades of work, these organizations have not been able to eradicate poverty. It is in this context that people like Dr Prahalad are taking a new look at the situation.
What Dr Prahalad suggested is that one should not view the poor as victims deserving only of charity. Instead, they should be viewed as potential entrepreneurs and consumers who can help profit-seeking companies earn good profit. Instead of trying to support the poor with charitable donations, engage with them and help them become entrepreneurs, and develop products and services that cater to their needs and that they can afford.
Bottom of Pyramid Products and Services
Many companies have tried to implement these concepts on the ground and found success. Examples include:
- Micro-credit: Organizations like the Grameen Bank in Bangladesh focus on lending small amounts of money to people who will never get it from commercial banks. Such lending not only helps the poor to, say set up a tiny venture that brings them steady returns (and enable them repay the loans) but also helps the bank increase its business.
- Single-serve Products: Unilever in India developed a shampoo that was sold in single-serve sachets at low prices. Rural consumers who cannot afford to buy a full bottle with their low daily wages bought it in sufficient volumes to make it a worthwhile venture.
- Community Partnership: S C Johnson Company partnered with youth groups in a Nairobi (Kenya, Africa) slum to set up a waste management and cleaning company that provided home-cleaning, insect treatment and waste disposal services to residents of the slum.
While these examples are taken from the third world, the same concept can be applied even in the context of developed nations with substantial sections of poor people. By providing entrepreneurship support, and products tailored to their needs and means, companies can make profits while helping underprivileged groups.
New technology has made it possible to do things that would have been too expensive to be practical in the pre-technology era. The Internet can deliver education to people in remote locations. Handicapped persons can be made productive with new technology products and services. An ATM machine in Brazil is designed for use even by illiterate people.
Criticism of the BOP Concept
Not all people have been convinced that the BOP (Bottom of Pyramid) concept can work. What BOP seems to do is essentially convince large corporations that there is a profitable market consisting of the very poor people in societies. Profit is a stronger motive for corporate action compared to charity.
Businesses typically seek to seek the best returns on the deployment of their funds. They will be interested in a business opportunity only if produces the desired rate of return on the investment. The market at the bottom of the pyramid might not generate this kind of return because of several factors such as:
- The nature of the products, which is likely to be dominated by food and beverages, tobacco and intoxicants.
- The presence of public distribution networks that delivers much of the food to the poor at subsidized prices.
- The increased transaction costs caused by the numerous purchases in small quantities that is characteristic of this market.
The result is that profit motive alone might not generate the required momentum to produce desired results in the area of poverty eradication. What is needed is to create awareness among the people at the top of the pyramid that the people at the bottom can disrupt their comfortable existence because of their increasing social and political power.
Like all arguments, both sides are likely to be partly right. There can be situations where the BOP concept can produce results; in other situations, it might not be a practical solution.
The bottom of the pyramid represents the poorest section of a society. This section has typically been ignored with occasional acknowledgements in the form of charity. Persons like Dr Prahalad see a big market at the bottom that is worthy of the attention of even large multinational corporations. They think that the profit motive of businesses can help eradicate poverty that could not be tackled with charitable efforts.
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