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The bottom of the pyramid, bottom of the wealth pyramid, bottom of the income pyramid or the base of the pyramid is the largest, but poorest socio-economic group. In global terms, this is the 2.7 billion people who live on less than $2.50 a day. [1] [2]
Management scholar CK Prahalad popularised the idea of this demographic as a profitable consumer base in his 2004 book The Fortune at the Bottom of the Pyramid, written alongside Stuart Hart. [3]
U.S. president Franklin D. Roosevelt used the term in his April 7, 1932 radio address, The Forgotten Man, in which he said,
These unhappy times call for the building of plans that rest upon the forgotten, the unorganized but the indispensable units of economic power . . . that build from the bottom up and not from the top down, that put their faith once more in the forgotten man at the bottom of the economic pyramid.
The more current usage refers to the billions of people living on less than $2.50 per day, the definition proposed in 1998 by C.K. Prahalad and Stuart L. Hart. It was subsequently expanded upon by both in their books: The Fortune at the Bottom of the Pyramid by Prahalad in 2004 [4] and Capitalism at the Crossroads by Hart in 2005. [5]
Prahalad proposes that businesses, governments, and donor agencies stop thinking of the poor as victims and instead start seeing them as resilient and creative entrepreneurs as well as value-demanding consumers. [6] He proposes that there are tremendous benefits to multi-national companies who choose to serve these markets in ways responsive to their needs. After all the poor of today are the middle class of tomorrow. There are also poverty reducing benefits if multi-nationals work with civil society organizations and local governments to create new local business models.
However, there is some debate over Prahalad's proposition. Aneel Karnani, also of the Ross School at the University of Michigan, argued in a 2007 paper that there is no fortune at the bottom of the pyramid and that for most multinational companies the market is really very small. [7] Karnani also suggests that the only way to alleviate poverty is to focus on the poor as producers, rather than as a market of consumers. Prahalad later provided a multi-page response to Karnani's article. Additional critiques of Prahalad's proposition have been gathered in "Advancing the 'Base of the Pyramid' Debate".
Meanwhile, Hart and his colleague Erik Simanis at Cornell University's Center for Sustainable Global Enterprise advance another approach, one that focuses on the poor as business partners and innovators, rather than just as potential producers or consumers. Hart and Simanis have led the development of the Base of the Pyramid Protocol, an entrepreneurial process that guides companies in developing business partnerships with income-poor communities in order to "co-create businesses and markets that mutually benefit the companies and the communities". This process has been adopted by the SC Johnson Company [8] and the Solae Company (a subsidiary of DuPont). [9]
Furthermore, Ted London at the William Davidson Institute at the University of Michigan focuses on the poverty alleviation implications of Base of the Pyramid ventures. He has created a BoP teaching module designed for integration into a wide variety of courses common at business schools that explain the current BoP thinking. He has identified the BoP Perspective as a unique market-based approach to poverty alleviation. London has also developed the BoP Impact Assessment Framework, a tool that provides a holistic and robust guide for BoP ventures to assess and enhance their poverty alleviation impacts. This framework, along with other tools and approaches, is outlined in London's Base of the Pyramid Promise and has been implemented by companies, non-profits, and development agencies in Latin America, Asia, and Africa. [10]
Another recent focus of interest lies on the impact of successful BoP-approaches on sustainable development. Some of the most significant obstacles encountered when integrating sustainable development at the BoP are the limits to growth that restrict the extended development of the poor, especially when applying a resource-intensive Western way of living. Nevertheless, from a normative ethical perspective poverty alleviation is an integral part of sustainable development according to the notion of intragenerational justice (i.e. within the living generation) in the Brundtland Commission's definition. Ongoing research addresses these aspects and widens the BoP approach also by integrating it into corporate social responsibility thinking.[ citation needed ]
The pyramid is a graphical depiction of inverse relationship between two variables as one increases the other decreases. We find that the percent of world wealth and the percent of world population controlling it are related with each other in an inverse relation. If we plot the world wealth in percent terms along the vertical axis of a graph and the corresponding percent population having control on it on the horizontal axis of a graph and add the mirror image of this graph on the left side of the vertical axis we get a wealth pyramid and can see that as we move to higher and higher wealth brackets we find that fewer and fewer people have access to it, thus the figure has a wide bottom and a lean top similar to the pyramids of Egypt.
It has been reported that the gap between the ToP and BoP is widening over time in such a way that only 1% of the world population controls 50% of the wealth today, and the other 99% is having access to the remaining 50% only. [12] [13] On the basis of this report the wealth pyramid would look like the one shown in the illustration.
