The bottom of the pyramid is a term describing the largest and poorest global socio-economic group. Franklin D. Roosevelt first used the bottom of the pyramid (BOP) in a 1932 public address during the Great Depression. Roosevelt noted that – when talking about the ‘forgotten man:’ “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.“
Understanding the bottom of the pyramid
In modern parlance, it was author CK Prahalad who re-introduced the concept in 1998 and then again in his 2004 book The Fortune at the Bottom of the Pyramid.
He and Roosevelt refer to a vast group of people numbering almost 3 billion who live on less than $2.50 a day.
A core argument of Prahalad’s book is that while extremely poor, this group represents a fast-growing market with untapped buying power.
He also noted that the companies who learn to serve these people can not only increase their profits but also help people escape abject poverty.
Examples of companies who have targeted the bottom of the pyramid
Companies that can offer high-volume, low-margin, low-price products are better suited to BOP markets.
Unilever is widely recognized as a pioneer in these markets.
Lead by a CEO with a passion for improving the world, the company generates more than half its sales from emerging markets.
A portable water purification system, Pureit, is available for sale in Latin America, Africa, and India.
Unilever also sells a range of products such as washing detergent and shampoo in small, “single-serve” sachets.
However, the success of Unilever is the exception rather than the rule. Procter & Gamble released its own water purification system in 2004, but the product was not commercially viable.
Global innovator DuPont sought to improve nutrition by selling soy-based snack food in India – but the idea was similarly abandoned after no path to profitability could be found.
How businesses can make BOP work
Consultants believe that success in BOP markets can only be achieved when a business has a focus on making a profit and not on alleviating poverty.
This does not mean that the business cannot make a profit and alleviate poverty at the same time.
Many organizations would also do well to look at Unilever as a successful case study.
First, the company had well-established retail and distribution channels in place.
Second, Unilever followed an incremental cost model by selling very small quantities of its products in poor neighborhoods.
Lastly and perhaps most importantly, Unilever sold products that BOP citizens were already familiar with.
As a result, the company did not have to spend money on generating demand or training consumers on how to use its products.
- The bottom of the pyramid is a term describing a vast and extremely poor socio-economic group who subsists on less than $2.50 a day.
- Bottom of the pyramid markets was popularized by author CK Prahalad. He argued that despite their lack of wealth, collectively the market was a large, untapped source of buying power.
- Businesses operating at the bottom of the pyramid markets have had mixed success. Unilever is the most successful example because of its pre-existing distribution channels and a focus on single-serve products to reduce costs.
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Connected Economic Concepts
Positive and Normative Economics
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