VALUE2 - beyondphilanthropy.eu · The BOP concept also offers companies the opportuni- ... beyond France in Belgium and in the Netherlands. In Germany, too, the BOP concept is a promising

Social Innovation for Business and Society

VALUE2

Supported by the

Social Innovation for Business and Society2

Germany is doing well. The economy is booming, wages are rising and unemployment is at a record low. Yet the animated debate on social inequality demons-trates that not everyone is part of this prosperity. The fact that 16 million people in Germany are threatened by poverty and social exclusion is evidence that many people in our society face a multitude of challenges in areas such as health, nutrition, or housing on a daily basis.

France faces a similar situation. This is why the Action Tank Entreprise & Pauvreté was founded in 2009. The initiators, including Emmanuel Faber, CEO of Danone, have recognised that growing inequality has a negati-ve impact on all areas of society and that everyone should contribute to solving this problem.

The idea behind the Action Tank is the Base of the Pyramid (BOP) theory developed by C. K. Prahalad in 2002. It strongly focuses on those at the base of the income pyramid in their role as customers, suppliers or intermediaries, and attempts to improve the long-term situation of the negatively affected sectors of society.

The approach creates added value for society, but also allows businesses to benefit from new customer segments, markets and innovation.

The BOP concept also offers companies the opportuni-ty to further develop their positive societal and corpo-rate impact with regard to the Sustainable Development Goals of the UN. This may also be one reason why this concept is now being replicated beyond France in Belgium and in the Netherlands.

In Germany, too, the BOP concept is a promising approach to addressing numerous societal challenges in an innovative way. That is why Beyond Philanthropy and Social Impact have joined forces to further the idea to Germany. This study, which is supported by the BMW Foundation, is a first step in this effort. The findings will show businesses what potential lies in BOP in Germany and encourage them to create added value².

Michael Alberg-SeberichManaging Director Beyond Philanthropy

Norbert KunzManaging Director Social Impact

Foreword

Executive Summary

Introducing the Base of the Pyramid Concept

Poverty in GermanyPoverty and BOP in GermanyGroups Affected by Poverty in Germany Agents in Poverty Reduction

Businesses and the BOP Concept The Role of Businesses in Poverty Reduction Benefits of the BOP ConceptMarket Barriers

Practical Applications of the BOP Concept European BOP Approaches Good Practice Examples

Challenges and Market Potential in Germany by Sector

Conclusions

4-5

6-7

8-13

14-19

20-29

30-37

38

3

EXECUTIVE SUMMARYApplying the Base of the Pyramid (BOP) concept, businesses address societal challenges and generate both societal and economic added value.

As part of the BOP concept, businesses are developing products and services in a user-centred manner that are aimed at bringing long-term improvements to the quality of life of low-income households.

Thereby, disadvantaged groups get access to services and products they did not have access to thus far.

Businesses can use their resources to address social margi-nalisation using the BOP concept.

More than 16 million people in Germany (20% of the population) are threatened by poverty or social marginalisation.

Furthermore, poverty is linked to other challenges in sectors such as health, education or housing.

The unemployed, single parents as well as the inadequately educated are particularly affected.

Despite favourable economic develop-ments, Germany still faces a number of societal challenges.

Enhanced employee loyalty.

Greater capacity for innovation.

Development of new markets and customer groups.

Improved reputation and image perception among different stakeholders.

Beyond the dialogue group that has been addressed, BOP approaches also be-nefit businesses at many levels, e.g. by:

BOP concepts have great potential in many areas in Germany.

The market for satisfying the basic needs of low-income people is worth 80 to 110 billion euros in total, with particu-larly high spending for rent and energy, food as well as other consumer goods. Even the proportionally lowest expenses for basic health care exceed 2 billion euros.

All areas of life provide great potential for innovative products and services with a societal and entrepreneurial added value.

In other European countries, businesses have already developed business models to specifically target low-income house-holds.

In France, Belgium and the Netherlands, businesses such as Danone, Renault or Colruyt have applied the BOP concept – often explicitly aligning their ventures with the UN Sustainable Development Goals.

The sectors of housing, mobility as well as food and nutrition are particularly well represented.

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5

Entrepreneurial added value

Societal added value

INTRODUCING THE BASE OF THE PYRAMID CONCEPTThe Base of the Pyramid concept sees businesses as key actors in integra-ting low-income groups into their value creation processes.

2002 C. K. Prahalad and S. T. Hart publish the first academic paper on the BOP concept.

Unilever initiates the programme Swasthya Chetna to educate the Indian public on hygiene.

2004-2005 Prahalad publishes his book “The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits” (2004).

Danone and other companies develop BOP strategies for developing and emerging countries.

Underlying idea

The Base of the Pyramid (BOP) concept, which was developed by C. K. Prahalad in 2002, describes business models of for-profit companies that make a point of integrating low-income groups into their processes of value generation, e.g. as customers, suppliers or intermediates.