The standards and benchmarks developed – for example less than $2.5 a day – always tell us about the upper limit of what we call the BoP, and not actually about its base or bottom. The fact is that the bottom or the base is much much lower. Even going by the official definition, for example in India the Rangarajan Committee after re-examining the issue of poverty defined the poverty line in 2011-12 at INR 47.00 ($0.69) per capita per day for urban areas and INR 32.00 ($0.47) per capita per day in rural areas (June 2016 conversion rate), [14] obviously much less than the $2.5 per day benchmark. This again is the upper layer of the poor as defined by the Rangarajan Committee. Where is the actual bottom? and how low? This can perhaps only be visualised by observing the slums right in the hearts of the cities in the developing countries.
Kash Rangan, John Quelch, and other faculty members at the Global Poverty Project at Harvard Business School "believe that in pursuing its own self-interest in opening and expanding the BoP market, business can make a profit while serving the poorest of consumers and contributing to development." [15] According to Rangan, "For business, the bulk of emerging markets worldwide is at the bottom of the pyramid so it makes good business sense – not a sense of do-gooding – to go after it." [15] But in the view of Friedman "the social responsibility of business is to increase its profits only, thus, it needs to be examined whether business in BoP markets is capable of achieving the dual objective of making a profit while serving the poorest of consumers and contributing to development?" [16]
Erik Simanis has reported that the model has a fatal flaw. According to Simanis, "Despite achieving healthy penetration rates of 5% to 10% in four test markets, for instance, Procter & Gamble couldn’t generate a competitive return on its Pur water-purification powder after launching the product on a large scale in 2001...DuPont ran into similar problems with a venture piloted from 2006 to 2008 in Andhra Pradesh, India, by its subsidiary Solae, a global manufacturer of soy protein ... Because the high costs of doing business among the very poor demand a high contribution per transaction, companies must embrace the reality that high margins and price points aren't just a top-of-the-pyramid phenomenon; they’re also a necessity for ensuring sustainable businesses at the bottom of the pyramid." [17] Marc Gunther states that, "The bottom-of-the-pyramid (BOP) market leader, arguably, is Unilever ... Its signature BOP product is Pureit, a countertop water-purification system sold in India, Africa and Latin America. It's saving lives, but it's not making money for shareholders." [18] Several consulting companies have modeled the profitability of accessing the bottom of pyramid by utilizing economies of scale. [19]
One example of "bottom of the pyramid" is the growing microcredit market in South Asia, particularly in Bangladesh. With technology being steadily cheaper and more ubiquitous, it is becoming economically efficient to "lend tiny amounts of money to people with even tinier assets". An Indian banking report argues that the microfinance network (called "Sa-Dhan" in India) "helps the poor" and "allows banks to 'increase their business'". [20] However, formal lenders must avoid the phenomenon of informal intermediation: Some entrepreneurial borrowers become informal intermediaries between microfinance initiatives and poorer micro-entrepreneurs. Those who more easily qualify for microfinance split loans into smaller credit to even poorer borrowers. Informal intermediation ranges from casual intermediaries at the good or benign end of the spectrum to 'loan sharks' at the professional and sometimes criminal end of the spectrum. [21]
One of many examples of products that are designed with needs of the very poor in mind is that of a shampoo that works best with cold water and is sold in small packets to reduce barriers of upfront costs for the poor. Such a product is marketed by Hindustan Unilever.
There is a traditional view that BOP consumers do not want to adopt innovation easily. However, C. K. Prahalad (2005) claimed against this traditional view, positing that the BOP market is very eager to adopt innovations. For instance, BOP consumers are using PC kiosks, Mobile phone, Mobile banking etc. Relative advantage and Complexity attributes of an innovation suggested by Everett Rogers (2004) significantly influence the adoption of an innovation in the Bottom of pyramid market (Rahman, Hasan, and Floyd, 2013). Therefore, innovation developed for this market should focus on these two attributes (Relative advantage and Complexity).
Whereas Prahalad originally focused on corporations for developing BoP products and entering BoP markets, it is believed by many that Small to Medium Enterprises (SME) might even play a bigger role. For Limited Partners (LPs), this offers an opportunity to enter new venture capital markets. Although several social venture funds are already active, true Venture Capital (VC) funds are now emerging.
There is a traditional view that BOP consumers are not brand conscious (Prahalad, 2005). However, C. K. Prahalad (2005) claimed against this traditional view, positing that the BOP market is brand conscious. For instance, brand influences the new product adoption in the bottom of pyramid market (Rahman, Hasan, and Floyd, 2013). Rahman et al. (2013) mentioned that brand may positively influence the relative advantage of an innovation and it leads to adoption of innovation in the BOP. In point of traditional view BOP market, people were not aware about brand concept. Sopan Kumbhar (2013)
As Fortune reported on November 15, 2006, since 2005 the SC Johnson Company has been partnering with youth groups in the Kibera slum of Nairobi, Kenya. Together SC Johnson and the groups have created a community-based waste management and cleaning company, providing home-cleaning, insect treatment, and waste disposal services for residents of the slum. SC Johnson's project was the first implementation of the "Base of the Pyramid Protocol".
