30/03/2020 The new fortune at the bottom of the pyramid https://www.strategy-business.com/article/The-New-Fortune-at-the-Bottom-of-the-Pyramid?gko=c5f11 1/13 January 2, 2019 / Spring 2019/Issue 94 The new fortune at the bottom of the pyramid Profound changes are closing the gap between the world’s poorest consumers and others, offering an unprecedented opportunity for businesses to create — and share in — prosperity. For more insight, see “ Changes to the Fortune at the Bottom of the Pyramid.” by Deepa Prahalad A version of this article appeared in the Spring 2019 issue of strategy+business. Almost 20 years ago in a strategy + business article, my father, C.K. Prahalad, and his colleague Stuart L. Hart debuted a simple but radical idea. They argued that CONSUMER & RETAIL | For the full issue subscribe now and download s+b digital edition READ MORE Illustration by Lars Leetaru
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30/03/2020 The new fortune at the bottom of the pyramid
The new fortune at the bottomof the pyramidProfound changes are closing the gap between the world’s poorest consumers and others,offering an unprecedented opportunity for businesses to create — and share in —prosperity. For more insight, see “Changes to the Fortune at the Bottom of the Pyramid.”
by Deepa Prahalad
A version of this article appeared in the Spring 2019 issue of strategy+business.
Almost 20 years ago in a strategy+business article, my father, C.K. Prahalad, andhis colleague Stuart L. Hart debuted a simple but radical idea. They argued that
CONSUMER & RETAIL |
For the full issue subscribe now and download s+bdigital editionREAD MORE
the 4 billion poor people around the world represented a vibrant consumermarket, that this market could best be tapped with for-pro�t models, and thatthe poor themselves had to be partners in the process. This challenged manylong-held assumptions about the role of both government and business inaddressing poverty. At the time, their thinking (which had been rejected for fouryears by scholarly journals) invited polite skepticism at best. Much of thehesitation to engage with their ideas stemmed from a belief that uplifting thepoor was the domain of government and nonpro�ts, or was simply too risky.Most businesses lacked the insight and cost structures to reach poorconsumers. There was a persistent belief that needs such as shelter andnutrition had to be addressed before the poor could understand — and pay for —aspirational products and technology. Sadly, this pessimism was as commonamong elites in emerging markets as it was in the West.
Nevertheless, the idea of merging pro�t and purpose at what my father and Harttermed the bottom of the pyramid, and which many now refer to as the base ofthe pyramid, captured the imagination of both corporations and thedevelopment community. What began in strategy+business as a blueprint forwhat was possible grew into two editions of a book, The Fortune at the Bottom ofthe Pyramid, authored by my father, pro�ling companies and social-sectororganizations that had created successful business initiatives in developingeconomies. And unlike many management ideas that have come and gone, theconcept of the bottom of the pyramid continues to inspire vibrant conversationtoday. I think the reason is that it speaks to the aspirations of managers andconsumers alike. It represents a fundamentally optimistic view about the abilityof the poor and people inside organizations to collaborate and make the world abetter place.
30/03/2020 The new fortune at the bottom of the pyramid
By now, the idea of business as a force for good has taken hold, and thediscussion around poverty has changed, too. Since my father’s passing in 2010,I’ve revisited many of the organizations and people he pro�led in his book. I’veadvised entrepreneurs, served on nonpro�ts, and worked on bottom-of-the-pyramid innovation. It’s clear to me that three fundamental shifts are affectingthe world’s poor and their role as consumers:
• Most important, a dramatic reduction in extreme poverty around the world hascreated opportunities for entrepreneurial solutions to many social problems andnarrowed the gap between developed and bottom-of-the-pyramid markets.
• Technology — including the widespread use of cell phones among the world’spoor — is signi�cantly lowering the cost of communication and learning. This isenabling companies to develop, deliver, and scale many important services,such as bank payments to mobile phones.
• Not only are industry and civil society ready to accept the narrative ofinnovation as the antidote to poverty, but there’s a rising expectation that
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30/03/2020 The new fortune at the bottom of the pyramid
businesses should try to make the world a better place.
The solutions to today’s pressing social problems cannot be decided by debate;they must be discovered through experimentation. The opportunity is huge:Companies are now in a great position to improve life for the world’s poor whilealso improving their bottom line.