The long-term goal of this approach is to create value for low-income households and entrepreneurial success at the same time.

Focus

This publication focuses on that part of the BOP concept that primarily sees low-income house-holds as potential customers.

That involves the development and provision of target group-appropriate products and services by companies to which the target group previously had no access.

Application

The BOP concept had originally been applied to developing and emerging countries.

A broader understanding of poverty that includes marginalised people unable to afford urgently needed products and services now also makes this concept applicable to industrialised countries.

2006 Muhammad Yunus and the Grameen Bank are awar-ded the Nobel Peace Prize for their market-oriented approach to the eradication of poverty.

2007-2017 Many more companies develop BOP strategies and engage in a global dialogue on different approaches.

Based on innovative products and services, the BOP concept allows for the creation of both societal and entrepreneurial added value (e.g. access to markets and technolo-gies as well as enhanced reputation).

TO THE POINT

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7

POVERTY AND BOP IN GERMANYIn spite of favourable economic developments in Germany, poverty continues to be a major challenge – approximately 20% of the population are threatened by poverty or social exclusion.

Every fifth person in Germany is threatened by poverty

In 2015, 15.7% of the population, i.e. 12.9 million people were threatened by monetary poverty.

Thus, and in spite of a positive economic development and decreasing unemployment, the risk of poverty has risen to a new high (BMAS, 2017; Der Paritätische, 2017). If social marginalisation is also taken into account, the percen-tage of those affected comes out at 20% – 16.1 million people (Destatis, 2016). Compared to the rest of Europe (17.3% or 23.7% according to Eurostat 2017), Germany is marginally below average.

GDP At-risk-of-poverty rate Unemployment rate

Billion EUR

3.100

3.000

2.900

2.800

2.700

2.600

2.500

%

20

15

10

5

2010

2011

2012

2013

2014

2015

2.580

2.7032.758

2.826

2.924

3.033

Poverty and economic development between 2010 and 2015

Who is considered poor?

For the definition of the Base of the Pyramid (BOP) in developing and emerging countries, the concept of absolute poverty is used, i.e. the situation in which people cannot satisfy their basic needs such as food and health care. Prahalad defines the poverty line at a purchasing power parity2 of 2 dollars per day, the World Bank considers the limit for extreme poverty at 1.90 dollars per day.

In industrialised countries, the concept of relative poverty is primarily applied: people are affected by relative poverty if, compared to the rest of society, they can afford significantly less.

The European Union (EU) defines the relative poverty line for people with less than 60% of the median of the net income (in Germany 942 euros per month for a single person without children). As this definition only covers monetary poverty, the EU has further broade-ned the definition to include social exclusion.

16,1

A person is threatened with poverty or social marginalisation if at least one of the three following life situations applies:

Income is below the at-risk-of-poverty line (monetary poverty). The household is seriously deprived of material resources1 (material poverty). The person lives in a household with a very limited labour force participation.

million people are threatened by poverty in Germany

TO THE POINT:

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GROUPS AFFECTED BY POVERTY IN GERMANY The unemployed, single parents as well as the inadequately educated or people with a background of migration are particularly affected by poverty and social marginalisation in Germany.

At-risk-of-poverty rate in% People affected by poverty (in thousand)

Most heavily affected groups of people1 (as of 2015)

Average at-risk-of-poverty rate

Unemployed Single parents Inadequately educated3

With background of migration

1.930728

69,1

43,9

31,527,7

15,7

10.495

4.737

The unemployed are most affected by poverty, despite basic public security. In no other EU member state are the unemployed so often con-fronted with poverty.

Single parents are the second worst affected by poverty. Compared to 2005, the at-risk-of-poverty rate has risen by 11.5%. This has implications for child poverty - about half of all children living in poverty are raised in single parent homes.

For the inadequately educated, the at-risk-of- poverty rate has risen steadily over the past 10 years. At 31.5% (2015), it is more than 8 percentage points higher than the 2005 level of 23.1%.

People with a migration background respective of age, level of education or employment status, are increasingly more threatened by poverty than people without a background of migration.

Other groups particularly affected by poverty worse than the average: refugees, the elderly, people with disabilities, nursing relatives, children, adolescents and young adults, people with mental illnesses and families with three or more children.

1

2

3

4

5

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Social Innovation for Business and Society10

AGENTS IN POVERTY REDUCTIONIn Germany the public sector, civil society as well as the private sector are all contributing to the fight against poverty.

Fighting poverty and social marginalisation is one of the main objectives of the welfare state principle enshrined in the German constitution (GG, art. 20 para. 1). In addition to a progressive tax system, social security benefits and social assistance, the public education system (e. g. free schools) or the health system (e. g. statutory health insurance) are examples of preventive measu-res against poverty that take the causes of poverty into account.