There have been a number of academic and professional conferences focused on the BoP. A sample of these conferences are listed below:
Technically, a member of the BOP is part of the largest but poorest groups of the world's population, who live with less than $2.50 a day and are excluded from the modernity of our globalised civilised societies, including consumption and choice as well as access to organised financial services.
Globally, 1.2 billion people (22 percent) live on less than $1.25 a day. Increasing the income poverty line to $2.50 a day raises the global income poverty rate to about 50 percent, or 2.7 billion people.
C. K. Prahalad, a management professor and author who popularized the idea that companies could make money while helping to alleviate poverty, died Friday in the La Jolla neighborhood of San Diego.
The United States is a highly developed/advanced market economy. It is the world's largest economy by nominal GDP, and the second-largest by purchasing power parity (PPP) behind China. It has the world's seventh-highest per capita GDP (nominal) and the eighth-highest per capita GDP (PPP) as of 2022. The U.S. accounted for 25.4% of the global economy in 2022 in nominal terms, and around 15.6% in PPP terms. The U.S. dollar is the currency of record most used in international transactions and is the world's reserve currency, backed by a large U.S. treasuries market, its role as the reference standard for the petrodollar system, and its linked eurodollar. Several countries use it as their official currency and in others it is the de facto currency.
Poverty is a state or condition in which one lacks the financial resources and essentials for a certain standard of living. Poverty can have diverse social, economic, and political causes and effects. When evaluating poverty in statistics or economics there are two main measures: absolute poverty compares income against the amount needed to meet basic personal needs, such as food, clothing, and shelter; relative poverty measures when a person cannot meet a minimum level of living standards, compared to others in the same time and place. The definition of relative poverty varies from one country to another, or from one society to another.
A core competency is a concept in management theory introduced by C. K. Prahalad and Gary Hamel. It can be defined as "a harmonized combination of multiple resources and skills that distinguish a firm in the marketplace" and therefore are the foundation of companies' competitiveness.
The distribution of wealth is a comparison of the wealth of various members or groups in a society. It shows one aspect of economic inequality or economic heterogeneity.
The poverty penalty describes the phenomenon that poor people tend to pay more to eat, buy, and borrow than the rich. The term became widely known through a 2005 book by C. K. Prahalad, The Fortune at the Bottom of the Pyramid.
The terms poverty industry or poverty business refer to a wide range of money-making activities that attract a large portion of their business from the poor. Businesses in the poverty industry often include payday loan centers, pawnshops, rent-to-own centers, casinos, liquor stores, lotteries, tobacco stores, credit card companies, and bail-bond services. Illegal ventures such as loansharking might also be included. The poverty industry makes roughly US$33 billion a year in the United States. In 2010, elected American federal officials received more than $1.5 million in campaign contributions from poverty-industry donors.
Coimbatore Krishnarao Prahalad was an Indian-American entrepreneur and author. He was the Paul and Ruth McCracken Distinguished University Professor of Corporate Strategy at the University of Michigan Stephen M. Ross School of Business.
Poverty reduction, poverty relief, or poverty alleviation is a set of measures, both economic and humanitarian, that are intended to permanently lift people out of poverty.
Ted London is an American scholar and teacher on Base of the Pyramid (BoP) business strategies. He is the Ford Motor Company Clinical Professor of Business Administration at the Stephen M. Ross School of Business at the University of Michigan. London is an internationally recognized expert on the intersection of business strategy and poverty alleviation. In 2016 London authored The Base of the Pyramid Promise: Building Businesses with Impact and Scale, which translates over 25 years of research and experience into actionable strategies, frameworks, and tools for managers seeking inclusive growth. The book won the Responsible Research in Management Award in 2018 and the Humanistic Management Book Award in 2019.
Inclusive capitalism is a theoretical concept and policy movement that seeks to address the growing income and wealth inequality within Western capitalism following the financial crisis of 2007–2008.
Paul Polak was the co-founder and CEO of Windhorse International, a for-profit social venture with the mission of inspiring and leading a revolution in how companies design, price, market and distribute products to benefit the 2.6 billion customers who live on less than $2 a day.
