The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits
In the late 1990's I declined an invitation to join a UK Government sponsored trade mission to India . My reason for turning down such an interesting offer was because the organisation I worked for at the time was a UK only business. However, reading this book made me realise what a great opportunity I missed as, I would probably have found solutions to some of the challenges we faced in the UK by seeing the way in which businesses operated in a radically different market.
Although the central theme of the book is the eradication of poverty in the developing world, I found it extremely thought provoking in the context of business in the UK . The reason being is that the solutions it proposes are commercial rather than philanthropic. The suggestion and examples it offers on how to turn some of the poorest people in the world into viable and valuable markets also offers interesting pointers as to how businesses might extend their markets closer to home.
The first question the book addresses is, how do you sell to people who have so little money? For me this is one of the most fascinating points dealt with by the book, as it is an object lesson in lateral thinking. The point the book very forcibly makes is that when we say, " they cannot afford our product", what we actually mean is that we cannot afford to sell it to them.
To overcome this we are encouraged to think of the developing world, not as a collection of consumers, but as a total market economy. On that basis, the 80% of humanity that live in these 'Bottom Of the Pyramid' (BOP) markets represent vast purchasing power. Take China for example. With a population of 1.2 billion and an average per capita gross domestic product of $1,000, China represents a $1.2 trillion economy. However, the exchange rate conversion of currencies is not actually a very good measure of the demand for goods and services produced and consumed in those countries. A better measure is to look at purchasing power parity, in which case the Chinese economy is the equivalent of a $5 trillion economy, making it the second largest economy in the world.
Prahalad points out that to turn these areas of the world into viable consumer markets requires us to create the capacity for consumption by addressing the cost of sales as well as the method of sale. For example, in the west we can afford to finance convenience by buying sufficient goods at the supermarket to mean that we do not have to do the shopping more than once a week. In BOP markets this is not the case. Here, purchases are only made when the cash is available. To address this, companies such as Unilever and Procter & Gamble sell many products in single-serve sachets (such as the shampoo you get in a hotel bathroom). This format has been so successful that, for example, the Indian shampoo market is now as large as the market in the USA .
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