1. Bottom of the Pyramid Marketing:

2. Overview
 Defining the ‘Bottom of the Pyramid’
 The Great Debate
 Opportunities
 Risks & Challenges
 Guidelines and Leading Practices
 Conclusion
 Appendix

3. Defining the ‘Bottom of the Pyramid’:
A Visual Representation
Source: Prahalad, C.K. and Stuart L. Hart, “The Fortune at the Bottom of the Pyramid,” strategy+business, Issue 26, first quarter 2002

4.  The BoP is the largest, but poorest socio-economic group.
 In global terms, there are 3.7 billion people who are largely
excluded from formal markets, the group earns less than $2
per day and 60% of the 3.7 billion people live in China and
India.
 The Year 2010 saw many new innovations coming from
corporations like Tata, Hindustan Unilever (Indian Subsidiary
of Unilever), Godrej & Boyce, Narayana Hrudayalaya, and
Vortex among others who have been working on innovative
offerings to the BoP.

5.  The most remarkable innovation of Tata Swach range of Water
Purifiers from Tata Chemicals-A Tata Group Company satisfying
the essential necessity of purified water for the BoP for as low as
Rs.499 ($10).
 Another landmark innovation was in the area of refrigerator from
Godrej & Boyce called ChotuKool. It provides all the
functionality of a normal refrigerator but can run on a battery
and doesn’t need continuous power supply unlike the traditional
refrigerator. Priced at Rs.3250 ($69), weighing just 3-4Kgs and
works on just 20 parts as compared to over 200 parts in a
traditional refrigerator it is the ultimate game changer, not only
for the BoP.

6. Defining the ‘Bottom of the Pyramid’:
Changing Attitudes
Modern View Incorporates Both
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Historic
View
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8. The Great Debate:
Win-Win or Misguided Strategy?
Win-Win Misguided
 Latent market for goods  Poor lack income and jobs;
and services should produce before consume
 Large growth  Vulnerable to poor purchasing
opportunity, due to size decisions; income should be spent
of BOP on shelter not ice cream.
 Catalyst for economic  Sale of MNC products does not
development through clearly improve social indicators
providing affordable
products and services  MNC profits flow abroad, do not
help local economies

9. Case Study: BOP Strategy Gone
Wrong at Nestle
 Project: In 1970’s, Nestle began marketing infant
formula to mothers in the developing world, with
the argument that bottled milk is “better” for infant
children.
 Assumptions: Sterile water and bottles, no dilution.
 Impact: Babies using Nestle’s product in developing
countries were 25X more likely to die of diarrhea,
and mothers developed an addiction to the product
after prolonged use stopped lactation.

10. Case Study: BOP Strategy Gone
Wrong at Nestle
 In addition to the incorrect assumption about sterile water,
Nestle used questionable marketing tactics with BOP
consumers:
 Health agencies condemned Nestle for marketing instant
infant formula in developing countries.
 Nestle’s marketing implied that Western women substituted
mothers’ milk with formula.
 Promoting infants’ milk as a product that was more beneficial
to both mother and child than natural breast milk.
 Clearly violated the WHO/UNICEF’s International Code of
Marketing Breast-Milk Substitutes.

11. The Great Debate: Conclusion
 Merely selling to the BOP does not solve poverty, it
depends what you sell, how you sell it, and where it
was produced.
 BOP strategies have the potential to bring positive
benefits to companies and communities, but
improper application can have devastating
consequences.
 Understanding the local situation is crucial.
 The key to resolving the debate is a better
understanding of both the risks/challenges and
opportunities presented by the BOP market…

12. Risks & Challenges:
Operating Environment Economics
 Exposure to new political  Market size unclear: estimates
and economic risks range from $0.3 trillion to $13
 Resources, capabilities and trillion.
knowledge of the  Prahalad uses purchasing power parity and assumes
4 billion BOP spending $4/day to estimate $13
complexities and subtleties trillion.
of sustainable  Aneel uses financial exchange rates (that MNCs
would use to expatriate profits) and assumes 2.7
development are required. billion BOP spending $1.25/day¹ to estimate $0.3
trillion.
 Consumers can’t afford  Low margin; high fixed costs
differentiated products
 Competing with local
 Distribution challenges
business can threaten the  High price sensitivity and per
existing power structure. unit transaction costs
¹World Bank 2005 estimate

13. Opportunities
 BOP consumers suffer a  At the same time, BOP
poverty penalty: consumers:
 Lack of access to  Are brand-conscious
competitively and  Have well-connected
efficiently-provided communities (word-of-
goods and services mouth)
 Higher prices for some  Readily accept
goods and services (i.e. advanced technology
manufactured goods,
credit)
 Collectively have
purchasing power
 Poorer quality goods and
services
 Are always trying to
upgrade from their
existing condition

14. Opportunities
 BOP consumers get cheaper products, access to technology, and
opportunities to become entrepreneurs, and educate themselves.
 BOP markets present companies with a new source of:
 Top-line revenue growth
 Cost-savings and innovations that can influence existing business
models and management practices
 But selling into BOP markets is difficult and even harder to do
responsibly.
 In order to market to the BOP in a way that brings real benefits to
impacted communities, companies should follow some important
guidelines and lessons from leaders in the industry.