Public sector

Civil society has two important roles to play in poverty alleviation:

On the one hand, it puts pressure on the public and private sectors and makes demands as well as offers solutions. On the other hand, it provides services (e.g. caring for children, young people and the elderly as well as welfare educational programmes) that complement what the state provides.

Businesses have a variety of ways of addressing poverty:

In addition to their economic activities (e.g. job creation and paying wages) and legal obliga-tions (e.g. taxes), they contribu-te to the alleviation of poverty through philanthropic engage-ment, corporate citizenship and inclusive business models.

Civil society

Private sector

see next page

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THE ROLE OF BUSINESSES IN SOCIETY Businesses can take action to alleviate poverty that go beyond their legal obligations. Inclusive business models and the BOP approach in particular present great opportunities.

Classic philanthropy Corporate societal involvement that goes beyond the legal obligations, albeit not strategically integrated into business activities. This relates to short-term donations.

Legal obligations and taxation Complying with the law in all corporate activities, paying taxes on generated income and thereby contributing to the creation of societal value.

Inclusive business models and BOP concepts Entrepreneurial approaches aimed at meeting societal challenges in addition to economic success. Among other things, this strengthens the potential for innovation as well as developing new customer groups and market segments.

Corporate citizenship Contributions of a company to the welfare of society resulting from a combination of core business activities, social investments, philanthropy and participation in the social process (WEF, 2002). In contrast to classical philanthropy, these contributions are more firmly integrated into the core business.

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OPPORTUNITIES FOR BUSINESSES FROM THE BOP CONCEPTThe BOP concept combines the strengths of business development and corporate social responsibility.

Corporate Social ResponsibilityBusiness activities to contribute to sustainable societal development.

Business DevelopmentTargeted measures for developing new areas of

business to ensure long-term corporate success.

The process of developing inclusive business models involves several innovative approaches (e.g. co-creation and design thinking) that enhance companies‘ power to innovate.

Studies show that CSR activities have a positive impact on employee loyalty, motivation and productivity (Weber, 2008; Pelzeter et al., 2015). Similarly, 49% of people aged 21-34 prefer to work in a sustain-able business (Nielsen, 2014).

Improving power to innovate

Retaining the License to Operate

Employee loyalty and motivation

Enhancing reputation and branding

Making use of financial benefits

Optimising the supply chain

Encouraging innovation

Expanding market share in new fields

Developing new customer groups

Low-income households, which were previously not seen as potential consumers of products and

services, are moving into the focus of companies.

Designing new products and services

Corporate Social

Responsibility

Business Development

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MARKET BARRIERSVarious market barriers help to explain why businesses have thus far been reluctant to develop inclusive business models for people of low income.

Due to a lack of awareness of the challenges facing those affected, no suitable services are developed (e.g. apart-ments for rent, insurance).

A lack of awareness of the purchasing behaviour of those affected by poverty results in a lack of financing options (e.g. leasing offers).

Lack of awarenessDue to the low margins, investments pay off late (e.g. in residential construction).

Low returns

Measures that allow people of low income to become potential business customers (e.g. education, health care schemes, etc.) can also benefit competing companies.

Shared benefit/ free riders

Poverty cannot be reduced to a lack of financial resources, but encompasses the societal environment, the level of education and other factors that have implications for product design and marketing.

Complexity of the problem

Insufficient frame-work conditions

Innovations are difficult to implement due to the complexi-ty of coordination and regulation.

There are still no established framework conditions and advocates for the promotion and development of social innovations in the corporate environment.

Lack of willingness to cooperate

In developing solutions, businesses have to rely on previ-ously unfamiliar partners such as non-profit organisations, which increases uncertainty and risk.

Despite the mentioned challenges, a broad number of companies from various countries and sectors have overcome market barriers and implemented inclusive business models. See next page

TO THE POINT

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Social Innovation for Business and Society20

BOP APPROACHES IN EUROPE 1/2In France, Belgium and the Netherlands the BOP concept has been successfully implemented, and is now poised to be realised in Germany as well.

FRANCE

NETHERLANDS

BELGIUM

Establishment of the BOP platforms in Europe

2006Cooperation between Danone & Muhammad Yunus in Bangladesh

2009Establishment of the French platform Action Tank Entreprise & Pauvreté

2014Establishment of the Belgian platform Business & Poverty, headed by i-propeller

2017Establishment of the German platform Value².

2008Emmanuel Faber and Martin Hirsch in France cooperate to develop the

programme Malin

2010Implementation of the Action Tank as

an incubator for business ideas that create societal added value

2016Creation of the Dutch platform Inclusive

Business, also managed by i-propeller

France was the first country in Europe to implement the BOP concept.

Once Danone had developed a business model for low-income families together with Muhammad Yunus in 2006, in Bangladesh, Emanuel Faber, Managing Director of Danone, and French politician Martin Hirsch brought the idea to France in 2008.