Creating shared value (CSV) is a business concept first introduced in a 2006 Harvard Business Review article, Strategy & Society: The Link between Competitive Advantage and Corporate Social Responsibility. The concept was further expanded in the January 2011 follow-up piece entitled Creating Shared Value: Redefining Capitalism and the Role of the Corporation in Society. Written by Michael E. Porter, a leading authority on competitive strategy and head of the Institute for Strategy and Competitiveness at Harvard Business School, and Mark R. Kramer, of the Kennedy School at Harvard University and co-founder of FSG, the article provides insights and relevant examples of companies that have developed deep links between their business strategies and corporate social responsibility (CSR). Porter and Kramer define shared value as "the policies and practices that enhance the competitiveness of a company while simultaneously advancing social and economic conditions in the communities in which it operates", while a review published in 2021 defines the concept as "a strategic process through which corporations can turn social problems into business opportunities".
Nokia Life, earlier Ovi Life Tools and Nokia Life Tools, was an SMS based, subscription information service designed for the "Next Billion Users" in emerging markets, and offers a wide range of information services covering healthcare, agriculture, education and entertainment. The project began with Nokia's Emerging Market's Jawahar Kanjilal, wherein he worked with BCG to identify the services for consumers in emerging markets to expand Nokia's footprint and drive long-term loyalty. The team then carried on consumer research, insights generation, proposition development & concept definition for the "Next Billion Consumers". Post Board approval, Nokia teams led by Jawahar Kanjilal & Hemant Madan created a suite of services, branding, distribution, piloting, pricing & digital subscriptions business model for the Bottom of the Pyramid (BoP) consumers, because of the significant brand- and distribution presence that it already had in those markets at that time. In 2013 Nokia Life was eliminated due to Nokia's switch in focus and the arise of Internet-based information services in those markets. The service has been available in Pakistan, India, Indonesia, China, and Nigeria. Around 125 million people have experienced Nokia Life services in these five countries. Nokia Life was launched as Mera Nokia, in the state of Maharashtra in India in early 2009. After the successful pilot, a wider commercial deployment of the service under the name Nokia Life Tools began in India in June 2009. The service was later expanded to Indonesia in November 2009, China in May 2010, and Nigeria in November 2010. Nokia Life was able to use the existing distribution network of Nokia by pre-installing it on Nokia devices. The first two supported devices were the Nokia 2323 Classic and Nokia 2330 Classic devices.
The concept of The Fortune at the Bottom of the Pyramid originally appeared as an article by C. K. Prahalad and Stuart L. Hart in the business journal Strategy+Business. The article was followed by a book with the same title that discusses new business models targeted at providing goods and services to the poorest people in the world. It makes a case for the fastest growing new markets and entrepreneurial opportunities being found among the billions of poor people 'at the bottom of the [financial] pyramid'. According to Bill Gates, it "offers an intriguing blueprint for how to fight poverty with profitability."
Stuart L. Hart is an American academic, writer and theorist and the founder of Enterprise for a Sustainable World, a non-profit dedicated to helping businesses make the transition to sustainability.
The Grassroots Business Fund is a non-profit organization based in Washington, DC. It has field offices in Kenya, Peru, and India. Their mission is to build and support high-impact enterprises that provide sustainable economic opportunities to thousands of people at the base of the economic pyramid. These enterprises are grassroots business organizations in developing countries that empower large numbers of the poor as producers of income-generating commodities and products, as consumers of affordable goods and services, and as independent entrepreneurs. GBF actively supports enterprises throughout Latin America, Africa, India, and Southeast Asia.
Jaipur Rugs is one of India's largest manufacturers of hand knotted rugs. Headquartered in Jaipur, India, the company's operations encompass more than branches, operating in six states and 600 villages in India with distribution to over 40 countries with its independent base of over 40,000 artisans. The company also has a large distribution base in Atlanta, Georgia, United States.
Nand Kishore Chaudhary is an Indian social entrepreneur. He currently serves as the Chairman and Managing Director of the social enterprise Jaipur Rugs, which he founded in 1978.
Impact sourcing, also known as socially responsible outsourcing, refers to an arm of the business process outsourcing (BPO) industry. It employs people at the base of the pyramid or socioeconomically disadvantaged individuals as principal workers in BPO centers to provide high-quality, information-based services to domestic and international clients. The traditional BPO sector is typically associated with high-end, high-contact functions like call centers, which require significant education and language literacy levels. The impact sourcing sector focuses on utilizing workers from poor and vulnerable communities to perform functions with lower and moderate skill requirements such as scanning documents, data-entry work, data verification and cleaning, video tagging, and microwork.
An inclusive business model is a type of business model that seeks to create value for low-income communities by integrating them into a company's value chain on the demand side as clients and consumers, and/or on the supply side as producers, entrepreneurs or employees in a sustainable way.