C.K.

Prahalad’s excellent book suggests replacing traditional notions of government-

channeled aid with a new model for relieving poverty and stimulating development. The
new model relies on profit-making businesses, especially multinational corporations
(MNCs). The MNCs have an economic incentive to tap the great market that exists, all
but hidden, at the bottom of the economic pyramid. The professor of business
administrations demonstrates clearly that it is possible to develop business models that
allow the poorest of the poor to participate actively in their own economic development
by becoming entrepreneurs. Although the individuals at the bottom of the pyramid
(referred to as BOP) have little money, collectively they represent a vast pool of
purchasing power. They welcome opportunities to escape their oppressive burdens,
including predatory intermediaries, corrupt governments and the societal “poverty
penalty” that requires them to pay more than the rich for similar services. Clearly
written, well documented and furnished with an abundance of
anecdotes, getAbstract considers this book a must-read both for those interested in
alleviating poverty and for those looking to tap a vast new market for consumer goods.

In this summary, you will learn

 How business can help relieve global poverty and
 Why worldwide corporations can be productive in this aim, maybe more than
governments.

Take-Aways
 The people at the bottom of the economic pyramid live on less than $2 per day. They
represent a vast potential market rich in human and material resources.
 Traditionally, aid has gone through government channels. Instead, multinational
corporations should play a productive, active role in relieving poverty.
 To improve the lot of the poor, treat them as entrepreneurs and consumers.
 Many companies have tapped the market at the bottom of the pyramid (BOP).
 This marketing requires changing your approach; forget conventional assumptions.
 The bottom of the pyramid demands low prices, great value and sturdy products.
 Products must withstand hard conditions, like fluctuating electricity and rough roads.
 Poor people and poor countries are often poor not because they lack resources but
because they can’t turn their resources into capital.
 Turning resources into capital requires the rule of law, secure titles, sound contracts and
governmental transparency.
 Society should aim to replace the economic pyramid with an economic diamond – broad
at the middle and narrow at each end.

Summary
A New Approach to the Problem of Poverty
For the past several decades, three mistaken assumptions have guided efforts to solve
the problem of poverty: 1) Countries are poor because they have no resources; 2) the
best return on aid investment comes from education and health care; and 3) rich
countries can reduce poverty by aiding the governments of poor countries with
infrastructure and other projects.

Yet as Peruvian economist Hernando DeSoto showed in his seminal book, The Mystery
of Capital, the poor are not poor because they lack assets; they are poor because they
lack capital. Assets can only become capital when the rule of law, especially contract law,
allows the conversion of assets into other hands and other forms. Only legal ownership
can turn an asset into capital. Moreover, although the governments of rich countries
have transferred massive sums of money to the governments of poor countries through
many channels (the World Bank, various foreign aid programs, and so on), they have
solved the problem of poverty in only a very few instances.

“Turn on your television and you will see calls for money to help the world’s four
billion poor people who live on far less than $2 a day.”
Aid programs guided by the above flawed assumptions have not achieved the objective
of reducing poverty and stimulating development. They have not solved the problem of
poverty. A new approach is in order. Several considerations should guide this new
approach.

“If we stop thinking of the poor as victims or as a burden and start recognizing them
as resilient and creative entrepreneurs and value-conscious consumers, a whole new
world of opportunity will open up.”
First, the potential capital owned by the population at the bottom of the pyramid (BOP)
is much greater than all of the aid and philanthropy available to their countries.
Paradoxically, poor countries would look rich if statisticians counted their potential
capital – that is, the assets that could become capital. However, because the people at
the bottom of the pyramid live without the rule of law to guarantee their property rights
and the validity of their contracts, extralegal or informal transactions – the black market
– dominate their economic life. In most developing countries, the private sector is
mainly extralegal or informal. Thus, it is difficult for the private sector to grow.
Extralegal firms can’t attract investment capital because they don’t have access to a
sound legal infrastructure, and without investment, there can be no growth.

“Business management skills, technology and contacts are pushed down to the local
grassroots level.”
The solution to the problem of poverty is not traditional aid; instead, the solution is
entrepreneurship – that is, enabling people at the bottom of the pyramid to become
entrepreneurs and consumers. Society should reframe the conversation about the poor
to discuss underserved consumers and markets. The process of development involves
co-creation, which requires marketers to treat BOP consumers with respect and to
regard them as participants in the process of development. They are not merely victims;
they are creative entrepreneurs and demanding consumers. A partnership with these
entrepreneurs and consumers will enable marketers to initiate economic activities and
will attract innovative products and services to meet their unique needs – a win-win
situation. It is not a fantasy. In fact, many companies have taken this kind of approach
and have boosted their profits by treating the BOP as a viable market and a source of
human capital.

