Companies can make fortune at the bottom of the pyramid rajesh nandakumar - id - 12778960

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Running head: FORTUNE AT THE BOTTOM OF THE PYRAMID
Companies can Make Fortune at the Bottom of the Pyramid
Rajesh N. Kumar
James Cook University

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FORTUNE AT THE BOTTOM OF THE PYRAMID
Table of Contents
Executive Summary.........................................................................................................................3
Background......................................................................................................................................4
Introduction......................................................................................................................................4
What is the BoP Strategy.................................................................................................................6
What is the Driver for MNCs to Focus on BoP Market..................................................................9
Is There a Buying Potential at the BoP............................................................................................9
Behavior of Consumers in Asian Market.......................................................................................10
Sector With Highest Potential of Business in BoP Market............................................................11
Recommendation...........................................................................................................................12
How to Approach the BoP Community - Innovation....................................................................14
Implement Innovative Approach to tap BoP Market.....................................................................15
References......................................................................................................................................16
Appendix A....................................................................................................................................17
Appendix B....................................................................................................................................18

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Executive Summary
This report explores published journals, blogs and books around The Bottom of the Pyramid
(BoP) being the breakthrough in the Strategy for businesses across segment and analyse what
steps would lead to success through the journey of business around the 4 billion population
existing in the bottom of the pyramid layer. Methods of analysis include statistical and market
trend, and ratios of performance. Main area of focus is Asian market through the report as they
account to 3/4th
of the population residing in the bottom of the Pyramid, given the uniqueness of
this region around culture, market behavior, people mentality and social dynamics. Gaining that
knowledge would become important to have a break through into this market and ensure it’s a
sustainable business.
The report would also try to analyze companies that had an early access into this market, and
how some still failed to make profit
And we would conclude the report with statistics to prove how to gain access into BoP market,
and ensure long term sustenance by making profit. We would also cover the key role of the 1/7th
population of the world, who do a survival with less than 2 $, and how they influence the
business model in this market
Our Recommendation would be as following:
• Understanding the Cultural difference between East & West Market. And the role that
plays to make business at the BoP market
• What is the right approach and principal of BoP as stated by some of the renowned
authors and research professors
• What is the social dimension to doing business in BoP, and the difference that would
bring in uplifting the average economy of Human beings
• Change in Industry mind set and driving business into Rural
Limitation of this report would be that it takes views from various author’s study, which would
give us a perspective and approach to enter the BoP market. However, may not provide laid out

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plan to gain profit in this business model. The reports view might be limited to the sources and
references of the company within the discussion and may not cover or applicable for all type of
business. And lastly, it is a general perspective which is limited to this report and not a direct
indication of any specific Company or Organizations performance, as the statistics are relevant to
the report on the date when it was published.
Background:
As per World Bank (16-09-2008), 1.4 billion people (one in four) in the developing world
were living below US$ 1.25 a day in 2005. Overall the poverty rate had a steady downfall
from Sixty to Forty percent across the South Asia region from 1981 to 2005. While in
India the same trend was showing a uphill with Increase in the number of people poverty
line going up from 420 million in 1981 to 455 million in 2005.
The key assumption in the Developed countries is that the poor have no purchasing
power, not brand-conscious, and are not skilled enough to accept advanced technology
and therefore do not represent a viable market, (as cited in Author).
Through this report we are going to be focused mainly around Asian market. Since, the
bulk of the 4 billion people at the base of the pyramid, who account for 75% of the
world’s population, live in Asia. According to the World Resources Institute, Asia’s base
of the pyramid market is a whopping $3.47 trillion, far above than the rest of the Globe
trending in billion’s as cited in Development Asia, 2, (2008).
Introduction:
London and Hart (2004) as they stated that the developed/matured markets are becoming
more saturated, and making it more difficult to sustain the market and are looking for
new avenues to enable profit to the shareholders. This led to multinational companies
turning towards emerging markets (EMs) in the developing world.
The first step towards west moving towards east (Here American & European Companies
are referred to as West and India/South east Asian countries have reference to East)
London et al. (2004) stated for MNCs the BoP population poses wonderful prospects and
unique encounters. Followed by the unique argument by Prahalad and Hart (2002) stated

