Bottom of the Pyramid

Creating affordable and accessible products and services for the world's poorest consumers

Bottom of the Pyramid Business Model Pattern

Bottom Of The Pyramid Business Model Pattern Graphic

The Bottom of the Pyramid business model pattern focuses on creating affordable and accessible products and services for the world’s poorest consumers.

The Bottom of the Pyramid

The concept of the “Bottom of the Pyramid” (BoP) was popularized by C.K. Prahalad, a renowned Indian-American business professor and author. Prahalad, who was a professor of corporate strategy at the University of Michigan’s Ross School of Business, introduced the idea in his 2004 book, “The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits.”

In this influential work, Prahalad argued that the world’s poorest people, who make up the bottom of the global economic pyramid, represent a significant untapped market for businesses. He suggested that by developing innovative products and services tailored to the needs and constraints of this segment, companies could not only generate profits but also help alleviate poverty and improve the lives of billions of people.

Prahalad’s work challenged the conventional wisdom that the poor were not viable customers and inspired a new generation of entrepreneurs and businesses to explore the BoP market. The concept has since gained widespread recognition and has been further developed by other academics, practitioners, and organizations working in the fields of inclusive business, social entrepreneurship, and international development.

According to the World Bank’s PovcalNet data for 2017 (measured in 2011 Purchasing Power Parity dollars):

  1. Around 767 million people (10.4% of the global population) lived on less than $1.90 a day, which is the international poverty line.
  2. Approximately 3.2 billion people (43.6% of the global population) lived on less than $5.50 a day.
  3. An estimated 5.4 billion people (73.6% of the global population) lived on less than $10 a day.

What is the Bottom of the Pyramid Business Model Pattern?

Bottom Of The Pyramid Business Model Pattern

The Bottom of the Pyramid business model pattern is a strategy that focuses on creating products and services specifically designed for the world’s poorest socio-economic group, which consists of approximately 4 billion people who live on less than $2 per day. This model aims to address the unmet needs of this large and often overlooked market segment while also generating profits for the companies involved. The BoP model challenges the traditional assumption that the poor cannot be profitable customers and instead sees them as a vast, untapped market with significant potential for growth and innovation.

Why is the Bottom of the Pyramid Business Model Pattern Important?

The Bottom of the Pyramid business model pattern is important because it offers several key benefits for businesses and society as a whole:

  • Inclusive Growth: By targeting the BoP market, companies can contribute to inclusive economic growth, providing access to essential goods and services, creating income-generating opportunities, and improving the overall quality of life for the world’s poorest people.
  • Untapped Market Potential: The BoP represents a vast and largely untapped market, offering significant growth opportunities for companies that can develop affordable and accessible products and services tailored to the unique needs and constraints of this segment.
  • Innovation Driver: Serving the BoP market requires companies to innovate and think creatively about product design, distribution, and business models, leading to the development of new technologies, processes, and solutions that can have broader applications and impact.
  • Social Impact: The BoP model aligns business success with positive social impact, enabling companies to generate profits while simultaneously addressing pressing global challenges such as poverty, health, education, and environmental sustainability.
  • Long-Term Sustainability: By embedding social impact into their core business models, companies pursuing the BoP approach can enhance their long-term sustainability and resilience, building strong relationships with local communities and stakeholders.

Impact on the Business Model

Bottom Of The Pyramid Business Model Canvas

The Bottom of the Pyramid business model pattern significantly impacts various aspects of a company’s overall business model:

  1. Value Propositions: Companies must tailor their value propositions to meet the unique needs of the BoP segment. Given their limited disposable income, value propositions should emphasize affordability, accessibility, and utility. Products and services that can enhance productivity, provide savings, or offer significant utility per unit cost will be most attractive. This might include microfinance services, affordable healthcare solutions, or cost-effective consumer goods.
  2. Channels: Traditional distribution channels often fail to reach the BoP effectively. Companies must innovate in their channel strategies, potentially leveraging unconventional distribution networks, partnerships with local organizations, or mobile and digital platforms to ensure product and service availability. This might include direct-to-consumer models, utilising local entrepreneurs, or mobile delivery services that can overcome infrastructure challenges common in BoP markets.
  3. Key Partnerships: Collaborating with non-traditional partners, such as non-governmental organizations (NGOs), community groups, and even competitors, can be crucial for businesses aiming to serve the BoP effectively. These partnerships can help companies navigate local markets, understand consumer needs better, and leverage existing networks for distribution or marketing. Partnerships with microfinance institutions or local governments might also facilitate payment solutions tailored to the BoP context.

