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Bottom of Pyramid (BOP) Strategy: Development through Business

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Jul 10, 2012

Usually business corporations produce products targeting the people who have bulk amount of disposable income or have affordability to buy that sort products that fulfills extrinsic or intrinsic human need/demand. The businesses set standard of quality, price and availability depending on assumption of their profitability. Whatever the company is sole proprietorship or big multinational, it tries to pick up good return targeting this sort of piggy market segment.  According to the World Bank report (2005) the size of this people segment is not more than 2 billion who live mostly in developed countries of North America, Europe and Some part of the Mid Asia. They lay upper end of the economic pyramid. But, the rest 4 billion people who cannot earn maximum $2 a day, who are considered as the poorest people living mostly in least developing and newly industrialized countries of South and Far East Asia, South America and Africa; are deprived of standard of living and choosing quality products/services as they cannot afford that sort of products by their tiny disposable income. These people exist in the bottom end of the economic pyramid. Though this market segment counts around 13 trillion dollar over the globe, big businesses are not seen to target this people curiously because they are doubtful in grasping profitability.

 C.K. Prahalad, Professor at Wharton School of the University of Pennsylvania, USA; in his one study (2005) he showed this Bottom of Pyramid (BOP) people are poorest and most deprived. He emphasized   their pecuniary condition can be checked through offering required goods/services to them, which will improve their standard of living and MNC’s can grasp this big opportunity of earning profit and checking poverty. In his book ‘Fortune at bottom of Pyramid’ he showed a number of success stories of the MNCs which helped the communities of different parts of the world to improve their condition offering quality goods and product. Thus the business corporations also made a significant return from those initiatives. Most importantly in Indian subcontinent Unilever and Nestle found success implementing this philosophy. Prof. Prahalad advocated, other than govt. intervention private intervention can make such revolutionary change at the bottom of the pyramid (BOP). He criticizes dominance logic of govt. and civil societies’ those provide overemphasis on policy of poverty reduction but barrenness in action. He emphasized if many more private corporations starts business for this BOP people, true development will be done.

After Prof. Prahalad’s study on BOP, some other theorist found pitfalls on this theory. Among them Aneel Karnani, Professor at the Ross School of Business, University of Michigan, USA; criticized that Prahalad had overemphasized on the MNC’s contribution and neglected govt. intervention. He argued Govt. body is the most significant player in managing poverty reduction whatever it is corrupted or inactive its inevitable contribution cannot be overlooked. He also criticized considering the bottom of the pyramid (BOP) people only as consumer, not considering them as producer or entrepreneur. Prof. Karnani argued most cases Prahalad’s studies showed fortune for the MNC’s and not for the BOP people. He added, poverty reduction initiative should firstly make the BOP people economically empowered and then offer quality products and services to them. Only intervention of MNC’s are not enough capable of reducing poverty in BOP.

Actually, there were many pitfalls in Prof. Prahalad’s BOP theory. The notable disrupting factor is: The BOP people are not value conscious as they are uneducated and thus they are prone to be abused. Like, tobacco/ cigarette and alcohol industry mostly target this BOP people and pick a large volume of money from them.  A research showed the BOP people spend around 22% of their total disposable income for cigarette or/and alcohol. Moreover, MNCs which target the BOP people make deception, like as promotion of Fair & Lovely whitening cream for the women in India was strongly criticized for it deception of whitening black skin within two weeks. Most of the cases MNC’s charge high prices as per their product quality and they spread international brand though they do not maintain international standard. Some empirical studies also showed that BOP theory actually couldn’t carry enormous success for the MNC’s because they serve the BOP people through minimizing their high end product. They provide minipack or small size products like as shampoo, soap and other cosmetics and food items. But its promotional and ultimate distribution cost leaves very little opportunity to make it much profitable. This BOP strategy only helps to occupy a larger volume of consumers for the consumers.

Whatever C. K. Prahalad’s vision was while spreading BOP theory; whatever he advocated for MNC’s in this theory; he opened a door for the ‘business doers’ to see the BOP segment with much curiosity. Though several researches came out showing criticism and it also got applaud from different corners who actually want to change the pecuniary condition through business and it was because his study established that BOP is a potential market segment to occupy and to serve for humanity.

Modern social enterprises are BOP oriented. Before that NGO’s from their initiation were BOP oriented though they wouldn’t do business with BOP people. Community services like as Health services, cooperative societies for same level people are also lies in BOP segment. But it’s not end. Like as many other parts of the world Bangladesh has a vast BOP segment which is still partly untapped. Here, new entrepreneurs can do a lot. If a person wants to develop the condition of the BOP people they need to design quality product/service which will also carry return for him and the business should be for exploration, not for exploitation. Thus, it’s a way of development of BOP through business.


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2 comments on “Bottom of Pyramid (BOP) Strategy: Development through Business”

  1. nice article...as far as i understand, its a gap of theory and implementation. i also doubt about their mnc's contribution. can u provide some example, who r purelyfollowing this model ?

    1. Thanks Mr.  Mostafa mukul for reading this article.....You got the point that 'its a gap of theory and implementation'. Some evidences show many MNCs which targeted the BOP segment doing well in this market. If you see towards market share/growth of Unilever/Nestle in Bangladesh where they are providing products priced according to consumers' affordability (Not as flat global standard), occupied most rural market who lays in BOP. You have seen cellphone and mobile communication companies also hold the vast BOP segment. Tobacco/cigarette companies also occupied a big market share of BOP. But, the question remains whether MNC's are improving BOP's standard and choices! (Though it is considered that targeting,creating and offering products for BOP links the way of improving their living standard). So, we can believe BOP can be improved if proper business practice is done.....              

        

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