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doing business with the 4 billion poorest people will require ‘Innovation in technology
and business models’.
MNC’s planning to do business in the developing countries generally come across the
cultural shock, and always fail to recognize the social behavior of the people in the Asian
world, as that plays an important role to do business in this market. They should also
realize same size does not fit all, the approach and reach has to be customized to the need
of this people in BoP and at core we need to approach this market as a booming potential
for employment opportunity in the Asian country, where the 3/4th
of the poorest people
reside and we should also recognize that this is where you notice high population growth.
This has to be seen as an opportunity, given that they would have a high ratio of younger
population, which is important for the success of any Organization to grow and sustain in
the long run.
It is also important to understand the purchasing potential that lies with the BoP market.
Source: Richard Fletcher, The Impact of Culture on Marketing at the Bottom of the Pyramid – a
Relationship Creation and Network Development Approach
The perception which dwells the BoP market is the lack of spending potential, as the poorest of
the poor live in country side or uptown market slums, and they usually do not hold any bank
accounts or assets. They have no formal education, and are hard to reach via conventional
methods of Sales & Distribution as stated by Prahalad et al (2002)
MNCs should recognize that the first step towards Globalization or to adopt a strategy to notice
increased profit, with low cost, large business pipe line and long term sustainability is to
recognize the potential with the emerging market, as they move towards the wave of

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urbanization, and the emerging cities with increased buying potential is an indicators of the
future needs lie in the emerging markets. The consumers in emerging economies are moving up
the market spend as their earning increases, and statistics shows that spend has increased by 10%
in countries like India & China year on year (asiaNBC).
Please refer the illustration below adapted by Prahalad and Hart (2002) to depict some of the
most common Assumption and associated Implications noticed by the MNC’s
Source: http://www.csrwire.com/pdf/Prahalad-excerpt-001-022.pdf (Pg. 9/22)
What is the BoP Strategy
Before we embark in the journey to understand the strategy, it’s key to know what led to the
development of BoP Strategy. As per Prahalad, it was his view to solve the problem of poverty
and to improve the economic scale. It was a Co-Creation solution towards economic
development and Social transformation as illustrated in Appendix A1.

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The 12 principles of Innovation as stated by Prahalad needs attention to penetrate into the BoP
market. In simple terms it should be an Affortable Product, ease of access to consumers, and
available across location. Chakrabarti also talks about the approach to rural in his study being
Availability, Affordability, Acceptability & Awareness
The MNC’s should always look at the future potential that the BoP market carries, as a study in
Social Entrepreneurship by Global Health University indicates that the BoP popullation could
spike up to 6 billion people in the next 40 years.
It is important to take into account that the strategy does not focus only on creating cheaper
products by manufacturing at low labor costs and increasing environmental and social concerns
(asianbc).
To gain experience in the BoP market and to set a position to tap into the market. It is critical to
engage NGO, authorities and end-users from BoP market in different stages of solutions, and by
accepting other levels of revenue. Else, this would become a huge road block in breaking
through the market (asianbc).
It is also essential to recognize the market that is seen beyond the urban solution. As at core the
BoP market evolves from the rural and it’s important for MNC to devise the strategy in a manner
that it becomes a household brand names.
In the study conducted by Chakrabarti on the potential of rural market, he indicated more and
more MNC’s are turning to tap into the rural markets. And the ones that have the head way are
Hindustan Lever, ITC, Coca-Cola, LC Electronics, Britannia, LIC, HDC Standard life, ICICI,
Philips, Colgate, Palmolive and most of the Telecom companies.
He also cites example of some of the brands such as Coke/Pepsi or Chic/Pantene or
Colgate/Close up or Ariel/Surf or Lays/Cheetos that have made the way into the rural as
household brands.
The interesting fact that Chakrabarti shared in his study indicated that the rural India, with a
population of 700 million, would over grow more than 4 times it’s potential compared to some of
the markets such as South Korea and Canada. Also he stated that Hindustan Lever made soap
called Lifebuoy, which was sold at 0.03$ for 50 gm and Coca cola had a great success by selling
coke for 0.096$ for 200 ml coke with returnable glass bottle. Now Eighty percent of new
drinkers for coke come from the rural markets. The table below how diverse the market has
penetrated into the BoP strategy and the role that is played by ’Innovative pricing’ to make it
’Affordable’.