Characteristics of BoP Customer Segments

  1. Low Income Levels: BoP individuals live on less than $3,000 annually in local purchasing power parity terms, equating to less than $3.35 a day in Brazil, $2.11 in China, $1.89 in Ghana, and $1.56 in India. This fundamental economic constraint shapes their consumption patterns and purchasing decisions.
  2. Substantial Aggregate Purchasing Power: Despite low individual incomes, the collective purchasing power of the BoP segment is substantial, estimated at $5 trillion globally. This highlights a significant market opportunity for products and services tailored to their unique needs and financial capacity.
  3. Predominantly Rural: A significant portion of the BoP population resides in rural areas, particularly in rapidly growing regions of Asia. This geographical distribution influences their access to products, services, and information and often contributes to their markets being underserved and inefficient.
  4. Informal Economy Dominance: BoP markets are often characterized by a strong presence of the informal economy, which impacts the employment and income-generating opportunities available to individuals in these segments. The informal nature of these markets presents both challenges and opportunities for formal businesses aiming to engage with BoP consumers.
  5. Varied Market Composition: There is considerable diversity within the BoP segments across different countries and regions. For example, Nigeria’s BoP market is concentrated in the lowest income segments, whereas Ukraine’s is concentrated in the upper income segments. This variation necessitates a nuanced understanding of local market dynamics and consumer needs.
  6. Underserved in Access to Services: BoP segments typically have limited access to essential services such as healthcare, education, financial services, and utilities. This lack of access represents a gap in the market that can be filled by innovative, affordable, and accessible solutions.
  7. High Sensitivity to Price: Given their limited disposable income, BoP consumers are highly sensitive to price. Affordable pricing strategies, including micro-pricing or pay-as-you-go models, are critical to successfully serving this segment.
  8. Unmet Needs and Aspirations: Beyond their immediate material needs, BoP consumers have aspirations and desires for products and services that can improve their quality of life, offer convenience, and provide a sense of dignity and social inclusion.

How to Implement the Bottom of the Pyramid Business Model Pattern

To successfully implement the Bottom of the Pyramid business model pattern, companies should follow these steps:

  • Immerse in the BoP Context: Invest time and resources to deeply understand the unique needs, preferences, and constraints of the BoP market, engaging directly with low-income consumers and communities to gain insights and build trust.
  • Co-Create with the BoP: Involve the BoP population in the product development and design process, leveraging their knowledge, creativity, and entrepreneurial spirit to co-create solutions that are truly responsive to their needs and aspirations.
  • Innovate on Affordability: Develop products and services that are not only affordable but also offer compelling value and quality, using innovative approaches such as frugal engineering, modular design, and local sourcing to reduce costs without compromising performance.
  • Build Local Partnerships: Establish strong partnerships with local organizations, NGOs, and community leaders to gain access to the BoP market, build credibility, and tap into existing networks and infrastructure for distribution and delivery.
  • Invest in Capacity Building: Provide training, education, and support to build the capacity of the BoP population, enabling them to become active participants in the value chain as producers, distributors, and entrepreneurs.
  • Measure Impact: Develop robust impact measurement frameworks to assess the social and economic outcomes of the BoP initiatives, using this data to continuously improve and scale the business model for greater impact and sustainability.

Trigger Questions

  • How can we adapt our products or services to meet the needs and constraints of low-income customers?
  • What innovative distribution channels can we use to reach and serve bottom of the pyramid markets?
  • How can we create affordable and accessible pricing models for our target customers?
  • What partnerships or collaborations can we form to better understand and serve these markets?
  • How can we measure the social impact and business value of our bottom of the pyramid initiatives?

Examples of the Bottom of the Pyramid Business Model Pattern

  • Grameen Danone Foods: A joint venture between Grameen Bank and Danone, this social business produces affordable, nutritious yogurt for low-income consumers in Bangladesh, using a network of local micro-entrepreneurs for distribution.
  • Mobisol: This German company provides affordable solar home systems to off-grid households in East Africa, using a mobile-based pay-as-you-go model that enables low-income customers to access clean energy on a flexible payment plan.
  • Saraplast: This Indian company provides affordable sanitation solutions to urban slums and low-income communities, using a pay-per-use model and leveraging local franchisees to operate and maintain the facilities.
  • Hapinoy: This Filipino social enterprise works with a network of small neighborhood stores (sari-sari stores) in low-income communities, providing them with access to affordable goods, training, and microfinance to improve their livelihoods and serve their communities better.

Summary

The Bottom of the Pyramid business model pattern represents a significant opportunity for companies to drive inclusive growth, tap into new markets, and create meaningful social impact. By developing affordable, accessible, and innovative solutions that empower the world’s poorest consumers, businesses can not only generate profits but also contribute to the achievement of the United Nations’ Sustainable Development Goals and the creation of a more equitable and sustainable world.

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