Bottom of the pyramid

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. They include "The Fortune at the Bottom of the Pyramid" by C.K. Prahalad of the University of Michigan, "Capitalism at the Crossroads" by Stuart L. Hart of Cornell University and the first empirical article, [http://www.palgrave-journals.com/jibs/journal/v35/n5/abs/8400099a.html "Reinventing strategies for emerging markets: Beyond the transnational model"] , by Ted London of the University of Michigan and Hart. London has also developed a working paper, commissioned by the United Nations Development Programme, that explores the contributions of the BoP literature to the poverty alleviation domain

History

The phrase “bottom of the pyramid” was used by U.S. president Franklin D. Roosevelt in his April 7, 1932 radio address, "The Forgotten Man", in which he said “These unhappy times call for the building of plans that rest upon the forgotten, the unorganized but the indispensable units of economic power...that build from the bottom up and not from the top down, that put their faith once more in the forgotten man at the bottom of the economic pyramid.”

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 [http://www.whartonsp.com/bookstore/product.asp?isbn=0131467506&rl=1 The Fortune at the Bottom of the Pyramid] and by Hart in 2005 in [http://www.whartonsp.com/bookstore/product.asp?isbn=0131439871&rl=1 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. There are also poverty reducing benefits if multi-nationals work with civil society organizations and local governments to create new local business 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 [http://ssrn.com/abstract=914518 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 [http://www.strategicmanagementreview.com/ojs/index.php/smr/article/viewFile/12/16 Advancing the 'Base of the Pyramid' Debate] .

Meanwhile, Hart and his colleague [http://www.johnson.cornell.edu/sge/people/profiles/simanis.html 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 [http://www.johnson.cornell.edu/sge/research/bop_protocol.html 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 [ [http://www.johnson.cornell.edu/sge/research/bop_kenya.html Center for Sustainable Enterprise - Research - Field Projects - Kenya ] ] and the Solae Company (a subsidiary of DuPont) [ [http://www.johnson.cornell.edu/sge/research/bop_india.html Center for Sustainable Enterprise - Research - Field Projects - India ] ] .

Furthermore, Ted London at the William Davidson Institute at the University of Michigan focuses on the poverty alleviation implications of Base of the Pyramid ventures. He has identified the BoP Perspective as a unique market-based approach to poverty alleviation. London has also developed the BoP Impact Assessment Framework, a tool that provides a holistic and robust guide for BoP ventures to assess and enhance their poverty alleviation impacts. Companies, non-profits, and development agencies in Latin America, Asia, and Africa have implemented this framework.

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 [http://www.johnson.cornell.edu/sge/research/bop_protocol.html Base of the Pyramid Protocol] .

BoP Conferences

The William Davidson Institute at the University of Michigan has organized two BoP conferences. “ [http://www.wdi.umich.edu/NewsEvents/Conferences/BoPConf2006 Research at the Base of the Pyramid: Developing a New Perspective] ” (May 2006), co-hosted with the Ross School of Business at the University of Michigan, targeted academics working in this domain. “ [http://www.bop2007.org/ Business with Four Billion: Creating Mutual Value at the Base of the Pyramid] " (September 2007), co-hosted with the Center for Sustainable Global Enterprise at Cornell University, brought together a multi-disciplinary community of leading BoP scholars, including business managers, policy makers, social entrepreneurs, academics, non-profit experts, and development agency professionals. More than 350 people from over 30 countries convened in Ann Arbor to share their latest thinking and explore the current challenges facing organizations that operate at the BoP.

References

*London, T. 2008. The base-of-the-pyramid perspective: A new approach to poverty alleviation. In G. T. Solomon (Ed.), "Academy of Management Best Paper Proceedings."
* [http://www.ssireview.org/articles/entry/developing_native_capability/ Hart, S. L. & London, T. 2005. Developing native capability: What multinational corporations can learn from the base of the pyramid. "Stanford Social Innovation Review", 3(2): 28-33.]
*"Microcredit in India: Helping Themselves" in "The Economist", August 11th 2005.
*"Profits - a penny at a time" by David Ignatius in "The Washington Post", July 5th 2005.
*"e-Choupal" Retrieved from http://www.digitaldividend.org/case/case_echoupal.htm August 15th 2005.
*"Chasing the base of the pyramid" by Marc Gunther in "Fortune", November 15, 2006. http://money.cnn.com/2006/11/14/magazines/fortune/guntherkenya.fortune/index.htm
*Karnani, Aneel G., "Fortune at the Bottom of the Pyramid: A Mirage" . Ross School of Business Paper No. 1035 Available at SSRN: http://ssrn.com/abstract=914518
*Landrum, Nancy E., Advancing the "Base of the Pyramid" Debate. "Strategic Management Review, 1(1), 2007. Available at http://www.strategicmanagementreview.com/ojs/index.php/smr/article/viewFile/12/16

Resources

*Prahalad, C.K. and Hart, S.L "The Fortune at the Bottom of the Pyramid" in Strategy+Business 26: 54-67

*Prahalad, C.K "The Fortune at the Bottom of the Pyramid" (Wharton School Publishing, 2004)

*Hart, S.L "Capitalism at the Crossroads" (Wharton School Publishing, 2005)

*The Base of the Pyramid Protocol - [http://www.johnson.cornell.edu/sge/research/bop_protocol.html Full Download Available]
* [http://www.palgrave-journals.com/jibs/journal/v35/n5/abs/8400099a.html London, T. & Hart, S. L. 2004. Reinventing strategies for emerging markets: Beyond the transnational model. "Journal of International Business Studies", 35(5): 350-370.]
*London. T. 2007. A Base-of-the-Pyramid Perspective on Poverty Alleviation. Washington, DC: United Nations Development Program. "Growing Inclusive Markets Working Paper Series".
*http://www.nextbillion.net

*http://bop-protocol.org/

*http://www.wdi.umich.edu/ResearchInitiatives/BasePyramid

*http://www.bop2007.org/

*http://www.wdi.umich.edu/NewsEvents/Conferences/BoPConf2006

*http://www.inclusivebusiness.org

*http://brinq.com/about/bop.html
*for more see http://www.changemakers.net/library/

*Telecom use at the Bottom of the Pyramid in Emerging Asia: http://lirneasia.net/projects/2006-07/bop-teleuse
also see http://lirneasia.net/projects/2008-2010/bop-teleuse-3
Student organisations:

*http://www.netimpact.org/

*http://www.oikosinternational.org/

*http://webuser.bus.umich.edu/Organizations/EmergingMarkets/Index.html