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Source: http://www.csrwire.com/pdf/Prahalad-excerpt-001-022.pdf (Pg. 17/22)
To name some of the Organisations, which entered the BoP strategy to fulfil the dream of
Prahalad to eradicate poverty and to enable exposure to the poor to products that they always felt
they can’t afford to experience. These are the social entrepreneurs, who led Organisation such as
Tata Nano car, the Aravind Eye Hospital cataract surgery, and Grameen Bank’s micro loans are
few Organisations to name some(asianbc).
Given the exposure within Singapore, we could also name IKEA furniture as a Western example
of a company that has made cost effective, high design and relatitively well-designed and high
quality furniture available to larger market by well thought production and distribution
strategy(asianbc).
Another such example in the low-income segment was the venturing of Danone, the French
Dairy company who joined hands with the micro credit organization, Grameen Bank, to provide
specially fortified yoghurt to families in Bangladesh at 5% of the usual price. And the way they
managed to do so was by thinking of Innovative strategy for distribution. By using wide network
of small entrepreneurs – local women, who go from house to house.
These are the companies, which have truely given thought to the strategy of Availability,
Affortability, Accessability, & Awareness.
What is the Driver for MNC’s to Focus on BoP Market
Prahalad and Hart (2002) who analysed the key drivers for MNCs to focus on BoP market state
that the increased access amongst the poor to Television and information through News paper
created more awareness amongst the BoP segment about various products and services in the

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market. Thus creating the want or aspiration to share the benfits. Followed by, homogenous
environment enabling the MNCs to invest in the developing countries and additional support
extended by NGO’s.
The market over the period is shrinking in the Tier 1, 2 & 3 layer and is driving the MNCs to
explore the untapped market at Tier 4 to enable ongoing increased dividends for the share holder.
Innovative market and approach is the need of hour to have increase in revenue in any business
sectors.
Rural market had over the period grown more demanding and the need has arised for MNCs to
start creating products and services for rural populations.
Is There a Buying Potential at the BoP?
To enable the buying power at the Tier 4 segment it’s crucial that we enable access to credit, and
enhance the earning potential of the poor (Prahalad and Hart, 2002)
Prahalad (2004) stated in his analysis that China is already $5.0 trillion economy, second after
the United States in purchasing power parity (PPP). In his report he indicated that the developing
countries – China, India, Brazil, Mexico, Russia, Indonesia, Turkey, South Africa, and Thailand
are home to 3 billion people, representing 70% of the developing coutries population. In PPP
terms, this group’s GDP is 12.5 trillion, and it’s larger than the GDP of Japan, Germany, France,
the United Kingdom, and Italy combined.
Prahalad (2004) The poor tends to premium for every thing that they consume from rice to credit
compared to the rich society. For example. In the slum dwelled area of Dharavi, outside
Mumbai, India, pay a penalty of 5 to 25 times more than a rich in the neighbouring area of B.
Desai Road, Mumbai, India. This situation is driven mainly due to monopolies, lack of access to
proper systems, poor distribution, and strong traditional situation that is built over the period.
For example, the poor in Dharavi pay 600 to 1,000 percent interest for credit from local money
lenders. In a similar scenario, if a bank step’s in for micro lending they could easily afford to do
the same at 25 percent (Prahalad – 2004).

