Bottom of the pyramid, also called the base of the pyramid, is a phrase in economics that refers to the poorest two-thirds of the economic human pyramid. Prahalad has some useful insights about consumer needs in poor societies and opportunities for the private sector to serve important public purposes while enhancing its own bottom line. Four consumer tiers: At the top of the pyramid are million affluent consumers. These are cosmopolitan groups composed of middle- and upper-income people in developed countries, and rich elites from the developing world they are tier one.
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Prahalad, and his colleague Stuart L. Hart debuted a simple but radical idea. They argued that the 4 billion poor people around the world represented a vibrant consumer market, that this market could best be tapped with for-profit models, and that the poor themselves had to be partners in the process.
This challenged many long-held assumptions about the role of both government and business in addressing poverty. At the time, their thinking which had been rejected for four years by scholarly journals invited polite skepticism at best. Much of the hesitation to engage with their ideas stemmed from a belief that uplifting the poor was the domain of government and nonprofits, or was simply too risky.
Most businesses lacked the insight and cost structures to reach poor consumers. There was a persistent belief that needs such as shelter and nutrition had to be addressed before the poor could understand — and pay for — aspirational products and technology. Sadly, this pessimism was as common among elites in emerging markets as it was in the West.
And unlike many management ideas that have come and gone, the concept of the bottom of the pyramid continues to inspire vibrant conversation today. I think the reason is that it speaks to the aspirations of managers and consumers alike. It represents a fundamentally optimistic view about the ability of the poor and people inside organizations to collaborate and make the world a better place.
By now, the idea of business as a force for good has taken hold, and the discussion around poverty has changed, too. This is enabling companies to develop, deliver, and scale many important services, such as bank payments to mobile phones. The World Bank estimates that since , 1. Data from the International Monetary Fund shows that the fastest-growing economies in the world are in emerging markets. The transition is in progress in many parts of Africa too although there is tremendous variation in poverty rates on the continent , with Chinese investment leading economic growth.
They are now purchasing a range of goods and services, including consumer products and cell phone plans. Because of this overall reduction in extreme poverty, the conversation about the bottom of the pyramid has shifted from how to alleviate poverty to how to address deep inequality — and not just in developing countries.
In there were fewer people at the bottom of the pyramid 3. By , there was a new concentration of wealth at the top. Oxfam reports that 42 individuals now possess the same cumulative wealth as the bottom 3. Poverty has decreased and access to technology has accelerated, but the once widely held idea that the income pyramid would transform into a diamond, with wealth concentration in the middle, has not yet become a reality. Nevertheless, there has been significant progress at the bottom, and both multinational corporations and local innovators have driven it.
In some cases, the technology is even more accessible than low-priced products. But the way the car was marketed hindered its appeal among its intended consumers, and Tata halted production in Meanwhile, ride-sharing apps such as Uber and Indian local alternative Ola have enjoyed brisk growth, and Ola is now expanding overseas. Everyone can both use these platforms and find work on them, and in the future, some of these services may help fulfill last-mile delivery challenges, too.
And companies such as Amazon, which is training many small vendors around the world to scale up and become credible brands in their own right, are also helping to propel growth. Access to technology enables growth for consumers and businesses. And these days, the fortunes of many tech companies rely heavily on their performance in bottom-of-the-pyramid markets.
Apple is the only Western company in the top five. And Warren Buffett made his first investment in India in August , taking a stake in One97 Communications, which owns payments firm Paytm. The evolution of technology has dramatically affected life at the bottom of the pyramid — and created new opportunities. The poor all over the world now have cell phones.
Companies no longer have to guess about the preferences and opinions of the bottom of the pyramid when they innovate — they can ask directly. Big data and a payments infrastructure exist for consumers at all income levels. The statistics, though, can never adequately capture the palpable changes on the ground or give a complete sense of the new dynamics at work. The traditional view of needs explains very little of what is being adopted and purchased at scale in emerging markets.
The picture in most countries mirrors this trend — purchases among the poor are a reflection of aspiration rather than pure need. Savvy companies and social innovators today often leverage this phenomenon.
The original bottom-of-the-pyramid vision suggested that companies that innovated successfully for the poorest markets might be able to attract consumers in developed countries too.
Since then, the gap between these markets has narrowed, which means companies of all sizes should be able to capture both types of consumer by considering their common wants in five specific areas:.
Companies with a higher purpose. Business leaders today face pressure to deliver profits while also contributing to society.
Changing consumer attitudes show that people like companies that engage on social issues. And many employees, especially millennials, want to work at firms that use innovation as a force for good in the world. It is increasingly common for leaders to articulate a vision of how their companies can contribute to a higher purpose. Larry Fink of BlackRock used his annual letter to CEOs to call for companies in the portfolio to directly contribute to the community.
Trust and community before transactions. Trust is a central precursor to scale. For example, creating opportunities for consumers to sample products and enlisting local salespeople has been critical to the success of the personal care, snack, and detergent businesses. Many companies have invested heavily in product development, but fall short on customer service.
