Bottom of the pyramid (BoP) by Rizwan Manzoor
- 2. If the world's economic condition is to be framed, it will take the shape of a pyramid, where the greater concentration (70%) of total income is in the hands of the smallest (20%) but the richest people. The rest of the segment which is the largest forms the bottom of the pyramid. Bottom of the pyramid constitutes of the poor citizens of the world. BOP actually shows the inequity of wealth distribution where poor cannot participate in global market economy, even though they constitute the majority of its population. The prospect of millions of "middle-class" consumers in developing countries, clamouring for products from MNCs, was wildly oversold. • Term coined by Franklin D Roosevelt (THE FORGOTTEN MAN) • Definition proposed in 1998 by C.K. Prahalad and Stewart L.Hart. • In global terms, there are 3. 7 billion people who are largely excluded from formal markets, the group earns less than $2 per day and 60% of the 3. 7 billion people live in India and China. BOP lacks access to basic necessity like quality sanitation, education, health care. In India the depriving section i.e., lowest tier of BOP earns less than Rs 90,000 per year or less than Rs 250 per day.
- 3. Profits are critically important for ventures targeting the bottom of the economic pyramid-the more than 4 billion people who individually earn less than $1,500 per year. Compared with a social responsibility project, a profitable business stands a better chance of being able to increase its scale and impact. It can command resources and be sure of continued support from both the corporate headquarters and the country office. Profitably selling to the bottom of the pyramid is difficult, but it can be done. It requires companies to focus on business fundamentals and start their ventures with a rigorous understanding of two key challenges in low-income markets: changing consumers' behaviour and changing the way products are made and delivered.
- 4. Deprived Poor Earning less than 90,000 rupees per year or less than 250 rupees per day. Those Living in abject poverty. Lack access to the most basic necessities, benefit from government welfare interventions, have little or no disposable income. Aspiring Poor Earning between 90,000 to 200,000 rupees per year. Lack access to many basic necessities, as well as quality sanitation, healthcare, and education. Huge opportunities exist to provide affordable life-changing services to this segment of the BoP, because they have more disposable income and twice the aggregate consumption of the extremely poor.
- 5. 1. MNC cost structures are a given. The poor are not our target consumers because with our current cost structures, we cannot profitably compete for that market. 2. Product is our focus, not functionality. We worry about detergents not cleanliness. The poor cannot afford and have no use for the products and services sold in developed markets. 3. We focus on product and process innovations and not business innovations. Innovations come from Tier 1.Only developed markets appreciate and will pay for new technology. The poor can use the previous generation of technology. 4. We do not see the bottom of the pyramid forcing us to innovate around sustainable development The bottom of the pyramid is not important to the long-term viability of our business. We can leave Tier 4 to governments and non-profit organizations. 5. Managers are not excited by business challenges that have a humanitarian dimension. Intellectual excitement is in developed markets. It is hard to find talented managers who want to work at the bottom of the pyramid. THE INVISIBLE OPPURTUNITY The perception of market opportunity is a function of the dominant logic- the way managers are socialized to think and the analytical tools they use. For example, if we looked at per capita incomes, the bottom of the pyramid will be automatically excluded from consideration in most MNCs. Therefore, converting the poor into active consumers, requires managers in MNCs to come to terms with their dominant logic- the core set of assumptions and practices that are embedded in the firm. Managers have to identify and confront their genetic code. Because of the prevalence of these key assumptions by MNCs, the market opportunity at the bottom of the pyramid has remained invisible.
- 6. Much as dominant logics and core assumptions hold back MNC managers, those at the bottom of the pyramid have their own point of view. The poor are confronted with a world filled with paradoxes: Open Yet Closed Free Yet Constrained Alone Yet Together The challenge is clear: There are expectant consumers and potential innovations that can no longer be systematically ignored. Yet this opportunity can not be seized without fundamental innovations on the part of MNCs. We will argue here that it is possible to serve the bottom of the pyramid, developing the products and services required, in a culturally sensitive, environmentally sustainable, and economically profitable way.
- 7. 1. Increasing aspirations of people everywhere 2. Diminishing role of governments 3. Global over-capacity 4. The inevitability of sustainable development MNCs must recognize that the bottom of the pyramid poses a fundamentally new question: How do we marry low cost, good quality, sustainability, and profitability at the same time? Low cost implies a radical rethinking of product development, manufacturing, and distribution processes. Good quality requires research on needs and creating robustness to products such that they can withstand harsh conditions of storage and transportation. Sustainability mandates that new approaches are developed for use and reuse of resources in an environmentally friendly way, and a drastic reduction in resource intensity. Profitability suggests a new understanding of investment intensity, margins, and volumes.
- 8. The primary task is to create a consumer market out of the poor, albeit one that is conceived of and structured very differently from the Tier1 market. THINGS THAT ARE NEEDED TO BE DONE FIRST: 1.Create mechanisms that shift the poor from an unorganized to an organized sector, and from barter and other forms of exchange to transactions primarily mediated by money. 2. BoP must be educated to make choices among more sustainable products and services 3. BoP must have access to credit on a commercial basis. 4. Managers must conceive of and create a low cost, high quality distribution system 5. Managers must first develop a commercial infrastructure tailored to the needs and challenges of Tier # 4. 6. Multiple players have to be involved – local governmental authorities, non-governmental organizations (NGOs), local communities, financial institutions, infrastructure builders and other firms. 7. Creation of buying power, shaping aspirations, improving access, and growing healthy markets-- are the keys to opening the Tier 4 market.
- 9. 2 MODELS – 4A and 5D 4A MODEL – C.K. Prahalad BoP as a source for breakthrough innovation. Awareness Access Affordable Available 5D MODEL – NITI BHAN Development Design Distribution Demand Dignity
- 13. 1. Resources. 2. Leverage. 3. Bridging. 4. Transfer. Building the MNC Infrastructure to Serve the Bottom of the Pyramid 1. Build Local Base of Support. 2. Conduct Global and Local R&D. 3. Form New Alliances 4. Increase Labor Intensity 5. Reinvent Cost Structures.
- 14. • Unitus Seed Fund is a leading venture fund - investing start ups. This unit is based in Banglore and Seattle. The main areas of investment are health care, education and financial technology. It focuses to improve the livelihoods of economically unprivileged. • Godrej and Boyce introduced a refrigerator called "CHOTU KOOL" . It has the functionality if a normal refrigerator. It does not need continuous power supply but runs on battery. Chotu Kool costs ~3250 ($69). Its weighs up to 3 to 4 Kgs. This product is not only for BOP but can be utilized by the top of pyramid for camping and other leisure activities. • Narayana Hrudayalaya-worlds renowned heart institute. It is planning to set up an ultra low cost. No investment in infrastructure is to be need. Pre - fabricated material is to be used in construction. Only ICU's will have concrete structure. Where chart operation will cost <2,00,000 will eventually cost ~50,000 in this hospital. • Shampoo sachets: Sachets marketing is efforts made to make goods available in such a kind to BOP consumers, who otherwise could not afford the bigger sizes of the product. The sales of shampoo sachets saw a figure of 60%. • Hindustan Unilever developed a soap bar and made it waterproof on three side. It made the soap more durable and could be washed by less amount of water, thus saving both water and cost. The best of the cooperative united in India - "The Amul"