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opportunities with consumers of low income

Page history last edited by PBworks 11 years, 12 months ago

 


 

 

see also:    making technology affordable ,  and  Investing in socially good projects

 

 

Adapting products to consumers of lower incomes

 

The search for opportunities with consumers of low income

 

In economics, the bottom of the pyramid is the largest, but poorest socio-economic group. In global terms, this is the four billion people who live on less than $2 per day, typically in developing countries. The phrase “bottom of the pyramid” is used in particular by people developing new models of doing business that deliberately target that demographic, often using new technology. This field is also often referred to as the "Base of the Pyramid" or just the "BoP".

 

Several books and journal articles have been written on the potential market by members of business schools offering consultancy on the burgeoning market. The more current usage refers to the 4 billion people living on less than $2 per day, as first defined in 1998 by Professors C.K. Prahalad and Stuart L. Hart. It was subsequently expanded upon by both Prahalad in 2004 in The Fortune at the Bottom of the Pyramid and by Hart in 2005 in Capitalism at the Crossroads.

 

Prahalad proposes that businesses, governments, and donor agencies stop thinking of the poor as victims and instead start seeing them as resilient and creative entrepreneurs as well as value-demanding consumers. He proposes that there are tremendous benefits to multi-national companies who choose to serve these markets in ways responsive to their needs. After all the poor of today are the middle-class of tomorrow.

 

Meanwhile, Hart and his colleague Erik Simanis at Cornell University's Center for Sustainable Global Enterprise advance another approach, one that focuses on the poor as business partners and innovators, rather than just as potential producers or consumers. Hart and Simanis have led the development of the Base of the Pyramid Protocol, an entrepreneurial process that guides companies in developing business partnerships with income-poor communities in order to "co-create businesses and markets that mutually benefit the companies and the communities". This process has been adopted by the SC Johnson Company[1] and the Solae Company (a subsidiary of DuPont)[2].

 

 

Why is Economic Development important?

 

facts:  4 billion out of 6 billion people on the planet are poor.  50% of them (2 billion people) live on less than $1 a day.   Moving these people up the economic pyramid is not just a moral issue, but its also an economic one.  There is a massive potential market of consumers waiting to be tapped.  See our discussion on economic development for more....

 

 

 

 

 

 

 

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examples:

 

The operation of Basf, one of the largest chemical companies in the world, has also invested to adapt their technologies to the demands of the population in emerging countries.  From mid-2008, the company will begin to sell the Neopor in Brazil, a kind of block of polystyrene for the construction.  In Europe, the product is used to improve the thermal insulation of houses.  In Brazil, will be offered to construction that are exploring the market for popular housing for the class C with another purpose: reducing the time of execution of works.  In addition, its installation does not require technical knowledge, important feature lacking in a country where labour-qualified.  "There is a clear guideline of the matrix to look into products more suited to the local reality," says Rolf-Dieter Acker, president of Basf for South America

 

 

 

Examples

 

 

 

Micro-credit

As The Economist reported on August 11th, 2005, one example of “bottom of the pyramid” is the growing microcredit market in South Asia, particularly in India. With technology being steadily cheaper and more ubiquitous, it is becoming economically efficient to “lend tiny amounts of money to people with even tinier assets”. The firm discussed in the article, Sa-Dhan, argues that the availability of credit to the poor “helps the poor but allows banks to increase their business”.

 

 

 

Agriculture

Another example of the bottom of the pyramid targeting at work is eChoupal in rural India. ITC manages an agricultural trading company. To eliminate the inefficiencies in its supply chain caused by corrupt middle men at local rural markets, it created a network of “e-Choupals” (choupal = village square) in rural communities. Through these e-Choupals, individual farmers have been able to check the market trading price of their produce and sell it directly to ITC. Both the individual farmers and ITC have increased their revenues, because the layers of ineffiency no longer have a role in the transaction between seller and buyer.

 

 

 

Market-specific products

An example of product that is designed with needs of the very poor in mind is that of a shampoo that works best with cold water. Such a product is marketed by Hindustan Lever.

 

 

 

Business and Community Partnerships

As Fortune reported on November 15, 2006, since 2005 the SC Johnson Company 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. SC Johnson's project was the first implementation of the Base of the Pyramid Protocol.

 

 

 

 

 

Criticisms of "BoP" models:

 

However, there is some debate over Prahalad's proposition. Aneel Karnani, also of the Ross School at the University of Michigan, argued in a 2007 paper that there is no fortune at the bottom of the pyramid and that for most multinational companies the market is actually very small. Karnani also suggests that the only way to alleviate poverty is to focus on the poor as producers, rather than as a market of consumers. Additional critiques of Prahalad's proposition have been gathered in Advancing the 'Base of the Pyramid' Debate.

 

 

 

Links to KookyPlan pages:

 

 

 

 

 

 

 

 

 

 

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