CK PRAHLAD- THE ECONOMIST

THE BOTTOM OF
PYRAMID THEORY

Submitted by
Abhishek Pathak
12BSPHH010033
About : CK-PRAHLAD (Bottom of The Pyramid)

About CK PRAHLAD (1941- 2010)

Professor of Corporate Strategy at the Stephen M. Ross School of Business in the University of
Michigan.

Early life

He was born in 1941 in kannada speaking family in coimbtore. At 19 he joined Union Carbide after
completing his BSC degree in physics from LOYALA University Chennai.

Professions and teaching

After graduating from Harvard, Prahalad returned to his master's degree alma mater, the Indian
Institute of Management Ahmedabad. But he soon returned to the United States, when in 1977, he was
hired by the University of Michigan's School of Business Administration, where he advanced to the top
tenured appointment as a full professor. In 2005, Dr. Prahalad earned the university's highest
distinction, Distinguished University Professor
 Dr. Prahlad’s Theory- Bottom Of The Pyramid

C.K. Prahalad
thinks there can Four billion low-income people, a majority of the world’s population,
be a win-win constitute the base of the economic pyramid. New empirical measures
of their behaviour as consumers and their aggregate purchasing
relationship power suggest significant opportunities for market-based approaches
between to better meet their needs, increase their productivity and incomes,
business and and empower their entry into the formal economy.
the poor
Framework to realize the fortune of bottom of pyramid

Private
Enterprises

Civil society ,
Organization
BOP and local
consumers and government
entrepreneurs

Development
and aid
agencies
Concept revolving around BOP

If we stop thinking poor as a victim or burden and

start recognising them as resilient and creative
entrepreneurs and value conscious consumer, a whole
new world of opportunity will open up.

Mr Prahalad reckons that there are huge potential

profits to be made from serving the 4 billion-5 billion
people on under $2 a day—an economic opportunity he
values globally at $13 trillion a year

The win for the poor of being served by big business

includes, he says, being empowered by choice and
being freed from having to pay the currently
widespread “poverty penalty”
Example

In shanty towns near Mumbai, for

example, the poor pay a premium
on everything from rice to credit—
often five to 25 times what the rich
pay for the same services. Driving
down these premiums can make
serving the BOP more profitable
than serving the top, he argues, and
points to a growing number of
leading firms—from Unilever in
India to Cemex in Mexico and Casas
Bahia in Brazil—that are profiting
by doing precisely that.
Relevancy of BOP
Big business needs to swap its usual incremental approach for an
entrepreneurial mind-set, because BOP markets need to be built.

firms cannot simply edge down market fine-tuning the products they
already sell to rich customers. Instead, they must thoroughly re-
engineer products to reflect the very different economics of BOP:
small unit packages, low margin per unit, high volume.

Products will have to be made available in affordable units—most

sales of shampoo in India, for example, are of single sachets.
Distribution networks may need to be rethought, not least to involve
entrepreneurs from among the poor

Customers may need to be educated in how to consume, and even

why—about credit, say, or even about the benefits of washed hands.
 A BOP Portrait
Since most BOP
Much larger segment of
population is not
the low income They also share other
integrated into the global
population deserve characteristics
economy and do not
attention.
benefit from it.

Significant
unmet needs

Dependence on
informal or
subsistence
livelihoods.

Impact by BOP
penalty
 Taking a market based
approach to poverty reduction

This approach can help frame the debate on poverty reduction

more in terms of enabling opportunity and less in terms of aid.

A market-based approach thus focuses on people as consumers

and producers and on solutions that can make markets more
efficient, competitive, and inclusive—so that the BOP can benefit
from them.

Perhaps most important, traditional approaches do not point

toward sustainable solutions—while a market-
oriented approach recognizes that only sustainable solutions
can scale to meet the needs of 4 billion people
Growing interest, growing success in BOP
markets

Business interest in BOP markets is rising. Multinational companies

have been pioneers, especially in food and consumer products

Large national companies have proved to be among the most

innovative in meeting the needs of BOP consumers and producers,
especially in such sectors as housing, agriculture, consumer goods,
and financial services

small start-ups and social entrepreneurs focusing on BOP markets

are rapidly growing in number. But perhaps the strongest and most
dramatic BOP success story is mobile telephony.
Example
Between 2000 and 2005 the number of mobile
subscribers in developing countries grew more
than fivefold—to nearly 1.4 billion. Growth was
rapid in all regions, but fastest in sub-
Saharan Africa—Nigeria’s sub- scriber base grew
from 370,000 to 16.8 million in just four years
(World Bank2006b).

