28 Jun 2018

The Fortune at the Bottom of the Pyramid, Eradicating Poverty through Profits – A Book Review by Surendra Raj Acharya

There are over 4 billion people who earn lesser than 2 dollars a day. Their earning standard shows not only economic status but also physical, social and cultural status. Often people under poverty line are victim and a burden to the society. But, if poor people are regarded as resilient, creative entrepreneurs and value –conscious consumers , because of their substantial population whole new world of opportunity would open up. This is referred as the fortune at the bottom of the pyramid which was termed by Late C.K Prahlad on his Business book called The Fortune at the Bottom of the Pyramid , Eradicating Poverty Through Profits, Enabling Dignity and Choice Through Markets.

World’s richest 1 % owns half the world’s wealth. This extreme inequity of wealth distribution reinforces the view that poor cannot participate in the global market economy, despite of their substantial population. The cry of poor people is so intense and constant that there have been different approaches to solve this problem. Over the six decades, World Bank, donor nations, various aid agencies, national government , civil societies have all fought , but have not eradicated poverty. Needless to say ,the philanthropy or welfare activities of business organization cannot obsolete their poverty. There has always been a mixed criticism on corporate social responsibilities. Some argue that it is about proving that there is a soul in the capitalist market. Whereas other argue CSR is just smart business or reputation management. Whatsoever with the arguments, CSR is fading and cannot solve the problem of poverty.

BOP reengineer the approach to help the poor, which involves in partnering with them with to innovate and achieve sustainable synergic scenarios where poor are actively engaged and at the same time the companies providing products and services to them are profitable. It is difficult to unlock the opportunities at the BOP if large and small firms, governments, civil society organizations, development agencies and the poor themselves do not work together with a shared agenda.

Eradicating poverty through profit seeks poor as a consumer. The obvious question would be how would people earning lesser than 2 dollars a day have money. The emerging markets have witnessed significant growth in economy. Emerging markets like Brazil, India, China, Russia, South Africa, Indonesia, Turkey and Thailand collectively represent home to over 3 billion people representing 70 percent of world’s total population. In terms of Purchasing Power Parity , their GDP is over 13 trillion USD which is larger than Japan, Germany, France, The UK and Italy combined. The obvious question would be how would people earning lesser than 2 dollars a day have money .This is a dominant assumption that poor have no purchasing power and therefore there is no feasible market. It is obvious that buying power of poor people cannot be compared with the purchasing power of individuals in the developed nations. Actually, the poor represent a significant niche purchasing power that must be unlocked. However, poor people are compelled to pay high price as 5 to 25 times what the rich pay for the same services. This poverty penalty is the result of local monopolies, inadequate access, poor distribution and strong traditional intermediaries. This problem can be solved by large scale private sector businesses. It was found that poor has different priority in spending their earnings. They might not spend their disposable income in sanitation, clean running water, and better homes but will spend in traditionally considered luxuries. Like television, telephones, domestic electrical appliances to mention few. According to the research by Financial express India, 45% of all soft drinks, 50 % of all motorcycles,60% of all cigarettes , 55 % of FMCG products are either sold and consumed in the rural market of India.

There has been speculation that whether poor people are brand conscious or not. Many researchers have found that people at the bottom of the pyramid are brand sensitive who are extremely value conscious by necessity. They expect great quality at affordable prices. This lead to a great challenge to the managers with increased pressure on costs of development, manufacturing and distribution.

To make this concept viable price performance is important. It is not merely about lowering the prices rather restructuring the price performance relationship. For instance, for cataract surgery, even the poorest in the US can get access to the operation through insurance which cost $2,500-$3000. But In India cataract surgery would require around $50 which is 50 to 70times lesser than the US. Doctors at Arvind Eye Care Hospital (largest eye care facilities in the world) operate more than 200,000 surgery per year pricing from $50-$3000 per surgery including the hospital stay .It is true that BOP market does not have high profit margin but BOP market is based on expectations of a large –volume, low risk and high return on capital employed business opportunity.

Many MNCs in developed market target rich segment which gives high gross margins. Such companies finds BOP market inappropriate because of low buying power .However, in order to sell profitably to the bottom of the pyramid companies must focus on two key challenges, changing consumer’s behavior and changing the way products are made and delivered in low income markets. Understanding these challenges would help companies to calculate resources accurately and strengthening the innovative capabilities.

Hindustan Unilever (HUL) is one of the MNCs that have successfully explored opportunities at the bottom of the pyramid. HUL offers products with multiple price and packaging options that target different segments in the market. In many South Asian nations BOP customers are served with low price sachets of shampoos, toothpastes, fairness creams and hair oil. In order to penetrate the market at BOP , HUL offers different product lines like Close-Up, Pepsodent, Pond’s ,Vaseline and many more .Companies like Loccitane a French fragrance company has successfully entered Burkina Faso market in 2006 profitably and improved their working condition. Greenway Grammen, the Indian social enterprise selling stoves, aiming at improving health and doing business profitably saving people’s money and providing what they really want.

The markets in the rich world are facing low birth rates and slow economic growth. The developing market or the bottom of the pyramid on the other hand, is producing substantial birth rates and economic growth. In capitalist view, companies should devote their energies to develop new products that are suited to the developing markets and new ways of getting those products to the poor consumers rather than grooming themselves over how responsible they are.

Recapitulating fortune at the BOP, there is a substantial promising potentiality in such niche market. Its greatest achievements would be availability of products and services at an affordable prices, social recognition and respect and acceleration in the entrepreneurial spirit in the rural areas. However, approaching in the BOP market requires companies to have literal presence in the local market, robust research on tier 4 and 5 markets, affordable price for its product and services and profit margins through economies of scale. Whatsoever its consequences are it has changed preconceived notions about the commercial opportunities in serving the poor nations. Conventionally, Corporate Social Responsibilities (CSR) was just an approach to show that there is a soul in capitalism. However, the best way for business to help the poor is not merely philanthropic activities but rather engaging themselves to treat poor people as customers profitably.