Increased competition, which puts pressure on companies to provide better customer service, and new platforms for feedback, delivery, and co-creation, which help companies understand what customers want, can help address this gap and establish and maintain trust. Design for a fraction of the cost. Big data allows businesses to draw on insights and come up with products and services at radically reduced price points.
Rather than relying on limited samples or anecdotal evidence, companies can track actual purchase behavior and transactions to get a sense of the design elements and attributes that consumers value. Companies around the world can already access new markets through platforms such as Amazon. The line can challenge established brands in the U.
In addition, new ways of consuming, especially shared ownership, are allowing people to access previously unattainable goods and experiences. A blend of luxury and economy. If you look at a list of the top global brands today, both the luxury and mass-market sectors are well represented. Tech companies, which attract consumers across a wide range of incomes, are exceptions. However, many of the companies in emerging markets have never had the freedom to serve just one sector or the other.
A volatile world will require companies to create products and services that appeal to customers across a much wider swath of income levels. Tata, for example, has credibility in the luxury category and in the middle- and bottom-of-the-pyramid markets. Its brand requires design with similar standards — albeit different aesthetics — across all consumer categories.
Creation of social codes and norms. The role of business in helping to establish social codes and norms is at the heart of its power to transform society. The way those transactions are constructed affects how easily people are able to transition between professions, locations, and lifestyles. The need to be heard and respected is universal, and the engagement of firms is helping make this happen for a much larger community than ever before. For example, because many roads in Kenya don't have names and buildings lack numbers, even receiving a piece of mail was a stressful and onerous process for many people until MPost allowed people to use their mobile number as a postal address.
It finally feels as though the debate about how to create social impact is getting louder than the debate about whether business has an obligation to do so. But this change also imposes tremendous strain on societies now forced to cope with hunger and diabetes at the same time. This is a pattern that is global in nature — progress, even as it creates benefits in certain areas, creates new pressures and problems in other areas.
Rich and poor countries will be grappling with similar problems — but the potential is great for good solutions to scale. Long before it coalesced into a framework, aspects of the bottom-of-the-pyramid story were a part of my life and dinner table conversation. For me, the impact of this idea is measured in moments.
Ice cream was once taxed as a luxury in India. When I had it, it truly felt like a guilty pleasure because it was out of reach for so many. My father challenged local entrepreneurs to create an ice cream that everyone could enjoy. Some aspects of my identity, such as my American accent, no longer create a barrier, but open a conversation instead.
A store clerk once noticed my accent and asked me to read out a list of words so he could record it and share it with his accent correction class.
When I asked him what he wanted to do with that training, he patiently explained that he planned to work in customer service for a few years, and perhaps start his own business someday.
My WhatsApp contacts list now includes tailors, forest rangers, and drivers — many of the people I could only smile at politely in years past. Today, we share family photos, jokes, and ideas. But that is only half of the story. Back at home in the U. My excitement about the bottom of the pyramid is no longer rooted in its promise. It is continuously renewed in conversations with entrepreneurs and in seeing the actual ventures the bottom-of-the-pyramid idea has inspired. Mainstream business magazines now profile multinational corporations that are striving to win over rural consumers.
There is competition among investors and fear of missing out on the growth opportunities in emerging markets. My LinkedIn invitations have multiplied over the years, too, largely with the addition of people with business ideas that serve — or at least seek to include — consumers at the bottom of the pyramid. The people who were once dismissed are being studied and discussed, and slowly being brought into the conversation.
Local innovators are finally getting the recognition they deserve. Most important, the conversation about how to uplift the disenfranchised and address inequality in rich countries is now part of the public discourse. There is still a long way to go, and the answers to many pressing social questions remain elusive. I believe the impact of the bottom-of-the-pyramid idea was that it injected both pragmatism and optimism into the debate, thereby helping to direct the innovative capacity of business in places where it was needed the most.
As business leaders grapple with daunting challenges, they can and should continue to engage directly on social issues with faith that their efforts can make a difference — because they already have.
The Fortune at the Bottom of the Pyramid: Eradicating Poverty through Profits
Prahalad, and his colleague Stuart L. Hart debuted a simple but radical idea. They argued that the 4 billion poor people around the world represented a vibrant consumer market, that this market could best be tapped with for-profit models, and that the poor themselves had to be partners in the process. This challenged many long-held assumptions about the role of both government and business in addressing poverty. At the time, their thinking which had been rejected for four years by scholarly journals invited polite skepticism at best.
The new fortune at the bottom of the pyramid
In fact, the cry is so constant and the need so chronic that the tendency for many people is to tune out these images as well as the message. Even those who do hear and heed the cry are limited in what they can accomplish. For more than 50 years, the World Bank, donor nations, various aid agencies, national governments, and, lately, civil society organizations have all fought the good fight, but have not eradicated poverty. The purpose of this book is to change that familiar image on TV. It is to illustrate that the typical pictures of poverty mask the fact that the very poor represent resilient entrepreneurs and value-conscious consumers.