In 2009, the platform Action Tank Entreprise & Pauvreté was established, which is regarded as a pioneer for other platforms in Belgium and the Netherlands. The platform in Germany has been launched in 2017.

21

BOP APPROACHES IN EUROPE 2/2The BOP platforms in Belgium and in the Netherlands are based on the approach developed by Action Tank in France.

Action Tank „Entreprise & Pauvreté“

France

Emmanuel Faber (Danone CEO), Martin Hirsch (French politician), HEC Paris (University), Boston Consulting Group (Strategy Consulting)

2009 in Paris

A consortium of several French businesses to develop innovative business models for poverty reduction. In addition to the range of consulting services, businesses are integrated into a network. This consists of public authorities (e.g. Pôle Emploi), academia (HEC Paris), civil society (e.g. the Red Cross) and other business partners (e.g. BCG, Opinion Way). The Action Tank is financed through membership fees from the respective businesses.

Housing (4), Mobility (2), Food (1), Financial services (1), Health care (1), Insurance (1)

The projects are in various states of implementation and the platform is being expanded further.

Platform Business & Poverty

Belgium

i-propeller, a consultancy for social innovation in Belgium

2014 in Brussels

The concept is highly analogous to the French Action Tank. The aim is to support companies in the develop-ment of innovative business models for the fight against poverty through consulting services and networking with different actors. In contrast to the Action Tank, the platform is financed through fees paid to specific consulting services.

Construction (3), Energy (1), Retail (1), Financial services (1), Food (1)

The projects are in various states of implementation and the platform is being expanded further. The most successful project is implemented in the retail sector.

Platform Inclusive Business

Netherlands

i-propeller; NewForesight, a consultancy for social innovation in the Netherlands

2016 in Brussels & Utrecht

The concept is analogous to that of the Belgian platform Business & Poverty

Dyes & chemicals (1), Food (1)

The platform is in the process of being established. Projects are currently being developed, with first results to be published in the course of this year.

Country

Initiators

Founding

Approach

Sectors of the businesses involved

As of 2017

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Social Innovation for Business and Society22

PRACTICAL EXAPMPLE: BLÉDINA AND „PROGRAMME MALIN“Programme Malin provides low-income families with baby food at discounted prices and gives Blédina, one of the leading producers of baby food, insights into a new customer segment.

Cost-effective business model.

Development of a new customer segment.

Stronger employee motivation, image and reputation.

More than 4,000 families and 7,000 children participate.

Discounted access to high-quality food products.

Free information on infant nutrition.

Partners Red Cross: Operational supportHospitals, nurseries: Information for familiesPaediatricians: Scientific supportAction Tank: Support in implementation

In France, around 160,000 babies - almost every fifth child - are born into families living below the poverty line. These families are confronted with two challenges: (1) baby food is expensive and (2) socio-economic circumstances of low-in-come families only play a minor role in product design. However, newborn nutrition within the first 1,000 days is essential for their future health.

The Programme Malin primarily consists of two compo-nents. 1) Action-oriented measures and materials that connect families with experts and inform them on the issue of infant nutrition. 2) A coupon system in which participa-ting families can buy Blédina baby food at a discount. Blédina offers discounts for each product (between 25% and 40%) that correspond to the per product margin. In urban test regions, the programme has already reached 45% of low-income families. By 2020, this rate is expected to rise up to 50%.

As members of a multi-stakeholder process, the Red Cross, paediatricians and Blédina (market leader in baby food and part of the Danone Group), joined forces in 2015 for Pro-gramme Malin. Their goal: supporting pregant women and mothers in the field of healthy nutrition. Initially, Action Tank is supporting the pilot projects in four regions.In the following years, national scaling and impact assess-ment is planned.

Challenges

Solution

Approach

Societal added value

Entrepreneurialadded value

Social Innovation for Business and Society24

PRACTICAL EXAMPLE:RENAULT AND „MOBILIZ“Mobiliz offers inexpensive cars and repair services to low-income house-holds, allowing them to be more mobile and have better access to employment opportunities. Renault on the other hand benefits from innovative business model development.

PartnersNon-profit organisations: Identify affected people who could use the serviceLa Poste: Provides rental carsAction Tank: Supports implementation

More than 8.7 million people in France live below the poverty line. Since housing in large cities is too expensive, many of these people live in rural areas, but are dependent on jobs in big cities, which can only be reached by car. Acquiring and maintaining an automobile is often a finan- cial hurdle. This results in social exclusion – as insufficient mobility is one of the three key causes of unemployment.

During a pilot phase, the project was successfully tested in three regions and expanded to cover all of France from the end of 2013. The starting phase included the following steps: development of basic knowledge about ‚social business‘; conducting interviews on the issue of mobility; evaluation of different profit and loss scenarios.

Challenge

Approach Cost-effective business model.

Development of a new customer segment.