15. 4 Keys to Unlocking BOP Markets to
Corporate Products
Source: Prahalad, C.K. and Stuart L. Hart, “The Fortune at the Bottom of the Pyramid,”
strategy+business, Issue 26, first quarter 2002

16. Shape Aspirations:
Engage the BOP as Joint Problem Solvers
 Focus on the poor as producers, not just
consumers.
 Upgrade skills and productivity to improve
lives and increase purchasing power.
 Channel resources back into local
communities to improve standards of
living.

17. Case Study: ITC
Enables Market Pricing
 Geography: Rural India
 Industry: Agricultural trading
 Product: E-Choupals; internet-connected
computers
 Background:
 Farmers sold grain to middlemen at
below market prices.
 Lack of information led to exploitation
of farmers.

18. Case Study: ITC
Enables Market Pricing
 Innovation:
 ITC developed E-choupals; network of
computers which provided web access in rural
farming villages, each manned by a literate host
farmer to support illiterate farmers.
 Farmers check trading price of their produce and
sell directly to ITC.
 Farmers also order raw material at an aggregate
level, thereby saving money (economies of scale)
 Impact: Farmers receive 2.5% higher price ($6/ton).

19. Tailor Local Solutions:
Innovate from the BOP up
 Reorient R&D efforts to create appropriate
technologies and new products and services that
consider the unique needs of the poor, by region
and by country.
 Nurture local markets and cultures and leverage
both local solutions and global best practices to
meet identified needs.
 At the BOP, capital – not labor – is the scarce
resource, and focusing on that difference can lead to
greater productivity and higher returns.

20. Tailor Local Solutions:
Reevaluate Price-Performance-Process Matrix
 Incorporate local know-how.
 Rethink the entire business process – from product
development to production to logistics – with a
focus on meeting functionality needs.
 By Prahalad’s estimates, BOP innovations must
achieve a drastic price reduction (30 – 100x) in order
to be locally competitive.

21. Improve Access: Identify Innovative
Distribution & Communication Strategies
 BOP communities are often physically and
economically isolated.
 Create direct distribution and word-of-
mouth mechanisms to educate consumers
and expand access and availability.
 Add value by finishing product
manufacturing within the community.

22. Improve Access:
Create a Scalable Model
 Design solutions for adaptability across markets.
 Scalability is key to profitability since BOP products
tend to be low margin.
 BOP profits are driven by volume and capital
efficiency.

23. Create Buying Power:
Identify Innovative Financing Schemes
 Provide financial services that focus not
only on access but building financial literacy
and encouraging a habit of savings.
 Do not provide credit for luxury purchases
(note: definition of luxury items is
controversial.)
 Encourage investment in productive assets
(tools, agricultural materials, preventative
health).
 Community credit pooling with a revolving
loan fund is one successful strategy proven
to reduce default risk.

24. Build the Commercial Infrastructure:
Develop Partnerships
 A company’s product or service
offerings are its core competency,
but BOP strategies require a higher BOP
level of engagement.
 Develop partnerships with NGOs,
local governments, financial
institutions and local entrepreneurs
to expand training, development,
micro-finance and other expertise. NGO’s &
MNC’s
Gov’ts
 Building a base of local support can
also help to establish credibility
within local communities, gain
insight into a country’s culture,
increase local knowledge and
overcome opposition when entering
a new market.

25. Conclusion:
For those combating poverty
 IF corporations can…
 without causing the very poor to
divert income from pressing
needs,
 sell products that make people
more productive,
 that are produced in a way that
create local jobs and increase local
human capital,
 without driving out local
industries,
 and reinvest locally instead of
repatriating profits,
 THEN, they can be an important part
of the solution to poverty, which is
excellent CSR.

26. Conclusion:
For corporations interested in BOP
 IF corporations can…
 create low price, quality products,
 that can be scaled across many
BOP markets and achieve high
volume,
 while creating means for the
capital constrained poor to buy,
 and building relationships and
infrastructure that allow them to
reach poor consumers,
 and finally, follow the directives on
the previous slide (at least enough
to avoid becoming a publicized
“bad” example)
 THEN, they can serve BOP markets
profitably.