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    Bottom of The Pyramid

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    Rupali Pratap Singh
    The document discusses the opportunity presented by the bottom of the pyramid (BOP) market, which comprises over 4 billion people living on less than $1,500 per year. It outlines how multinational corporations' (MNCs) assumptions have prevented them from seeing this market opportunity. It then provides strategies for tapping into the BOP market, including an example of Hindustan Lever Limited's successful approach. Overall, the document argues that properly serving the BOP can be profitable for companies while also benefiting billions of people globally.

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    Bottom of The Pyramid

    Uploaded by

    Rupali Pratap Singh
    134 views16 pages
    The document discusses the opportunity presented by the bottom of the pyramid (BOP) market, which comprises over 4 billion people living on less than $1,500 per year. It outlines how multinational corporations' (MNCs) assumptions have prevented them from seeing this market opportunity. It then provides strategies for tapping into the BOP market, including an example of Hindustan Lever Limited's successful approach. Overall, the document argues that properly serving the BOP can be profitable for companies while also benefiting billions of people globally.

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    Presentation on BOP by other authors

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    Bottom of the Pyramid

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    The document discusses the opportunity presented by the bottom of the pyramid (BOP) market, which comprises over 4 billion people living on less than $1,500 per year. It outlines how multinational corporations' (MNCs) assumptions have prevented them from seeing this market opportunity. It then provides strategies for tapping into the BOP market, including an example of Hindustan Lever Limited's successful approach. Overall, the document argues that properly serving the BOP can be profitable for companies while also benefiting billions of people globally.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    134 views16 pages

    Bottom of The Pyramid

    Uploaded by

    Rupali Pratap Singh
    The document discusses the opportunity presented by the bottom of the pyramid (BOP) market, which comprises over 4 billion people living on less than $1,500 per year. It outlines how multinational corporations' (MNCs) assumptions have prevented them from seeing this market opportunity. It then provides strategies for tapping into the BOP market, including an example of Hindustan Lever Limited's successful approach. Overall, the document argues that properly serving the BOP can be profitable for companies while also benefiting billions of people globally.

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    Bottom of the Pyramid: Implications for Indian Consumer Market

    LOGO

    Bottom of the Pyramid : Implications for Indian Consumer Market

    1
    2 3 4

    Unrealized opportunity at the BOP

    Why BOP remain invisible

    Strategies for the BOP

    Hindustan Lever Limited Case

    LOGO

    <Fig-1>The World Pyramid and BOP

    More than $20,000 Tier 1 $ 1500~ $20,000

    75~100 million people

    Tier2

    1,500~1750 million people

    $ 1500~ $20,000

    Tier 3 4,000 million people Tier 4

    Less than $1,500

    Less than $1,500

    Tier 5

    LOGO

    Bottom of the Pyramid


    Think of the global market as a pyramid (Figure-1). At the very top of the pyramid there exists a small fraction of customers. Most MNCs originated in this affluent world. Most MNC managers' views of business are conditioned by their knowledge and familiarity with Tier 1 consumers. In the top 200 MNCs in the world, more than 195 have their origins in the affluent, developed countries.

    LOGO

    Bottom of the Pyramid


    Now consider the vast emerging consumer base at the bottom of the pyramid, where 4 billion people reside. The per capita income in this tier is less than $1,500 (PPP) per year. For well over a billion people, per capita income is less than a dollar per day. The vast majority of those in Tier 4 live in rural villages and urban slums and shanty towns. Educational levels are low to non-existent. These markets are hard to reach-from the point of view of distribution, credit, or communications.

    LOGO

    Bottom of the Pyramid


    This market is often unorganized, local, and limited in quantity and quality of products and services available. Over the next 40 years, the numbers in Tier 4 could swell to 6 billion or more, since the bulk of the world's population growth is expected to come from this segment. Yet, this massive tier of the World Pyramid has been largely invisible to the corporate sector.

