The “bottom of the pyramid” concept is the theory that even the poorest markets in the world can be revenue generating for companies if they tailor their product and packaging to these markets.
This concept was introduced by the Late Professor of the University of Michigan, C. K. Prahlad, in his book The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits. Some well known examples of products that cater to these markets include micro-credit products and selling shampoos in sachets.
I am currently visiting India and below are some interesting observations on the concept that I see actually being applied:
The cost of ownership of a SIM card is low. I got mine for $.20 cents with talk-time and incoming calls free. No wonder there are over 900 Million mobile users in India.
According to a Times of India article, India has 70 subscriptions per 100 people, of which 96% are prepaid, while 53% of households own a mobile phone and India’s price per minute use is the lowest possible at $0.01.
Mobile phones have created an opportunity for entrepreneurs to setup dealerships and sell SIM cards by offering competitive discounts. These make the crowds flock to them to get the cards, as is reflected in the picture above.
SIM cards are also sold in businesses of different verticals. SMS is used a lot in India, according to the Times of India:
“Just under half of Indians use text messages on a regular basis.”
This creates a market for products and marketing techniques using SMS. A unique example is the launch of a service to send a message by SMS to find out if a cheaper generic drug was available for a prescription.
The cheapest car in the market is the Tata Nano. According to CarDekho, it costs the equivalent of $3,616. Barriers to car ownership have come down leading to other problems like traffic. On the flipside, this creates an opportunity for entrepreneurs selling auto accessories and service at repair shops.
Innovative Consumer Products
The case study of Godrej’s refrigerator for rural India, ChotuKool, was designed with the help of women living in villages themselves and won several awards.
Drinking water and health are very essential. In November of 2011, NPR had run a story on a successful for-profit organization, HealthPoint, that provides safe drinking water to village folks at $1.5o per month and low cost diagnostic tests and ehealth consultation.
This may be my own short term experience, but when I left India over 15 years ago, international fast food giants like KFC and McDonalds were costly and beyond the reach of the common man.
Judging by the prices today, they are competing not only in price but also in products by having products that are closer to the market they are serving. McDonald’s McAloo Tikki Burger – a vegetarian offering made of potato is a a good example.
The take away for small business and entrepreneurs globally from these examples should be:
1.) Think about how local market opportunities can be capitalized on using this concept. Closer to home, in the US, the Virgin Mobile brand of Sprint sells a cellphone plan with unlimited data and text plan with limited minutes for $35 which is very suitable for students
2.) If you are thinking of exporting, consider the market opportunities that exist in both the affluent markets and the bottom of the pyramid.
3.) Be conscious of the strategy of large corporations that may affect your business — for example, the fading away of local book stores due to competition. I miss the independent book stores a lot.
The Economist featured a post titled, “The bottom of the pyramid: Businesses are Learning to Serve the Growing Number of Hard-up Americans.” It includes examples of bottom of the pyramid products in the U.S.
What have you observed similar to the bottom of the pyramid concept?
It’s amazing how owning phones has increased the way Small Business in India interact with each other. Business and customers now regularly use mobile phones to engage with each other which was missing a decade ago.
Thanks for the report from India, Shashi. I enjoyed this article and the “local color.”
Shashi, Henry Ford figured that out the same thing because all of the US car manufacturers in the 1910s and 1920s went after only the rich people, sounds like it needs to be relearned across the globe.
Thanks for the post. I’m entering a MBA program in DC, and I want to focus on the BOP. I’m curious about what you are doing in India right now? Also, I’m thinking about potentially going for a summer internship in India working with a BOP-focused company. Do you have any tips on which ones I should look into?