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The Fortune at the Bottom of the Pyramid

 
Is your company missing a market of four billion people?
10/18/2004

In his book, University of Michigan Business School professor C.K. Prahalad challenges business's common beliefs about the world's poor. Prahalad introduces readers to the Bottom of the Pyramid (BOP), an untapped market of more than four billion people, many of whom live on less than $2 a day. This is the market companies should be paying attention to, he says, even more so than the few rarified consumers at the high-profit pinnacle, or even the growing middle markets.

Prahalad demonstrates that the benefits of making products more affordable to the world's poor can provide investments to create real partnerships and innovations for established companies.

One example of this applies to the village of Dharavi, India. Since most of the people there are not property owners, they don't spend a lot of money improving their living quarters. But they do spend money on luxury items—85 percent of households in this village own a television set, 75 percent own a pressure cooker and blender, 56 percent a gas stove, and 21 percent have telephones. And don't think that brand names are not a factor to members of this group. In fact, the author's research shows that brand consciousness among the poor is universal.

By serving this demographic, companies can empower those living in poverty, while opening opportunities for investments of their own. To illustrate the potential that small investments can make, Prahalad uses the ITC, an Indian conglomerate that looked for ways to specialize in agritrading, but was getting crushed by its competitors. ITC then invested in a plan that distributed computers to Indian farmers and provided recipients with an agricultural information portal. Now, farmers can communicate with each other about common problems and best practices. They can look up weather patterns. For once, farmers view themselves as players in the world economy as they go online to see trading prices for rich yielding crops such as soya. ITC comes out a winner too, with a smoother supply chain, more reliable production, and higher quality produce.

Prahalad points out that companies who want to invest in BOP markets must make it part of their core business. This is not a corporate social responsibility initiative. This is real investment that takes attention, planning, and resources.

Should potential investors in BOP be wary of possible criticism that these companies are exploiting the poor? Prahalad answers that the worst outcome for all involved is for business to ignore this market. The poor are not better served by government programs, NGOs, or people who simply want to do good. Consumers, no matter their economic rank, need to be engaged, see success, and feel entrepreneurial.

Prahalad acknowledges that change will not be easy, but he presents well-researched case studies and compelling reasoning for why the BOP is a market worthy of attention. —Manda Salls