    LOGO

    Argument
    1.Our society have implicitly assumed that the rich will be served by the corporate sector (MNCs) and governments or NGOs will protect the poor and the environment. This implicit divide is stronger than most realize. 2.Managers in MNCs, public policy makers, and NGO activists all suffer from this historical division of roles. 3.A huge opportunity lies in breaking this code-linking the poor and the rich across the world in a seamless market organized around the concept of sustainable growth and development.

    LOGO

    Unrealized opportunity at the BOP


    Raising the 4 billion poor at the "bottom of the pyramid," will require radical innovations in technologies and business models. It will require a reexamination of the "priceperformance" relationships for products and services.

    It will demand a new level of capital efficiency. Companies will be forced to transform their understanding of scale, from "bigger is better" to the capability to match for highly distributed small-scale operations and world scale capabilities. The bottom of the pyramid presents a new managerial challenge - one potentially as powerful as the challenge posed by the Internet and e-business.

    LOGO

    Why the BOP market opportunity remain invisible?


    The perception of market opportunity is a function of the way many managers are socialized to think and the analytical tools they use. If we looked at per capita incomes, the bottom of the pyramid will be automatically excluded from consideration in most MNCs. The same conclusions would be reached if the analysis was done with the current portfolio of products and services, geared to the developed world. Converting the poor into active consumers requires managers in MNCs to come to terms with the core set of assumptions and practices that are embedded in most firms.

    LOGO

    Misleading Assumptions
    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. 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.

    LOGO

    Misleading Assumptions
    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 longterm 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. Because of the prevalence of these key assumptions by MNCs, the market opportunity at the bottom of the pyramid has remained invisible. It represents a large and unexplored territory for profitable growth.
    LOGO

    The challenge and Opportunity


    The challenge is clear: There are expectant consumers and potential innovations that can no longer be systematically ignored. Yet this opportunity cannot 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.

    LOGO

    Strategies for the BOP


    Forces that point to the emergence of a market for goods and services at the bottom of the pyramid.
    1)Increasing aspirations due to improved access to TV and information :Tier 4 aware of many products and services and eager to become consumers. 2)Deregulation and diminishing role of governments and international aid: More hospitable investment climate for MNCs entering developing countries and more cooperation from NGOs. 3)Global overcapacity combined with Intense rivalry in Tier 1 and middle Markets: Tier 3 and 4 represent a huge untapped opportunity for profitable growth. 4)Threat of migration to urban centers: MNCs must create products and services for rural populations.

    LOGO

    Hindustan Lever Limited Case


    An illustration of the successful execution of this strategy comes from Hindustan Lever Limited (HLL), a subsidiary of Unilever, widely considered the best managed company in India. Like most MNCs, for over 50 years it catered to the needs of the elite of India- the top of the pyramid. A local firm, Nirma, challenged HLL in its detergent business, by creating a new business system - a new product formulation, new manufacturing process, distribution, packaging, and pricing. HLL like most MNCs, initially dismissed Nirma as a low end producer.

    As Nirma grew rapidly, HLL realized both its new opportunity as well as its vulnerability. Nirma was attacking, in its detergent business, from the bottom of the pyramid.

    LOGO

    Hindustan Lever Limited Case


    HLL responded with its own offering for this market drastically altering the traditional HLL business model. HLL created a new product formulation which dramatically reduced the ratio of oil to water in the detergent, thereby reducing significantly the pollution associated with washing cloths in rivers and other public water systems. They decentralized the production, marketing, and distribution of the product to take advantage of the abundant labor pool in rural India and quickly penetrate the thousands of small outlets where people at the bottom of the pyramid shop. They reinvented the cost structure of the business, enabling the introduction of the product at a price point affordable to those at the bottom.

    LOGO

    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. To fully capture this opportunity, however, those at the bottom of the pyramid must become active market participants. Opening Tier 4 means narrowing the global gap between rich and poor; it means lifting billions of people out of poverty and desperation; and it means averting the social decay, political chaos, and so on.

    LOGO

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