Stronger employee motivation, image and reputation.

Increased mobility access for more than 1,000 people

Job seekers were supported in finding new employment

Renault now offers discounted repair services for cars in more than 340 garages. The repair services are offered at a cost-covering price which, depending on the type of repair and the type of car, is 30% to 60% cheaper than the stan-dard price. In addition, used and rental cars can be purcha-sed or driven more inexpensively. Renault‘s goal is to reach 2,000 to 3,000 customers in 2017 and more than triple this number to about 10,000 in the next two to three years.

Solution

Societal added value

Entrepreneurialadded value

Social Innovation for Business and Society26

PRACTICAL EXAMPLE: COLRUYT AND „A TABLE POUR 1-2-3 EUROS“In Belgium, the project A Table pour 1-2-3 Euros helps low-income families to eat healthy food and gives the retailer Colruyt access to social innova-tions and an enhanced image.

PartnersNon-profit organisations: Identify participants and offer cooking classesUniversity: Support with market analysesi-propeller: Support with implementation

Studies have shown that children of low-income families have a four times greater risk of health problems because of insufficient nutrition1. Limited household budgets and associated fears of being unable to afford a healthy diet can result in less balanced food shopping and, therefore, unbalanced nutrition. In the long term, this can have detrimental effects, especially on health.

In cooperation with i-propeller and non-profit organisations, the project A Table pour 1-2-3 Euros was designed to promo-te affordable healthy food intake for low-income families. In 2016, the project was successfully piloted with approx. 100 participants living in one city, and has since been expanded to over 80 cities with approx. 1,100 participants. Starting from 3,000 participating families, the programme can cover all costs.

Challenge

Approach Potentially cost-covering and profitable project

Development of a new customer segment

Access to social innovation

Enhanced image and reputation from media coverage

1,100 families have access to healthy food

Skill enhancements: food prepara-tion and household budgeting

Stronger family ties from joint food preparation

Every two weeks, Colruyt provides low-income families with six healthy and child-friendly recipes, including shopping lists. The families were previously invited to participate in the project by non-profit partner organisations. The ingredients for the recipes can be bought at Colruyt at a total cost of max. 1, 2 or 3 euros per serving. Project participants benefit from a temporary price guarantee, which - if necessary - is taken into account when paying for food products via their regular customer card. The use of the customer card aims to avoid stigmatising project participants. The purchases in connection with the recipes make it easier for families to access healthy and balanced food.

Solution

Entrepreneurialadded value

Societal added value

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Social Innovation for Business and Society30

GERMAN MARKET POTENTIALBY SECTORThe potential of BOP concepts in Germany for different areas of life is very strong – the market for meeting the basic needs of those affected by poverty is worth from 80 to 110 billion euros.

Basic needs

The German government and international organisations define several basic needs that must be met to ensure an adequate quality of life.

In total, low-income people in Germany spend about 80 to 110 billion euros per year on meeting these basic needs

. Spending on housing and energy, food and further consumer goods is particularly high.

Even the proportionally lowest expenditure on basic health care needs exceeds two billion EUR.

Each of these areas of life offers great potential for products and services.

Mar

ket v

olum

e: a

ppro

x. 80

to 11

0 billi

on EUR1

2-3billion EUR

Health

4-8billion EUR

Mobility & Transport

13-21billion EUR

Other consumer goods

16-20billion EUR

Food

40-49billion EUR

Housing and Energy

5-9billion EUR

Education & Culture

31

Social Innovation for Business and Society32

Housing and EnergyAbout half of the expenditure of those affected by poverty in Germany is used for housing and energy – nevertheless, they are threatened by a shortage of housing and energy poverty, potentially having their power cut off.

Challenges

Decline in social housing –from 4 million units in 1987 to 1.5 million in 2015.

Rising electricity costs – increased by about 21% from 2010 to 2015

Switching to cheaper energy provider – usually requires creditworthiness.

Consequences

Housing shortage – only about 12% of flats in the 100 most populous cities are affordable for poor families.

Financial strain – 51.9% of those affected by poverty spend more than 40% of their household income on housing costs.

Energy poverty – proportion of energy poor1 house-holds went up from 13.8% in 2008 to 17% in 2011.

Energy provider too expensive – people affected by poverty pay more for electricity than the average household

Innovative products and services Inexpensive housing by building small but well-equipped houses, e.g. tiny houses.

Preventive measures and educational Programmes Trained energy saving assistants help those affected by poverty with tips on how to save electricity, e.g. Stromsparcheck.

New pricing and financing solutions: Micro loans for young people for furnishing their first flat away from home, e.g. First place fund for youth.

Cooperation across industries Housing estates that take both social and ecological issues into consideration, e.g. Kronsberg (Hannover).

FOODThose threatened by poverty spend about 16 to 20 billion euros per year on food – malnutrition does exist in Germany, which has a negative impact on public health.

