The Bottom of The Pyramid

Topic:

Bottom Of Pyramid

Group members

Unza Munir 17Naheed Ashraf 22

What is BoP?

In economics, the bottom of the pyramid is the 4 billion people who live on less than $2 per day.

“Bottom of the Pyramid” (BoP) was first used by U.S. President Franklin D.Roosevelt in 1932.

The phrase “Bottom of the Pyramid” is used in particular by people developing new models of doing business that deliberately target the poorest regions.

The World Pyramid and BOP

• More than $20,000

$ 1500~ $20,000

$ 1500~ $20,000

Less than $1,500

Less than $1,500

Tier 1

Tier2

Tier 3

Tier 4

Tier 5

75~100 million people

1,500~1750 million people

4,000 million people

Many Companies are Beginning to Experiment with the BoP

Nutristar, Nutridelight (nutritional drink), Pur (water purifier)

Hindustan Lever (detergent for the poor in India and Brazil), Annapurna (iodized-Salt for the poor)

Making solar power affordable (India)

Banco Real, microcredit in Brazil

Vodacom community services in South Africa, joint venture between Vodafone and Telkom SA

Solar powered digital camera in India and community information systems

Program in South Africa to help entrepreneurs enter the supply chain and profit from new business ventures.

Water for all program to periurban areas in Brazil

Role of MNCs

An important element of the BOP proposition is that MNCs should take the lead role in the BOP initiative to sell to the poor.

BoP from MNCs’ perspective

Why the BOP economic potential may be underestimated??

BoP from MNCs’ perspective

BoP economic potential may be underestimated because of four main misperceptions of poverty :

1) Income is too low, the poor can’t buy MNCs’ products.

2) Goods sold in developing markets are so cheap that MNCs can’t make reasonable profit

3)The poor don’t waste money on luxury products, they only fulfill basic needs.

4)The poor don’t have the required skills for the use of advanced technology.

BoP economic potential

In the light of the four misconceptions of BoP markets and because MNCs’ actual markets are nearly saturated, companies should consider the huge potential of BoP economy which is still in its infancy.

Why the BOP market opportunity remaininvisible?

Some key assumptions by MNCs, the marketopportunity at the bottom of the pyramid hasremained invisible.

Assumption 1) MNC cost structures are a given. The poor are not our target consumers because MNCs,

with their current cost structures, cannot compete for that market profitably.

Assumption 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 that are sold in the developed markets.

Assumption 3) We focus on product and process innovations and not business

innovations. Innovations come from Tier 1. Only the developed markets appreciate and

will pay for new technology. The poor can use the last generation of technology.

Assumption 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 focus on Tiers 1-2 and leave Tier 3 and 4 to governments and non-profits.

Assumption 5) Managers do not get excited with business challenges that have a humanitarian element to them.

Intellectual excitement is in the developed markets. It would be hard to recruit, train, and motivate managers who would want to spend time in creating a commercial infrastructure at the bottom of the pyramid

Key to success:

Innovation, new business methods and a great understanding of BoP customers are the key to success.

1)Innovation: Innovation in BOP markets is a continuous process of learning and refinement.

2)Margin versus volume 3)Target aggregated customers

Tioaonal cookin

Traditional cooking system in india

Strategies for the Bottom of the Pyramid

At a minimum, managers have to focus on the following challenges:

Create mechanisms that shift the poor from unorganized to an organized sector

Transition from barter to transactions primarily mediated by money.

Create access to credit on a commercial basis.

Create a low cost, high quality distribution system.

Educate latent consumers to make choices among more sustainable products and services.

New strategies for BOPPrice performanceProduct developmentManufacturingdistributing

View of quality

New delivery formats

SustainabilityReduction in resource intensityRecyclabilityRenewable energy

ProfitabilityInvestment intensityMarginsvolume

The Fortune at the Bottom of the Pyramid

Fortune or Mirage at the Bottom of the Pyramid (BOP)? Fortune at the BOP: Large multinational companies

can make a fortune by selling to poor people at the bottom of the pyramid.

Mirage of a Fortune: The alleged large and lucrative market at the bottom of the pyramid is a mirage, and companies are much better off targeting the growing middle class in emerging economies.

4 point to notice

There is much untapped purchasing power at the bottom of the pyramid.

Private companies can make significant profits by selling to the poor.

By selling to the poor, private companies can bring prosperity to the poor, and thus can help eradicate poverty.

Large multinational companies (MNCs) should play the leading role in this process of selling to the poor.

Not is the BOP market quite small, it is unlikely to be very profitable, especially for a large company. The costs of serving the markets at the bottom of the pyramid can be very high.

The Mirage of Marketing to the Bottom of the Pyramid

Krishnarao has given a lot of examples of

companies involving in BOP propostion and making profits.

Examples

Casas BahiaIodized SaltCoca-ColaIce Cream P & G By LU

Most Famous Example

The single most mentioned example in the BOP literature is shampoo sold in sachets to the poor.

Conclusion

Conclusion

Contrary to popular assumptions, the poor can be a very profitable market- especially, if MNCs are willing and able to change their business models.

The bottom of the pyramid is not a market that allows for traditional (high) margins. Like the Internet space, the game is about volume and capital efficiency.

Margins are likely to be very low (by current norms) but unit sales extremely high. Managers who innovate and focus on economic profit will be rewarded.

Limitations

For global firms, active participation in BOP markets is not an option. Just as Nokia, Unilever, Nestle, and others have discovered, these markets are critical for their sustained

and profitable growth.

Private companies should try to market to the poor. However, the profit opportunities are modest at best and I suggest a cautious approach.

Limitations

The private sector can help alleviate poverty by focusing on the poor as producers. One way to do this is to make markets more efficient such that the poor capture more of the value of their outputs.