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The Poor and High-Cost Economic Ecosystems
Source: http://www.csrwire.com/pdf/Prahalad-excerpt-001-022.pdf (Prahalad - 2004, Pg. 12/22)
Behavior of Consumers in Asian Market
Anthony (2012) said in his blog that quality is a relative concept. You certainly do see obvious
differences in perception in certain categories. For example, Western market in cosmetic industry
sell a lot of Tan creams, as that is considered to be a beauty enhancer for western women.
However, same may not be true in Asian markets as the standard is glowing skin, so
supermarkets are packed with skin whiteners.
Anthony (2012) very well stated that if you can figure to get a $ 1 from each Chinese [Indian,
Brazilian or Nigerian] customer..? It is a brutally hard to crack the social barrier, so ignoring
them isn’t an option and it becomes inevitable to partner with local players to get lead on the
social behavior and pattern of the emerging market consumers.
It is ease to build loyalty amongst the BoP market, as they have limited risk appetite and
reluctant to switch brands as selecting a non-popular product has higher implications for lower
income consumer. According to D’Andrea (2003) reference used by Fletcher in his article ,
indicates that the consumer products accounts for 30-35% of total spend in emerging markets,
and 50-75% with the lowest layer of socio-economic groups.
Fletcher had bought out these differences between cultures and their attitude towards past,
present and the future, and it impacts on the degree of excitement to adopt newer technologies
and he also stated that different cultures exhibit different degrees of individualism and
collectivism and this influences intent to adopt something new or the ones well tested in the
market.

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Some researchers have been clearly carried out to highlight this difference in behavior between
West and Asia, and Fletcher had sited the behavior and response pattern from Bradley (2003).
This has a key relevance when planning to cater to BoP markets.
Source: Fletcher , p. 5 (http://www.unice.fr/crookall-cours/iup_cult/_docs/_Fletcher%20-
%20Cultural%20Differences%20marketing%205687.pdf )
Another model, which Fletcher had adopted in his report to indicate the buyers behavior pattern
is Maslow’s hierarchy of needs, which shows the order in which needs are satisfied by buyers.
Research by Schutte and Ciarlante (1998) shows that Asia not only has difference in the way
which needs are satisfied, they also differ on the actual needs compared to ‘west’. The figure
below illustrates the unique difference between Asia and West, when it comes to be driver or
inhibitors that drive the market strategy
Hierarchy of needs between different cultural groups
Source: Fletcher, p.5 (http://www.unice.fr/crookall-cours/iup_cult/_docs/_Fletcher%20-
%20Cultural%20Differences%20marketing%205687.pdf )

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Sector With Highest Potential of Business in BoP Market
(Hammond et al, 2007) Asia with a 2.86 billion people with income of $3.46 trillion represents
42% of purchasing power. The sector markets consumers range widely in size within
Information and communication technology, or ICT ($51 billion as measured, but probably twice
with the rapid growth in this sector within BoP). Some are medium scale, such as health ($158
billion), transportation ($179 billion), housing ($322 billion), and energy ($433 billion). And
some are truly large, such as food ($2,895 billion) and the smallest of the sector is water with a
potential of $20 billion.
Source: Hammond et al (2007), http://pdf.wri.org/n4b_full_text_lowrez.pdf
Recommendation:
The recommended approach to tap into the BoP market would need key consideration to the
following as stated in report (The Next 4 Billion, Market Size and Business Strategy at the base
of the Pyramid, Hammond, Kramer, Katz, Tran and Walker, 2007).
• Significant unmet needs: BOP society has no access to bank and modern financial aids.
They live in unapproved settlements, and lack access to basic needs for a quality living
such as water, sanitation, electricity and basic health care support (Hammond et al –
2007).
• Dependence on informal or subsistence livelihoods is poverty traps: They lack the ability
to sell their labor, handicrafts, or crops and are restricted to local employment or
exploited by mid brokers. Farmers and Fisherman are the ones most uniquely vulnerable
to the natural resources destruction (Hammond et al – 2007).
• Impacted by a BOP penalty: Many in the BOP pay a higher price for basic goods and
services than the richer consumers, and they often receive a lower quality in return
(Hammond et al – 2007).

