Why Sell to the Bottom of the Pyramid?
Over half of the world’s population lives on $2.50 a day or less. Yet the world’s poor constitute the world’s largest untapped market.
CK Prahalad’s 2004 book, “The Fortune at the Bottom of the Pyramid,” brought companies’ attention to the huge profits to be made by tapping into the bottom of the pyramid, as well as the benefits this move could yield for the poor. Yet, many companies still wonder, what’s in it for us? As it turns out, that is the right question to ask. Too many altruistic endeavors have failed because companies were not business-oriented or profit-minded enough.
For example, Hewlett Packard’s project, dubbed “e-inclusion,” was founded under the noble goal of providing access to all the available modern digital, social and economic opportunities to everyone in the world. The project was quickly abandoned because it did not fall in line with HP’s overall mission. Proctor & Gamble introduced a product called PUR, which was a water purification powder, aimed at bottom of the pyramid markets. The product failed commercially and Proctor & Gamble stopped distributing it. DuPont attempted to reduce the suffering of millions of people from malnutrition by selling soy-fortified food. After a test run in India, the company gave in because it seemed impossible to make a profit.
Mark Martin is the vice president of international marketing at SC Johnson. He points out what he believes is the biggest challenge of harnessing bottom of the pyramid markets: “each consumer makes a very small purchase. You need lots and lots of consumers.” Because of the small purchasing power of each consumer, it is vital that costs of production are kept low.
Despite these challenges, advocates of Prahalad’s book, as well as the general public, feel corporations have a role to play in alleviating poverty. In a poll conducted by The Guardian, 83 percent responded that they believe corporations have an important role to play in the poorest markets. Seventy-three percent believe there is money to be made by serving the poor, and 89 percent see the importance of financial inclusion to enable poor people to participate in the economy.
In a live chat with a panel consisting of Mark Martin and other professionals in similar positions at different companies, all agreed that the primary focus of a company tapping into the Bottom of the Pyramid should be making a profit. Getting carried away by altruistic theories is neither practical nor efficient.
“Our customers design our products,” explains Donn Tice, CEO of d.light, a company that provides solar energy to poor rural areas. By entering a new market with a focus on making profits and the willingness to adapt the product to fit the needs and wants of target consumers, success can be achieved.
As many companies have become disillusioned with Prahalad’s premise, the professionals participating in the live chat concluded that the bottom of the pyramid still represents a vast market of untapped potential. The key to success is in adaptability, patience and attention to details.
Martin describes one of SC Johnson’s strategies, in which adaptability, patience and attention to detail are utilized. Farmers in Rwanda are trained in agricultural practices, sustainability and financial management. SC Johnson sources pyrethrum, a product used in Raid, from these farmers. This is accomplished through partnerships with nonprofits in Rwanda.
SAB Miller has a similar technique of adapting to local needs. The company adapts the beer it sells in a particular region to the local crops of the region. For example, in Mozambique, the beer is made with cassava, and in Uganda it is made with sorghum. By using local crops it not only tastes better to the consumers, but also supports local farmers and keeps costs low.
“The reason for focusing on profits for us is so we can demonstrate sustainability and stay in the markets to truly make a difference in the area we are focused,” Martin explains. Businesses, after all, survive off profits, and financial needs cannot be sacrificed for social gains. It may seem counter intuitive to noble-minded companies, but focusing less on charity and more on making a profit will benefit both the company and the consumers in the target area.
— Julianne O’Connor
Sources: The Guardian 1, The Guardian 2, The Guardian 3, Marketwatch, Reuters