CK PRAHLAD- THE ECONOMIST

THE BOTTOM OF PYRAMID THEORY

Submitted by

Abhishek Pathak

12BSPHH010033

About : CK-PRAHLAD (Bottom of The Pyramid)

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

Professions and teaching

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.

Early life

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

About CK PRAHLAD (1941- 2010)

Dr. Prahlad’s Theory- Bottom Of The Pyramid

C.K. Prahalad thinks there can be a win-

win relationship

between business and

the poor

Four billion low-income people, a majority of the world’s population, constitute the base of the economic pyramid. New empirical measures of their behaviour as consumers and their aggregate purchasing power suggest significant opportunities for market-based approaches to better meet their needs, increase their productivity and incomes, and empower their entry into the formal economy.

Framework to realize the fortune of bottom of pyramid

Private Enterprises

Civil society , Organization and local government

Development and aid agencies

BOP consumers and entrepreneurs

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

Much larger segment of the low income

population deserve attention.

Since most BOP population is not

integrated into the global economy and

do not benefit from it.

They also share other characteristics

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 BOPThe 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%20at%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