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Understanding the sectors, such as ICT, food and health care play a massive business potential
within the BoP market.
As part of the business strategy, the following has to be focused to achieve market share. Also
refer Appendix B1 from London and Hart (2004) for additional learning’s captured around
strategies that have worked well and the ones that didn’t do well in the BoP market:
1. It is important to have a unique solution, product, services and Technologies that would
satisfy the BoP needs, such as point of use systems in water sector, healthier products in
food, microfinance and low-cost remittance systems in finance sector, housing and
energy.
2. Localizing value creation by having a targeted investment in building capability and
training the local vendors & suppliers, and enabling franchisee or agent strategy. This
would build confidence on the product or service and would get local engagement and
motivation to drive the marketing and sales of the product. Telecom sector is the best
example to the amount of localization by enabling local phone entrepreneurs and
resellers.
3. Enabling access to goods or services – Enabling financial independence by reducing the
purchase barriers, prepaid or other creative business models through financing
approaches or deployment of low-cost technologies. Examples occur in food, ICT, and
consumer business line (in packaging goods and services in small unit sizes, or
“sachets”). And cutting across multiple sector is the micro-financing that range from
microloans and mortgages
4. Unconventional partnering with governments, NGOs, or groups of multiple stake holders
to bring the necessary complementing skills to the table.
It is recommended to use one or more than one of these strategies serially or in a combination to
attain sustained market share.
Find below the indicative list of some of the companies that have performed well in the BoP
market in various sectors and different regions. Recent days have new entrants into this market
some to name are Microsoft (software), DSM (food supplements), Royal Philips (health care),
Thomson Reuters (information), GlaxoSmithKline (pharmaceuticals), Intel (computing),
Vodafone (telecom), ING (microfinance), and Monsanto (agriculture) as stated in Prahalad
(2009).

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Source: Prahalad (2009), Introduction to the Fortune at the Bottom of the Pyramid, Revised and
Updated 5th
Anniversary Edition
How to Approach the BoP Community - Innovation
As per Prahalad (2006) in his Innovation Sandbox, expresses the importance of innovation
through every step of penetrating into BoP market:
1. The Innovation must result in a product or service of world-class quality. (Prahalad,
2006)

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2. The innovation must achieve a significant price reduction – at least 90 percent off the
cost of the comparable product or service in the West. (Prahalad, 2006)
3. The innovation must be scalable: It must be able to be produced, marketed, and used in
many locales and circumstances (Prahalad, 2006)
4. The innovation must be affordable at the bottom of the economic pyramid, reaching
people with the lowest levels of income in any given society (Prahalad, 2006)
Implement Innovative Approach to tap BoP Market
(Prahalad, 2006) & (Prahalad, 2009) The Innovation Sand Box approach
1. Scalability: Unless the solution can be scaled, it would not be effective. As the businesses
at the BoP are highly volume-sensitive and scale is critical
2. Pricing: It has to be priced in the most affordable manner for variant market segment.
Prahalad talks about Price-Profit = Cost, and not Cost + Profit=Price
3. Modern technologies: It is becoming imperative that dramatic cost reduction is not
possible without combination of technology & science
4. High standard with Global recognition of quality, safe solution, organic sustainability and
aesthetics
Source: Prahalad (2009) Introduction to the Fortune at the Bottom of the Pyramid, Revised and
Updated 5th
Anniversary Edition, http://www.ftpress.com/articles/article.aspx?
p=1398628&seqNum=5

