It has been labeled “the biggest potential market opportunity in the history of commerce.” But the corporate sector has just begun to catch on.
No, this is not the iPad 3.
To reach this market, think cheaper. Much, much cheaper. Serving the four billion people at the bottom of the world’s economic pyramid requires drastic changes in standard corporate practices, yet with over a trillion dollars between them, the global poor are a market that businesses cannot afford to overlook.
First championed by C.K. Prahalad and Stuart Hart (two business professors who made the bold proclamation above), “bottom of the pyramid” (BoP) marketing calls on the corporate sector to reverse decades of neglect. For much of economic history, Prahalad and Hart note, corporations have served the needs of the wealthy while those of the global poor have been left to government aid groups and NGOs. The collective purchasing power of the BoP, which Prahalad has estimated to be as much as $13 trillion, has been largely untapped, and has potential for lucrative growth.
At Stanford University, a group of business, engineering, and design students are working together to design products for BoP markets, primarily located in developing countries across Asia, Latin America, and Africa. So far, their creations have ranged from items as generic as a clay cooking surfaces to those as specialized as a portable incubator for premature infants. What they have in common is a faithful adherence to the needs of the consumers and the limits of their pocketbooks—challenges for any start-up but particular problems for entrepreneurs in BoP markets.
A profile of the Stanford program by Vincent Beiser underscores the difficulty of market research in developing nations. “Bottom-of-the-pyramid consumers often lack the education to answer written surveys,” Beiser notes, “and the marketplace has few comparable products from which to extrapolate potential sales.” As a result, the Stanford students traveled directly to local markets (at substantial costs) to observe firsthand the unique needs of BoP consumers.
But even after identifying these needs, entrepreneurs face the difficulty of developing affordable products. Between the costs of materials, labor, and distribution, even seemingly modest inventions can spiral beyond BoP budgets. One of the most successful creations from the Stanford program has been d.light, a portable, solar-charged LED lamp. But even though its cheapest model retails for a mere $8, d.light’s investors consider its profitability a “long-term bet.”
Critics of BoP marketing have seized on these stories, arguing that BoP products are too difficult to design and produce. But even if this claim is true now, the development community has reason to be optimistic. It’s called the profit motive, and inventors must continuously refine their products in its pursuit. The first d.light prototype, for example, retailed for over three times as much as the latest version. In her analysis the BoP movement, Saundra Schimmelpfenni of the blog, “Good Intentions are not Enough,” argues that “if anyone is going to make [solar, wind and other technologies] successful, it will likely be business rather than nonprofits.”
Beyond stimulating innovation, BoP marketing also promotes faster growth and greater longevity than traditional aid groups. As Tina Rosenberg writes in the New York Times, businesses can tap into “pools of investment capital that are much larger than available philanthropy.” Furthermore, for-profit entities are self-sustaining rather than dependent on “a donor’s whims.”
Still, the most significant advantage of BoP marketing may be its reliance on market forces. At its best, these types of businesses offer a clever solution to the problem of accountability, that pervasive question of whether international efforts actually meet the requirements of BoP communities. Because for-profit businesses succeed or fail based on the consumer demand, this type of development is directly accountable to the needs of its beneficiaries.
But do market forces alone constitute a sufficient standard to evaluate the quality of development? One of the problems that have plagued microfinance institutions (an early model of BoP business) is the reality that microloans are often used to finance consumption rather than capital investment. Several of Prahalad’s colleagues at the University of Michigan have criticized his failure to recognize that commerce and development may not be interchangeable terms. While businesses may certainly develop products that increase the standard of living and perhaps even earning potential, it is less clear how cheap soft drinks or ice cream (both actually marketed to the BoP) can help alleviate poverty. While the BoP market contains enormous potential, a strategy that incorporates for-profit businesses as a form of development must navigate the tricky boundary between wealth creation and social stagnation.