ECONOMIC POVERTY: BOTTOM OF THE PYRAMID

Bagus Aryo, PhDMagister of Social WelfareUniversity of Indonesia

THE MARKET AT THE BOP

>$15.000(4000 million people)

The Fortunes at the Bottom of the Pyramid, C. K. Prahalad, 2005

>$15.000 - $20.000

(1500 - 1750 million people)

>$20.000(75-100 million

people)

THE ECONOMIC PYRAMID

The poor represent a “latent market” for goods and services

BOP provides a new growth opportunity for the private sector and a forum for innovation

THE REAL NATURE OF THE BOP MARKET

• There is Money at the BOPe.g The GDP per capita in China is US$1,000 - US$1.2 trillion economy (1.2billion people). But its purchasing power parity is US$5 Trillion, making it the second largest economy globally

• Local MonopoliesDue to local monopolies, inadequate access, poor distribution, and strong traditional intermediaries, the poor pays 5 to 25 times what the rich pays in the same economy --> potential of unlocking the talent purchasing power

THE REAL NATURE OF THE BOP MARKET

• Access to BOP MarketsRural markets are inaccessible to audio and television signals. Example: Media Dark - the rural poor do not know what products / services are available and how to use them.One solution: HLL Ltd (a subsidiary of Unilever) in India trained entrepreneurial women to become distributors. They earn US$60-150 per month and become a new class of consumers themselves

• The BOP Markets are Brand-ConsciousThey are indeed brand-conscious and value conscious by necessity; they expect good quality at the prices they can afford

• BOP Consumers Accept Advanced Technology ReadilyEvidenced by the rapid spread of wireless devices, PD kiosks, etc.

THE COMMERCIAL INFRASTRUCTURE AT THE BOTTOM OF THE PYRAMID

Creating Buying Power

Access to creditIncome Generation

Shaping AspirationsConsumer education

Sustainable Development

Tailoring Local Solutions

Targeted product development

Bottom-up innovation

Improving AccessDistribution systemsCommunication links

MARKET DEVELOPMENT IMPERATIVE

1.Create the Capacity to ConsumeCash-poor and with a low level of income, the BOP consumer has to be accesed differentlyMake unit packages (single-serves) that are small and much more affordable

Based on 3 principles• Affordability (without sacrificing quality)• Access (e.g. the poor may start their shopping after 7.00 pm)• Availability

MARKET DEVELOPMENT IMPERATIVE

2.The Need for New Goods and ServicesThe involvement at the BOP can provide opportunitiesfor developing new goods and servicese.g. access to good quality housing, clean energy from solar and wind power, good quality furniture. (from an IKEA for the middle class to an IKEA for the developing world!)

MARKET DEVELOPMENT IMPERATIVE

3.Dignity and ChoiceWhen the poor are converted into consumers, they also acquire the dignity of attention and choices previously reserved for the middle-class and richSwitching costs for single-serve goods are negligible for the BOP Consumers

Trust is a PrerequisiteFirms must focus on building trust between themselves and the consumersThe default rate among the poor is actually lower than the rich: they pay on-time

CONCERNS ABOUT BOP

• Creating non-existent needs• Confusing BOP business with the CSR concept and taking attention

away from the need for ODA• Unscrupulous players taking advantage of BOP consumers vulnerability• Who carries the innovation risk?

This has developed as a business concept• Foundation of BOP was the business need to find new markets, not as a

development tool• Therefore does not explore the wider needs of poverty alleviation

I don’t think there is much middle ground between Professor Prahalad’s Bottom of the Pyramid proposition and my views. The BOP emphasizes selling to the poor: I emphasize viewing the poor as producers and buying from the poor. The primary issue is to increase the income of the poor: we need to create employment opportunities for the poor”

- Prof. Aneel Karnani, University of Michigan

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