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Rapid Change Means Goals Are Changing, TooThe World Bank estimates that since 1990, 1.1 billion people have moved out ofextreme poverty. One major reason is that the United Nations DevelopmentProgramme’s Sustainable Development Goals have offered many stakeholders inthe poverty problem the strategic clarity they need to successfully collaborate inbringing about change. Data from the International Monetary Fund shows thatthe fastest-growing economies in the world are in emerging markets. Thispowerful combination of reform and rapid economic growth is on display incountries such as India, where the World Data Lab’s World Poverty Clock showsthat about 40 people per minute overcome extreme poverty. The transition is inprogress in many parts of Africa too (although there is tremendous variation inpoverty rates on the continent), with Chinese investment leading economicgrowth. The idea of the world’s poor as active consumers is no longer dubious.They are now purchasing a range of goods and services, including consumerproducts and cell phone plans.
Because of this overall reduction in extreme poverty, the conversation about thebottom of the pyramid has shifted from how to alleviate poverty to how toaddress deep inequality — and not just in developing countries. A comparison ofthe world economic pyramid from my father’s original paper with 2017’s numbers
tells an interesting story (see “A Tale of Two Pyramids”). In 2017 there were fewerpeople at the bottom of the pyramid (3.5 billion, compared with 4 billion in 2002).Income tiers had also risen so signi�cantly by 2017 that it’s now di�cult todirectly compare them on the two charts. In 2000, the richest 20 percent of theworld’s population accounted for about 85 percent of global income. By 2017,there was a new concentration of wealth at the top. The Credit Suisse GlobalWealth Report (pdf) for that year showed that approximately 86.3 percent ofglobal wealth was controlled by 8.6 percent of the population. Oxfam reportsthat 42 individuals now possess the same cumulative wealth as the bottom 3.6billion people on the planet. Poverty has decreased and access to technologyhas accelerated, but the once widely held idea that the income pyramid wouldtransform into a diamond, with wealth concentration in the middle, has not yetbecome a reality.
Nevertheless, there has been signi�cant progress at the bottom, and bothmultinational corporations and local innovators have driven it. The originalstrategy+business article cited “information poverty” as a major roadblock todevelopment and pointed out that “half of humanity has yet to make a singlephone call.” That claim no longer holds, as local companies — Kenya’s Safaricom,India’s Reliance, China’s Alibaba, and many others — have grown in size and
The fortune at thebottom of the pyramidby C.K. Prahalad and Stuart L.Hart
Common purpose:Realigning business,economies, and societyby Colm Kelly and Blair Sheppard
The new ways to win inemerging marketsby David W�eratne, GaganOberoi, and Shashank Tripathi
sophistication, in both product and service offerings, giving rise to moreentrepreneurial cultures and making technology accessible to the world’s poor.In some cases, the technology is even more accessible than low-pricedproducts. For example, in 2009, India’s Tata released the Nano, dubbed the“world’s cheapest car,” at a price point of US$2,500. But the way the car wasmarketed hindered its appeal among its intended consumers, and Tata haltedproduction in 2017. Meanwhile, ride-sharing apps such as Uber and Indian localalternative Ola have enjoyed brisk growth, and Ola is now expanding overseas.Everyone can both use these platforms and �nd work on them, and in the future,some of these services may help ful�ll last-mile delivery challenges, too. Andcompanies such as Amazon, which is training many small vendors around theworld to scale up and become credible brands in their own right, are also helpingto propel growth.
Access to technology enables growthfor consumers and businesses. Andthese days, the fortunes of many techcompanies rely heavily on theirperformance in bottom-of-the-pyramid markets. China’s Xiaomi, forexample, sold 100,000 phones in lessthan 10 seconds on India’s e-commerce platform several years agoand is the world’s �fth-largest cellphone maker, despite having no salesin the U.S. to date. (Apple is the onlyWestern company in the top �ve.)India’s Reliance launched the 4G Jionetwork, which has 215 millionsubscribers and is spurring e-commerce growth in the country. And
Warren Buffett made his �rst investment in India in August 2018, taking a stakein One97 Communications, which owns payments �rm Paytm.
The evolution of technology has dramatically affected life at the bottom of thepyramid — and created new opportunities. The poor all over the world now havecell phones. Companies no longer have to guess about the preferences andopinions of the bottom of the pyramid when they innovate — they can askdirectly. Big data and a payments infrastructure exist for consumers at allincome levels.