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Reference
Author, A. (No date published). Bottom of the Pyramid Innovation. AsiaNBC, a project of the
Universe Foundation, Asia Innovation Management Magazine. Retrieved from
http://www.asianbc.dk/page13784.aspx
Chakrabarti, S. (No date published). India’s Rural Market – “The Fortune at the Bottom of the
Pyramid”. Retrieved from http://www.abesit.in/pdfs/Success_Through_Excellence.pdf
Fletcher, R. (No date published). The Impact of Culture on Marketing at the Bottom of the
Pyramid – a Relationship Creation and Network Development Approach. Retrieved from
http://www.unice.fr/crookall-cours/iup_cult/_docs/_Fletcher%20-%20Cultural%20Differences
%20marketing%205687.pdf
Hammond, A. L. , Kramer, W. J. , Katz, R. S. , Tran, J. T. , Walker, C. (2007). The Next 4
Billion, Market size and Business Strategy at the base of the Pyrami. Research by World
Resources Institute, International Finance Corporation. Retrieved from
http://pdf.wri.org/n4b_full_text_lowrez.pdf
Jaiswal, A. K. (2007). Fortune at the Bottom of the Pyramid: An Alternate Perspective. Journal
of MIT press, 2-28.
London, T. and Hart, S. L. (2004). Reinventing Strategies for emerging markets: beyond the
Transactional model. Journal of International Business Studies, 1-21
Prahalad, C. K. and Hart, S. L. (2002). The Fortune at the Bottom of the Pyramid. Journal
Strategy+business issue, 26, First Quarter
Prahalad, C. K. (2006). The Innovation Sandbox. Journal of Strategy business issue, 44,
Autumn. Retrieved from
http://www.strategy-business.com/media/file/sb44_06306.pdf
Prahalad, C. K, (2009). Introduction to the Fortune at the Bottom of the Pyramid.The:
Eradicating Poverty Through Profits. Revised and Updated 5th
Anniversary Edition.
Rimando, L.(2008). Fortune at the Bottom. Development Asia, No. 2.Retrieved from
http://development.asia/issue02/feature-02.asp
World Bank (16-09-2008), Press release no. 20080916, Washington, DC, Author

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Appendix A1
Source: Prahalad. C. K. (2004), Bottom of Pyramid Framework,
http://www.csrwire.com/pdf/Prahalad-excerpt-001-022.pdf
Appendix A-2
12 Principles of Innovation for Bottom of the Pyramid Markets
Prahalad provides the following building blocks for creating products and services for Bottom of
the Pyramid markets:
1. Focus on (quantum jumps in) price performance
2. Hybrid solutions, blending old and new technology
3. Scalable and transportable operations across countries, cultures and languages
4. Reduced resource intensity: eco-friendly products
5. Radical product redesign from the beginning: marginal changes to existing Western
products will not work.
6. Build logistical and manufacturing infrastructure
7. Deskill (services) work
8. Educate (semiliterate) customers in product usage
9. Products must work in hostile environments: noise, dust, unsanitary conditions, abuse,
electric blackouts, water pollution
10. Adaptable user interface to heterogeneous consumer bases
11. Distribution methods should be designed to reach both highly dispersed rural markets and
highly dense urban markets
12. Focus on broad architecture, enabling quick and easy incorporation of new features

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Source: http://www.12manage.com/methods_prahalad_bottom_of_the_pyramid.html
Appendix B-1
The below 2 Appendix B-1 and B-2 are represenation of the study conducted by London and
Hart (2004) in there research to analyse the Companies have listed out the strategies that have
worked well in BoP, and also listed out the companies that have seen success and failure
Source: http://e4sw.org/papers/JIBS.pdf , London and Hart (2004)
Appendix B-2
Source: http://e4sw.org/papers/JIBS.pdf , London and Hart (2004)
------------------------------------------- End of Document ---------------------------------------------------

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