Bottom of the pyramid

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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. The phrase “bottom of the pyramid” is used in particular by people developing new models of doing business that deliberately target that market, typically using new technology.

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.

Contents

[edit] 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 Prahalad in 2004 in The Fortune at the Bottom of the Pyramid.

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, Prahalad's proposition is controversial. Aneel Karnani, also of the Ross School, (http://ssrn.com/abstract=914518) has argued that the market at the bottom of the pyramid is very small and not attractive -- there is no fortune there. The only way to alleviate poverty is to raise the real income of the poor. Rather than focusing on the poor as consumers, the poor should be seen as producers.

[edit] Examples

[edit] 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”. ICICI bank has taken the initiative in the field of microcredit in INDIA.

[edit] Agriculture

Another example of the bottom of the pyramid targeting at work is e-Choupals 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” (Internet-connected computers) 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.

[edit] 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.

[edit] References

[edit] Resources

Student organisations:

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