The statistics, though, can never adequately capture the palpable changes onthe ground or give a complete sense of the new dynamics at work. Kenya, forexample, had a per capita income of only $1,507 in 2017, according to the WorldBank. Yet Kenya’s 10 most valuable brands include Safaricom (telecom), M-Pesa(money transfer), local radio and TV outlets, Facebook, and banking and powercompanies, many of which serve consumers across income categories. Thetraditional view of needs explains very little of what is being adopted andpurchased at scale in emerging markets. The picture in most countries mirrorsthis trend — purchases among the poor are a re�ection of aspiration rather thanpure need. Savvy companies and social innovators today often leverage thisphenomenon.
Bottom of the Pyramid Converging with Other TiersThe original bottom-of-the-pyramid vision suggested that companies thatinnovated successfully for the poorest markets might be able to attractconsumers in developed countries too. Since then, the gap between thesemarkets has narrowed, which means companies of all sizes should be able tocapture both types of consumer by considering their common wants in �vespeci�c areas:
Companies with a higher purpose. Business leaders today face pressure todeliver pro�ts while also contributing to society. Changing consumer attitudesshow that people like companies that engage on social issues. And manyemployees, especially millennials, want to work at �rms that use innovation as aforce for good in the world. It is increasingly common for leaders to articulate avision of how their companies can contribute to a higher purpose. Larry Fink of
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BlackRock used his 2018 annual letter to CEOs to call for companies in theportfolio to directly contribute to the community. India’s Mukesh Ambani,chairman and managing director of Reliance, drew public support for thecompany’s 4G Jio network by declaring “digital life will no longer be the privilegeof the a�uent few.” Given all this support for purpose-driven businesses, itmight be less risky than it once was to make big bets in unfamiliar territory.
Trust and community before transactions. Trust is a central precursor to scale.For example, creating opportunities for consumers to sample products andenlisting local salespeople has been critical to the success of the personal care,snack, and detergent businesses. Many companies have invested heavily inproduct development, but fall short on customer service. Increasedcompetition, which puts pressure on companies to provide better customerservice, and new platforms for feedback, delivery, and co-creation, which helpcompanies understand what customers want, can help address this gap andestablish and maintain trust.
Design for a fraction of the cost. Big data allows businesses to draw on insightsand come up with products and services at radically reduced price points.Rather than relying on limited samples or anecdotal evidence, companies cantrack actual purchase behavior and transactions to get a sense of the designelements and attributes that consumers value. Companies around the world canalready access new markets through platforms such as Amazon. And a newTarget line of 70 essentials and personal-care items, dubbed Smartly, is at anattractive price point for global markets (with most items costing less than $2).The line can challenge established brands in the U.S. and appeals to consumersin many different markets. New feature phones from Reliance are available inIndia for the equivalent of $20. In addition, new ways of consuming, especiallyshared ownership, are allowing people to access previously unattainable goodsand experiences.
A blend of luxury and economy. If you look at a list of the top 100 global brandstoday, both the luxury and mass-market sectors are well represented. Tech
companies, which attract consumers across a wide range of incomes, areexceptions. However, many of the companies in emerging markets have neverhad the freedom to serve just one sector or the other. A volatile world willrequire companies to create products and services that appeal to customersacross a much wider swath of income levels. Tata, for example, has credibility inthe luxury category and in the middle- and bottom-of-the-pyramid markets. Itsbrand requires design with similar standards — albeit different aesthetics —across all consumer categories.
Creation of social codes and norms. The role of business in helping to establishsocial codes and norms is at the heart of its power to transform society.Regardless of a person’s income or profession, daily survival requires a series oftransactions — through cash, barter, or credit. The way those transactions areconstructed affects how easily people are able to transition betweenprofessions, locations, and lifestyles. The need to be heard and respected isuniversal, and the engagement of �rms is helping make this happen for a muchlarger community than ever before. For example, because many roads in Kenyadon't have names and buildings lack numbers, even receiving a piece of mail wasa stressful and onerous process for many people until MPost allowed people touse their mobile number as a postal address.
