Why Everyone is Talking About “The Bottom of the Pyramid”?

Posted on April 24, 2012 in Society

By Abdul Wahid Khan:

In business world, the latest topic of concern to almost every thinker, strategist and researcher is the term ‘bottom of the pyramid’ or BoP in short. Basically, the bottom of the pyramid refers to the largest and poorest socio economic group. This group has around 2.5 billion people around the world. It contains almost half of the world’s population which lives on less than $2.5 a day. The term BoP was first used by the American president Franklin D. Roosevelt in his radio speech, The Forgotten Man, in 1932. While recently, this term was brought back to light by Professor C. K. Prahalad and Professor Stuart L. Hart of Ross School of Business at University of Michigan in 1998. They have also written books separately on this topic in 2004 and 2005 respectively.

Various business models are being developed to target the people at BoP using the latest technologies. In a way, these models are aimed creating products or services which have potential to solve the problems of the poor people around the world. Prahalad proposes that companies and governments in the world should look at people under BoP as potential consumers rather than just producers or victims. There is much debate on this topic and there are various arguments against it. Professor Aneel Karnani of the University of Michigan argues that there is no fortune at the BoP as such and he claims that it is better to consider poor people as producers rather than consumers. On the other hand, Ted London of the same university has identified BoP concept as a unique market-based approach to remove poverty. He has developed BoP Impact Assessment Framework tool which is used by ventures working on BoP based business models. Companies in Asia, Africa and Latin America have implemented this model successfully up to a great extent. Examples include the famous micro-credit institutions in South Asia specially Bangladesh, the Sa-Dhan micro-credit model in India, the shampoo which can be used with cold water and made available in small pouches by Unilever in India and many more other examples.

Businesses have come to realize that even though the poor people have very less purchasing power, yet that small amount multiplied by billions of times, can make a huge purchasing power. They can see that they can make a handsome profit by selling to the poorest of consumers and can also contribute to development by fulfilling their needs. On the other hand, the growth of companies in the western world has become slow and hence they see serving BoP as consumers as a means of fast growth.

It is not just about selling products customized for people at the BoP but also considers business models that are based on their sustainable development. This means that small and micro level enterprises are encouraged to be started by the poor people so that they can support their families and also become self-dependent. There are various organizations working on this concept and some big companies are also supporting this model of incubation. Micro-enterprises are started by initial funds and comprising of around 10-20 people like Thejas Nutrimix in Kerala, India which consists of 12 women producing and selling the nutritional supplements for school children. Kudumbashree in Kerala, India has supported around 15,000 such enterprises. Of course there are funding organizations at this level but now, Venture Capital firms are also turning towards incubating the businesses at the BoP.

BoP is being understood more and more by researchers, academicians, business thinkers and strategists. It is the need of the time to make the life better for other half of the world who lives at BoP. Poverty is not a problem; the real problem lies in the policies and the business models. It is very exciting to see that today; a lot of emphasis is laid on BoP based business models which can balance socio-economic condition of the world.