Challenges

In Germany, malnutrition1 is widespread among persons of low income. Results of the National Food Consumption Study show that those affected by poverty consume less fibre and vitamins and more fats and sugars.

Causes:

High cost – impedes a balanced diet.

Insufficient dietary knowledge – better dietary knowledge eliminates the link between poverty and malnutrition.

Consequences

Health consequences:

Those affected by poverty are more likely to suffer from type 2 diabetes and obesity.

Compared to the highest income bracket, children from low-income groups are three times more likely to be obese.

Societal consequences:

Sharing a meal at a restaurant is often impossible.

Many of those affected by poverty feel ashamed of having to go to a food bank.

Innovative products and services An app that allows picking up left-over meals at restaurants/cafés at a reduced price, e.g. Too good to go.

Preventive measures and educational programmes: Providing recipes and offering cooking classes through partner organisations, e.g. Colruyt.

New pricing and financing solutions Price guarantees to low-income families for certain food products, e.g. Colruyt.

40 -49 16 - 20billion euros Market volume

billion euros Market volume

Ideas so far and possible solutions Ideas so far and possible solutions

33

EducationThose threatened by poverty spend about five to nine billion euros per year on education – the level of education continues to strongly depend disproportionately on parents and the social background.

Challenges

Compared to the rest of Europe, educational mobility1 in Germany is below average.

Among the causes are:

Lack of financial resources – i.e. for nursery fees, school materials and tutoring.

Structural disadvantages – with equal performan-ce, children from socially disadvantaged homes are up to four times less likely to get an upper secondary school recommendation.

Consequences

Reduced access to education – low-income families are less likely to attend nurseries or informal educatio-nal courses.

Learning development – lower secondary school classification has a clearly negative effect on the learning development of children with a high level of cognitive basic skills.

Innovative products and services Online interactive maths tutorials with individual feed-back, e.g. Bettermarks.

Preventive measures and educational programmes Diagnostics tool for early identification of students who refuse to attend school, e.g. Apeiros.

New pricing and financing solutions Leasing scheme for notebooks and laptops in schools with students from low-income households, e.g. Mobiles Lernen.

5 - 9billion euros Market volume

Ideas so far and possible solutions

Mobility & TransportThose threatened by poverty spend about four to eight billion euros per year on mobility – the social and professional participation of those affected by poverty continues to be impeded by the high cost of local and long-distance transport.

Challenges

Cost – public transport is expensive: the monthly transport allowance of 32,90 euros for Hartz-IV recipients is often not enough.

Access – those affected by poverty can rarely afford to live close to the city and therefore have to spend more money on long-distance transport.

Long-distance transport – additional expenses for this are generally not covered by state benefits; discounted services are rare.

Consequences

Limited social participation – participation in social events, leisure and educational activities becomes difficult or impossible.

Career disadvantages – travel expenses stand in the way of job interviews and long commutes make it difficult to choose and pursue a career.

Innovative products and services Low-cost sharing economy solutions, e.g. Blabla Car.

Preventive measures and educational programmes Vehicles that are not in use are made available as low-cost rental cars, e.g. Renault & La Poste.

New pricing and financing Low-cost repair services for low-income households, e.g. Renault.

4 -8billion euros Market volume

Ideas so far and possible solutions

35

Social Innovation for Business and Society34

HealthThose threatened by poverty spend about two to three billion euros on health care – lacking financial and social resources result in health problems for people in poverty.

Challenges

Not enough focus on prevention – less focus on health care in view of the urgent challenges of every-day life.

Lack of health knowledge.

Insufficient access to additional services requiring payment – e.g. dental prosthetics, glasses or hearing aids.

Consequences

Physical illness – people affected by poverty are more likely to suffer from diseases such as cancer, diabetes and chronic lung conditions.

Mental illness – low status groups significantly more frequently suffer from conditions such as depression or substance disorders.

Reduced life expectancy – people living below the poverty line have a lower life expectancy, on average seven to 10 years, compared to people with above-average incomes.

Innovative products and services App based on AI that offers inexpensive online medical consultations, e.g. Ada Health.

Preventive measures and educational programmes: Nurses who address the health care issues of the homeless, e.g. Street Nurses.

Cooperation across industries: Joint provision of inexpensive reading glasses for people over 45 affected by poverty, e.g. Essilor & health insurance companies.

2 -3billion euros Market volume

Ideas so far and possible solutions

Other consumer goodsThose threatened by poverty spend about 13 to 21 billion euros on other consumer goods – never-theless, almost one third of the unemployed and more than 10% of single parents face consider-able material austerity.

Challenges

Restricted standard of living – 4.4% of Germans can only afford a maximum of five out of the nine products and services which, according to the EU, are essential for an average standard of living.

Material austerity – almost one third of the unemplo-yed and more than 10% of single parents face consider-able material austerity.