As the de�nition of a decent standardof living continues to advance,businesses and governments aretrying to �gure out how to managewhat I deem “the good bad news.” Forexample, the World HealthOrganization reports (pdf) that non-communicable diseases, such asdiabetes, now account for 80 percentof deaths in emerging countries. This�gure indicates that economic growthhas brought progress in some areas,
It finally feels as though thedebate about how to createsocial impact is gettinglouder than the debateabout whether businesshas an obligation to do so.
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including infectious disease, maternal health, and life expectancy, all driven byeconomic growth. But this change also imposes tremendous strain on societiesnow forced to cope with hunger and diabetes at the same time. This is a patternthat is global in nature — progress, even as it creates bene�ts in certain areas,creates new pressures and problems in other areas. Sustainability challengeswill require businesses to balance new customers’ aspirations to consume withenvironmental concerns. Rich and poor countries will be grappling with similarproblems — but the potential is great for good solutions to scale.
Re�ections on the JourneyLong before it coalesced into a framework, aspects of the bottom-of-the-pyramid story were a part of my life and dinner table conversation. Seeing theway it has evolved over the years has taught me that even if life isn’t fair,companies and individuals can strive to make it more so. For me, the impact ofthis idea is measured in moments. It’s in the interactions I have today, some ofwhich were unthinkable when I was a child.
Ice cream was once taxed as a luxuryin India. When I had it, it truly felt like aguilty pleasure because it was out ofreach for so many. My fatherchallenged local entrepreneurs tocreate an ice cream that everyonecould enjoy. Today, there is a popularice cream bar that retails for Rs 7(about 10 cents), and now when I’m inIndia, I see day laborers in linealongside me to buy treats for their
children. Some aspects of my identity, such as my American accent, no longercreate a barrier, but open a conversation instead. A store clerk once noticed myaccent and asked me to read out a list of words so he could record it and share itwith his accent correction class. When I asked him what he wanted to do with
that training, he patiently explained that he planned to work in customer servicefor a few years, and perhaps start his own business someday. In my interactionswith people traditionally at the bottom of the pyramid, I’ve slowly been able tomove beyond empathy to engagement and friendship. My WhatsApp contactslist now includes tailors, forest rangers, and drivers — many of the people I couldonly smile at politely in years past. Today, we share family photos, jokes, andideas.
But that is only half of the story. Back at home in the U.S. and in managementforums, the conversation has changed, too. It �nally feels as though the debateabout how to create social impact is getting louder than the debate aboutwhether business has an obligation to do so. My excitement about the bottom ofthe pyramid is no longer rooted in its promise. It is continuously renewed inconversations with entrepreneurs and in seeing the actual ventures the bottom-of-the-pyramid idea has inspired. It’s in realizing that skepticism has given wayto thoughtful questions. Mainstream business magazines now pro�lemultinational corporations that are striving to win over rural consumers. Thereis competition among investors and fear of missing out on the growthopportunities in emerging markets. My LinkedIn invitations have multiplied overthe years, too, largely with the addition of people with business ideas that serve— or at least seek to include — consumers at the bottom of the pyramid. Thepeople who were once dismissed are being studied and discussed, and slowlybeing brought into the conversation. Local innovators are �nally getting therecognition they deserve. Most important, the conversation about how to upliftthe disenfranchised and address inequality in rich countries is now part of thepublic discourse.
There is still a long way to go, and the answers to many pressing social questionsremain elusive. I believe the impact of the bottom-of-the-pyramid idea was thatit injected both pragmatism and optimism into the debate, thereby helping todirect the innovative capacity of business in places where it was needed themost. As business leaders grapple with daunting challenges, they can andshould continue to engage directly on social issues with faith that their efforts
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can make a difference — because they already have. Business has already madethe world a better place by creating shared experiences and aspirations. Thechallenge ahead will be in unleashing innovation to create shared prosperity.
Author Pro�le:
Deepa Prahalad is a speaker, design strategist, and expert on innovation in emerging markets. Shecoauthored, with Ravi Sawney, Predictable Magic: Unleash the Power of Design Strategy to Transform YourBusiness and she consults for corporate clients and startups. Prahalad mentors leading social entrepreneursand serves on several international nonpro�t boards.
Articles published in strategy+business do not necessarily represent the views of the member �rms of the PwC network. Reviews and mentions of publications,products, or services do not constitute endorsement or recommendation for purchase.
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