“Most developing countries do not fully recognize the real costs of corruption and its
impact on private-sector development and poverty alleviation.”
Ideological beliefs, normal experiences and business habits present impediments. To
discover the fortune at the bottom of the pyramid, society must challenge its
assumptions. For instance, it is incorrect to assume that because the poor have no
money individually, they collectively are not a market. In fact, the poor comprise a vast
potential market. They are already a lucrative venue for many intermediaries who are
heavily responsible for keeping them poor. These intermediaries often demand that
poor people pay many times the prices paid by the rich for particular products or
services. This poverty penalty is the consequence of inefficient distribution and reliance
on intermediaries. In a shantytown near Mumbai, India, for example, local
moneylenders charge 600% to 1,000% interest. A bank might charge 25% interest, make
a very respectable profit and still offer shantytown residents a superior economic
alternative.

“Therefore, for a multinational corporation that aims to stay ahead of the curve,
experimenting in BOP (bottom of pyramid) markets is increasingly critical. It is no
longer an option.”
Another assumption that keeps companies from addressing this market is the notion
that distribution is a challenging impediment. This assumption ignores the fact that
many BOP people now live in congested urban areas with high population density.
Distribution to this urban population ought not to be daunting. Of course, the rural
population may present a challenge, since the poorest rural residents are currently
beyond the reach of radio and TV. Wireless Internet access may alleviate that in the
future.

“Because the BOP forces an extraordinary emphasis on price performance, firms must
focus on all elements of cost.”
BOP consumers are surprisingly sophisticated. They are brand-conscious and very
disposed to adopt technology that provides an economic advantage. For example,
farmers in some Indian villages now use personal computers to check the prices of
soybean futures in Chicago so they can decide when to sell their harvests. Elsewhere in
India, fishermen use cellphones to take bids from buyers and sell their fish at the best
price.

“The problems at the BOP are not new. However, they represent a new challenge. They
demand innovations in how these traditional problems are addressed.”
To tap the market potential of the bottom of the pyramid, companies must adopt new
approaches guided by these consumers’ circumstances and create the population’s
capacity to consume, based on three factors:

1. Affordability – Make the product affordable without compromising quality.

2. Accessibility – Distribution must be convenient. BOP consumers usually do not
own vehicles and may have to work all day to have the cash to buy what they need
for that evening. Stores must be nearby and must be open after the workday ends.
3. Availability – Bottom of the pyramid consumers buy when they have cash.
Therefore the product must be available when they can buy it.

“Many of the problems at the BOP require system-wide reform not piecemeal
solutions.”
Poor consumers don‘t use cash as a convenient way of storing purchasing power. Many
earn only enough cash to subsist each day. Therefore, bulk packages with numerous
servings are no use to them; one such package might exhaust their entire supply of cash.
Single-serve packages are preferential. In India, a single-serve revolution is underway,
with BOP consumers buying single use packages of such products as detergent,
shampoo and cooking oil. Making products available in single servings creates the
capacity to consume. So does providing financing for major purchases. In Brazil, a
leading retailer has developed a credit-rating and credit-counseling system that makes it
possible to provide financing even to customers with low, erratic incomes.

“Voxiva’s technology turns a village pay phone into a communications device on par
with...a computer.”
Companies that understand the potential for commercial consumption at the bottom of
the pyramid can open a new, potentially lucrative market. This is a win-win for the
business and for consumers. When the private sector gets involved in BOP activities, it
can stimulate the creation of new services and products. Because the poor demand value
and efficacy, companies that create products that succeed in this market may find that
the same products beat the competition in more affluent markets. The private sector can
offer jobs and opportunity to people at the bottom of the pyramid by hiring them to help
develop the market. When business treats the poor as consumers and entrepreneurs, it
offers them respect, dignity and freedom of choice. In the past, such privileges were
accessible only to the wealthy.

“Women’s self-help groups...operate as a rural direct-to-home sales force, educating

consumers on the health and hygiene benefits of HLL brands and nurturing
relationships to reinforce the HLL message.”

The 12 Principles of Innovation

Addressing the bottom of the pyramid requires a fresh managerial mind-set. In

developed markets, consumers take the availability of electricity, telephones, credit,
refrigeration and such amenities for granted. At the bottom the pyramid, on the other
hand, the infrastructure is much spottier and much more hostile. Consumers may have
to cope with frequent electric power blackouts and brownouts. Credit may be extremely
costly. Refrigeration may be unavailable. Products marketed to the bottom of the
pyramid must be able to withstand such an environment. Twelve principles should
guide market innovation at the bottom of the pyramid.