Consequences

Inflexible consumption – unexpected expenditures, such as a defective washing machine, can result in great stress for people of low income. Cost savings must be made elsewhere to cover such expenses.

Social marginalisation and isolation – non-owner- ship, e.g. of a phone or a washing machine, can result in isolation.

Innovative products and services: Affordable and varied range of toys through shared-economy approa-ches, e.g. Meine Spielzeugkiste.

New pricing and financing solutions: Leasing scheme for TVs and other household goods, e.g. easyLeasing.

13 - 21billion euros Market volume

Ideas so far and possible solutions

37

Social Innovation for Business and Society36

Social Innovation for Business and Society38

AT A GLANCEThe study shows how companies can counteract social marginalisation in Germany through the Base of the Pyramid concept and thereby create both societal and entrepreneurial added value.

Public sector and civil society activities and programmes make specific contributions to poverty reduction.

These are complemented by a growing number of compa-nies that use targeted approaches to make both a social contribution towards poverty reduction while at the same time creating entrepreneurial added value.

In France, Belgium and the Netherlands, companies such as Danone, Renault and Colruyt have adopted the BOP concept.

Businesses can use their resources to address social margi-nalisation using the BOP concept.

More than 16 million people in Germany (20% of the popula-tion) are threatened by poverty or socially marginalised.

The unemployed, single parents as well as the inadequately educated are particularly affected.

This publication shows that, despite a positive economic development in Ger-many, social margina-lisation remains a major challenge.

Enhanced employee loyalty.

Greater capacity for innovation.

Development of new markets and customer groups.

More favourable reputation and image enhancement among different stakeholders.

In addition to the intended target group, BOP approa-ches also benefit businesses at many levels, for example:

BOP concepts have significant potential in many areas of life in Germany.

The total market volume for satisfying the basic needs of people affected by poverty is 80 to 110 billion euros.

Companies in Germany are not yet making strategic use of this potential; the development of business models targeted at low-income groups requires innovative approaches.

IN A NUTSHELL

Social Innovation for Business and Society40

Michael Alberg-Seberich Managing Director Beyond Philanthropy

[email protected] T +49 (0)30 240 88 240

Fabian Suwanprateep Manager Beyond Philanthropy

[email protected] T +49 (0)30 2408824 23

Maximilian Grimm Consultant Beyond Philanthropy

[email protected] T +49-30-2408824-27

Norbert Kunz Managing Director Social Impact

[email protected] T +49 (0) 30 611 071 91

Salah Said Business Development Manager Social Impact

[email protected] T +49 (0) 30 611 071 91

Special Thanks to Alena Klatte Intern Beyond Philanthropy

Contacts Project Partners

Beyond Philanthropy supports its clients in effectively shaping social change by providing tailor-made consulting services in the areas of research & analysis, strategy design & development and implementation.

With a multidisciplinary team and network of experts, BP has already successfully worked with more than 60 clients on projects in over 30 countries. beyondphilanthropy.eu

Social Impact is the agency for social innovations. For more than 20 years now, Social Impact has been develo-ping products and services that contribute to ensuring sustainability and social equality. One focus today is on the development of infrastructures to promote social innovation.

Our services: Programmes for Social Start-ups and Social Impact Labs in Germany, Austria & Switzerland, specific start-up consulting for individual target groups and regio-nal development.

socialimpact.eu

Concept and design: MEHRWERKSTATT - Competence Consortium for Advertising, Marketing & Consulting [email protected] / mehrwerkstatt.com

With its programmes, the BMW Foundation Herbert Quandt inspires leaders to extend their social and politi-cal commitment – across sectors, cultures and national borders.

The BMW Foundation invests in impact-oriented organi-sations and encourages leaders to use venture philanth-ropy and impact investing as effective tools for social change. bmw-foundation.org

Supported by the

41

Sources and Endnotes

Pages 6 - 7

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Pages 8-9

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Destatis (2016): Pressemitteilung Nr.391. https://www.destatis.de/DE/PresseService/Presse/Pressemitteilungen/2016/11/PD16_391_634.html.

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1: According to their own assessment, people cannot afford to pay for certain aspects of their lives (e.g. rent, meat/fish, holidays, cars).

2: Purchasing power parity compares purchasing power in different regions, taking into account differences in living costs and exchange rates.

Pages 10-11

Bundesministerium für Arbeit und Soziales (BMAS) (2017): Armuts- und Reichtumsbericht. http://www.armuts-und-reichtumsbericht.de/DE/Service/Open-Data/opendata.html.

Der Paritätische Gesamtverband (2017): Menschenwürde ist Menschenrecht. Berlin: Der Paritätische Gesamtverband (Bericht zur Armut-sentwicklung in Deutschland).

1: Refugees and persons of retirement age are not listed due to missing data. Evaluation based on the at-risk-of-poverty rate; 2: Data based on EU SILC, because micro census only registers unemployment;

3: International Standard Classification of Education (ISCED).