Household surveys confirm substantial and

growing mobile phone use in the BOP
population, which has clearly benefited from
the access mobile phones provide to jobs, to
medicalcare, to market prices,to family
members working away from home and the
remittances they can send, and, increasingly, to
financial services (Vodafone 2005).
Example 2 (telephone industry)

A strong value proposition for low-

income consumers has translated into
financial success for mobile companies. Celtel,
an entrepreneurial company operating in
some of the poorest and least stable countries
in Africa, went from start-up to telecom giant
in just seven years. Acquired for US$3.4
billion in 2005, the company now has
operations in 15 African countries and licenses
covering more than 30% of the continent.
Implemented BOP Model
What BOP market looks like
Asia has by far the largest BOP
market: 2.86 billion people with
income of 3.47 trillion.

Eastern Europe’s $458 billion BOP

market includes 254 million
people ,64 % of regions
population with 36 % of the
income

In Latin America the BOP

market of $509 billion
includes 360 million people

Africa has slightly smaller BOP

market at $429 billion.
 BOP business strategies that work
Why are some enterprises succeeding in meeting BOP needs, and others are not? Successful enterprises
operating in these markets use four broad strategies that appear to be critical:

A) Focusing on the BOP

B) Localizing Value Creation

C) Enabling access to goods and services.

D) Unconventional partnering with governments , NGO or groups of multiple stakeholders to bring the
necessary capabilities . Examples are found in energy, transportation, health care, financial services, and
food and consumer goods.
Initiatives taken
Assumption of BOP
The poor can not participate in the benefit
of globalization without an active
involvement of the private sector.

BOP market must become an integral part

of work and of core business of the private
sector.

BOP markets can not merely be left to the

realm of CSR.
Its not as easy as it looks (irrelevance of BOP)

it's extremely difficult

to sell innovation to
this consumer

Fear of loss is
greater than fear
of gain

Advertising is inefficient and

ineffective. And the worldview of
the shopper is that they're not a
shopper
 Example ( NIKE & HLL)

A) A typical example is the Word Shoe project of Nike. In its attempt to supply low priced shoes
to the low-income-populations in China, it failed in meeting its sales goals. Nike was
unsuccessful in reaching the target consumer because its business model was not based on an
emphatic understanding.

B) the detergent product ‘Wheel’ of Unilevers subsidiary Hindustan Lever Ltd. (HLL) perfectly
illustrates this failure to make a BoP initiative grow. Thebusiness model was based on single
serve packaging, low-cost production, and distribution through small local companies. Although
rapid growing sales figures were visible in the beginning, the business model was not suitable to
reach 500 million potential customers in rural villages

Hence, “Project Shakti” came into existence: through women’s self help groups, HLL trained
thousands of entrepreneurial women in building a local HLL micro-franchise
Critical Inquiries of C.K. Prahalad’s “Bottom of the Pyramid” Concept

Base of the pyramid business offers the promise of great economic gains for
companies and the possibility of a powerful new approach to alleviate poverty

This framework is used to illustrate the limitations of CSR in terms of likely

impacts on poverty reduction through each of the channels identified and also
to point to areas in which CSR may have some positive benefits.

According to the 'doing well by doing good' proposition, firms have a corporate
social responsibility to achieve some larger social goals,

The currently influential model for information and communication technologies

for development (ICT4D) is based on increasing the well-being of the poor through
market-based solutions, and by using low-cost but advanced technologies

selling consumer goods to four billion poor people at the bottom of the economic
pyramid (BoP) both generates sizeable profits for large businesses.
References
• Books & journal ( Philip Kotler )
• http://hbr.org/2011/06/the-globe-segmenting-the-base-of-the-
pyramid/ar/1
• http://www.baseofthepyramid.nl/docs/Becoming%20trusted%2
0at%20the%20Base-of-the-Pyramid.pdf
• http://www.fastcompany.com/1687863/marketing-bottom-
pyramid
• http://www.imtfi.uci.edu/imtfi_bibcritique
• http://www.insead.edu/facultyresearch/research/doc.cfm?did=
45042