1. Focus on value, on delivering performance for the price – The BOP

consumer is not interested merely in cheap prices, but also in getting the greatest
possible performance for the price paid. It is extraordinary how low a price can
be, and still be highly profitable, if the seller is organized to deliver value. For
example, doctors at the Aravind Eye Hospital, the world’s largest eye care
business, perform hundreds of thousands of cataract surgeries each year. The
costs range from $50–$300 per surgery, including the hospital stay. Aravind
manages to operate profitably, even though 60% of its patients pay nothing.
2. Innovate – Old technologies can‘t solve the problems of BOP consumers. HLL, a
Unilever subsidiary, developed a new molecular encapsulation technology to
prevent iodized salt from losing its iodine before consumption. To test the
efficacy of the technology, researchers used radioactive tracing techniques
pioneered by the Indian Atomic Energy Agency.
3. Make the solution scalable – When delivering high performance at affordable
prices, profits must be generated through volume sales. Only a few nations, such
as India and China, have large markets at the bottom of the pyramid. Solutions
should be scalable across borders and should address many small, poor markets,
such as those in Africa.
4. Aim to conserve resources – BOP consumers can’t afford to waste resources.
Per capita water consumption in the United States is almost 2,000 cubic meters
per year, compared to less than 500 in China and less than 700 in India. The
developed world’s high standard of living is a water intensive and waste intensive
lifestyle. Innovations should emphasize conserving resources, recycling and
eliminating waste.
5. These customers may require different functionality than high-end
consumers – For example, prosthetic legs developed for India’s bottom of the
pyramid consumers meet some special requirements: to squat, sit cross-legged
and walk on rough ground. Japiur Foot, an Indian manufacturer, developed such
prosthetics and makes them available for less than $30.
6. Think in terms of process innovations – This is especially important in
logistics and service after the sale. Don‘t take the existence of a logistical
infrastructure for granted at the bottom of the market. Anticipating this problem,
Aravind Eye Hospital based its distribution system on that of the McDonald’s
hamburger chain. Aravind tests people at 1,500 eye camps and admits those who
need help. Young village women trained in eye care do the work of preparing
patients and handle postoperative care, while doctors focus exclusively on
surgery.
7. Reduce the skills required to do the job – Design products and services
suitable to people without skills. Voxiva, a Peruvian startup, developed a system
enabling health workers to diagnose such illnesses as smallpox by comparing a
 patient’s lesions to a picture. With this simplified diagnostic process, health
workers don’t require great skills to know when to call a doctor.
8. Educate consumers in the use of products – This may require
collaborating with nongovernmental organizations, governments and others.
HLL launched a program in some of India’s village schools to promote hand
washing with soap as a way to prevent the childhood diarrhea that kills two
million children a year. HLL educated the children, who in turn educated their
parents.
9. Design products and services to operate in very tough infrastructure
environments – For example, when ITC built a network connecting Indian
villages, it had to provide PCs that could handle wide voltage fluctuations. ITC
included surge suppressors and solar panels to give the system adequate reliable
electricity.
10. Make the interface simple and the learning curve short – In Mexico, the
retailer Elektra uses ATMs with a fingerprint identification system so BOP
consumers don‘t have to remember lengthy ID codes.
11. Innovate in distribution – Avon has built a Brazilian direct-sales business
that delivers revenues of $1.7 billion annually.
12. Challenge assumptions – Jaipur Foot and Aravind Eye Hospital defy
conventional wisdom about how (and for how much) it is possible to deliver
good, efficient health care to the poor.

“When the poor at the BOP are treated as consumers, they can reap the benefits of
respect, choice and self-esteem and have an opportunity to climb out of the poverty
trap.”
Traditionally, people have viewed the bottom of the pyramid as a problem. Reframing
this negative attitude toward one of a business opportunity opens up a whole new vista
and makes it possible to envision a powerful new mechanism for development. At the
bottom of the pyramid, one finds not just the poor but also a rather dynamic population
of potential entrepreneurs and consumers. The private sector must lead the way to
enabling this population to achieve its potential.

About the Author

C.K. Prahalad is Harvey C. Fruehauf Professor of Business Administration and
professor of corporate strategy and international business at the University of Michigan
Business School. He co-authored the global business bestseller Competing for the
Future.