Pages 16-17

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Prahalad, C.K. (2010): The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits. 5. Aufl. Upper Saddle River, New Jersey: Pearson Education, Inc.

Pages 20-29

Interviews mit und Informationen von Vertretern von Action Tank, i propeller, Programme Malin, Mobiliz und Colruyt

Pages 28-29

1: Robert Koch Institut, KiGGS Studie (2014)

Page 30-31

1: Own calculation based on income and consumer sample, Statistisches Bundesamt 2017: https://www.destatis.de/DE/ZahlenFakten/Ge-sellschaftStaat/EinkommenKonsumLebensbedingungen/Wohnen/MethodischesEVSWohnen.html

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Faltlhauser, M. (2016): Zahlen und Fakten zur Stromversorgung in Deutschland 2016. Abgerufen am 13.04.2017 von https://www.wbu.de/pdf/positionen/20160725_WBUStrom2016.pdf.

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1: According to the Federal Government, every household that spends more than 10% of its disposable income on energy;

Page 33

Biesalski, H.B. (o. J.): Armut und Ernährung bei Kindern: Kinder, die in Armut leben, sind häufiger krank. Welchen Einfluss hat das Einkommen von Familien auf die Ernährung von Kindern?. Abgerufen am 18.04.2017 von

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Maier, W.; Scheidt-Nave, C.; Holle, R. u. a. (2014): Area Level Deprivation Is an Independent Determinant of Prevalent Type 2 Diabetes and Obesity at the National Level in Germany. Results from the National Telephone Health Interview Surveys ‘German Health Update’ GEDA 2009 and 2010. In: PLoS ONE. 9 (2), S. e89661, DOI: 10.1371/journal.pone.0089661.

Pfeiffer, S. (2014): Die verdrängte Realität von Ernährungsarmut in Deutschland. 1. Aufl. Wiesbaden: Springer Fachmedien Wiesbaden. Simpson, F.; Lührmann, P. (2015): The nutritional situation of adults from low-income households at risk of poverty.

In: Ernährungs Umschau. 62 (3), S. 34-43, DOI: 10.4455/eu.2015.007.

1: Malnutrition is distinguished between quantitative and qualitative malnutrition.

Page 34

Ackeren, Dr. I.; Dominique Klein, Dr. E. (2014): Woher und wohin, Soziale Herkunft und Bildungserfolg. Wübben Stiftung.

OECD (2014): Bildung auf einen Blick. OECD Indikatoren. Abgerufen am 02.03.2017 unter

http://www.keepeek.com/Digital-Asset-Management/oecd/education/bildung-auf-einen-blick-2014-oecd-indikatoren_eag-2014-de#pa-ge1%29.

Schröder, C.; Spieß, C.K.; Storck, J. (2015): Private Bildungsausgaben für Kinder: Einkommensschwache Familien sind relativ stärker belastet. In: DIW Wochenbericht. (8).

Socio-Economic Panel Study (SOEP) (2012): Mobility Regimes and Parental Wealth: The United States, Germany, and Sweden in Comparison. In: SOEP papers on Multidisciplinary Panel Data Research.

1: Educational mobility is a sociographic measure of the permeability of an education system. The term describes the extent to which persons are able to transition into a higher or lower level of education compared to their biographical background or previous generations.

Page 35

Bundesministerium für Arbeit und Soziales (BMAS) (2015): Dokumentation des Workshops mit von Armut Betroffenen im Rahmen des 5. ARB. Abgeru- fen am 28.03.2017 von http://www.armuts-und-reichtumsbericht.de/DE/Service/Aktuelles/Meldungen/workshop-mit-von-ar-mut-betroffenen.html.

Deutscher Bundestag (2016): Entwurf eines Gesetzes zur Ermittlung von Regelbedarfen sowie zur Änderung des Zweiten und des Zwölften Buches Sozialgesetzbuch. Deutscher Bundestag – Drucksache 18/9984

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Der Paritätische Gesamtverband (2017): Menschenwürde ist Menschenrecht. Berlin: Der Paritätische Gesamtverband (Bericht zur Armut-sentwicklung in Deutschland).

Landeszentrale für Gesundheit in Bayern e.V. (LZG) (2012): Armut macht krank - Krankheit macht arm?!. Abgerufen am 20.03.2017 von http://www.lzg-bayern.de/tl_files/catalog_upload/i/id-061005_2.pdf.

Page 37

Bundesministerium für Arbeit und Soziales (BMAS) (2017): Armuts- und Reichtumsbericht Open Data. Abgerufen am 07.02.2017 von http://www.armuts-und-reichtumsbericht.de/DE/Service/Open-Data/opendata.html.

Further sources: Interviews with representatives of the welfare, business and political sectors43

Social Innovation for Business and Society42

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