The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits by
C. K. Prahalad
"Turn on your television and you will see calls for money to help the world's 4 billion poor-people who live on far less than $2..." (more) SIPs:
private sector ecosystem, tanda system, branded staples, poverty penalty, soap usage (more)
CAPs:
The Fortune, Casas Bahia, World Bank, Andhra Pradesh, Profitable Rural Transformation (more)
Book Description The world's most exciting, fastest-growing new market? It's where you least expect it: at the bottom of the pyramid. Collectively, the world's billions of poor people have immense entrepreneurial capabilities and buying power. You can learn how to serve them and help millions of the world's poorest people escape poverty.
It is being done-profitably. Whether you're a business leader or an anti-poverty activist, business guru Prahalad shows why you can't afford to ignore "Bottom of the Pyramid" (BOP) markets.
In the book and accompanying CD videos, Prahalad presents...
Why what you know about BOP markets is wrong A world of surprises-from spending patterns to distribution and marketing
Unlocking the "poverty penalty"
The most enduring contributions your company can make Delivering dignity, empowerment, and choice-not just products
Corporations and BOP entrepreneurs Profiting together from an inclusive new capitalism
"C. K. Prahalad argues that companies must revolutionize how they dobusiness in developing countries if both sides of that economic equation areto prosper. Drawing on a wealth of case studies, his compelling new bookoffers an intriguing blueprint for how to fight poverty with profitability." Bill Gates, Chairman and Chief Software Architect,Microsoft
"The Bottom of the Pyramid belongs at the top of the reading list forbusiness people, academics, and experts pursuing the elusive goal ofsustainable growth in the developing world. C. K. Prahalad writes withuncommon insight about consumer needs in poor societies andopportunities for the private sector to serve important public purposes whileenhancing its own bottom line. If you are looking for fresh thinking aboutemerging markets, your search is ended. This is the book for you." Madeleine K. Albright, Former U.S. Secretary of State
"Prahalad challenges readers to re-evaluate their pre-conceived notionsabout the commercial opportunities in serving the relatively poor nations ofthe world. The Bottom of the Pyramid highlights the way to commercialsuccess and societal improvement--but only if the developed worldreconceives the way it delivers products and services to the developingworld." Christopher Rodrigues, CEO, Visa International
"An important and insightful work showing persuasively how the privatesector can be put at the center of development, not just as a rhetoricalflourish but as a real engine of jobs and services for the poor." Mark Malloch Brown, Administrator, United Nations Development Programme
From the Back Cover
The world's most exciting, fastest-growing new market? It's where you least expect it: at the bottom of the pyramid. Collectively, the world's billions of poor people have immense entrepreneurial capabilities and buying power. You can learn how to serve them and help millions of the world's poorest people escape poverty.
It is being done—profitably. Whether you're a business leader or an anti-poverty activist, business guru Prahalad shows why you can't afford to ignore "Bottom of the Pyramid" (BOP) markets.
In the book and accompanying CD videos, Prahalad presents...
Why what you know about BOP markets is wrongA world of surprises—from spending patterns to distribution and marketing
Unlocking the "poverty penalty"
The most enduring contributions your company can makeDelivering dignity, empowerment, and choice—not just products
Corporations and BOP entrepreneursProfiting together from an inclusive new capitalism
"C. K. Prahalad argues that companies must revolutionize how they dobusiness in developing countries if both sides of that economic equation areto prosper. Drawing on a wealth of case studies, his compelling new bookoffers an intriguing blueprint for how to fight poverty with profitability."Bill Gates, Chairman and Chief Software Architect,Microsoft
"The Bottom of the Pyramid belongs at the top of the reading list forbusiness people, academics, and experts pursuing the elusive goal ofsustainable growth in the developing world. C. K. Prahalad writes withuncommon insight about consumer needs in poor societies andopportunities for the private sector to serve important public purposes whileenhancing its own bottom line. If you are looking for fresh thinking aboutemerging markets, your search is ended. This is the book for you."Madeleine K. Albright, Former U.S. Secretary of State
"Prahalad challenges readers to re-evaluate their pre-conceived notionsabout the commercial opportunities in serving the relatively poor nations ofthe world. The Bottom of the Pyramid highlights the way to commercialsuccess and societal improvement--but only if the developed worldreconceives the way it delivers products and services to the developingworld."Christopher Rodrigues, CEO, Visa International
"An important and insightful work showing persuasively how the privatesector can be put at the center of development, not just as a rhetoricalflourish but as a real engine of jobs and services for the poor."Mark Malloch Brown, Administrator, United Nations Development Programme
First Sentence:
Turn on your television and you will see calls for money to help the world's 4 billion poor-people who live on far less than $2 a day. Read the first pageStatistically Improbable Phrases (SIPs): (learn more)
private sector ecosystem, tanda system, branded staples, poverty penalty, soap usage, iodine loss, washing hands with soap, health platform, internal lending, ophthalmic assistants, stable iodine, social collateral, salt market, rural health workers, eye camps, formal segment, banking presence, rural banking, raw salt, microfinance institutions, refined salt, total program costs, rural branches, poor represent, economic pyramid
Capitalized Phrases (CAPs): (learn more)
The Fortune, Casas Bahia, World Bank, Andhra Pradesh, Profitable Rural Transformation, Aravind Eye Care System, Patrimonio Hoy, Selling Health, Tamil Nadu, Bank of Madura, Reducing Corruption, Michael Klein, Project Shakti, Delivering the Most Precious Gift, Swasthya Chetna, Challenging Convention, Sao Paulo, The Voxiva Story, World Health Organization, Harpreet Singh Tibb, Yuri Jain, Aravind Eye Hospital, United Kingdom, Samuel Klein, Hindustan Lever Ltd
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Text StatsBrowse Sample Pages: Front Cover | Copyright | Table of Contents | Excerpt | Index | Back Cover
Employees at corporations that are hitting the wall when called upon to grow should own and read this book. It is indeed an eye-popper. The win-win formula of innovation here dares nothing less than helping the world's poorest poor while making a profit!
This is not an abstract idea, but one sustained by actual examples of how this has worked in numerous cases and it should be a springboard for how it can happen in many others. Doing business in the global economy will be an inevitable charge for those businesses that will survive, and this book unveils the largest untapped market of all, and one when addressed properly will do incredible good.
Read this book! It may well change your life as well as the way you successfully do business.
...Teach a man to fish, and he'll eat for a lifetime". A famous Biblical quote, one that resonated with me strongly, and profoundly influenced my thinking on international aid, but more broadly, the problem of poverty, and the reticence of Capitalism in addressing it.
I'm a strong believer in capitalism, this wonderful book reinforced my belief in that system. It did so by showing how world poverty and consistently non-functional economies aren't because of capitalism, but for lack of capitalist attention.
Times have changed, technology and it's rapidly increasing efficacy in efficient delivery of products and services, necessitates that we change our attitude about heretofore neglected markets, and the nearly 5 billion people in them. "Inclusive Capitalism" as the author calls it.
Rich with important concepts like "Installment Sales" (which address the needs and constraints of low-income consumers), this book is a virtual blueprint for companies, as well as entreprenuers, who are interested in serving low-income consumers around the world.
The hardcover book also contains a CD. I usually skip viewing those, but I'm glad I didn't in this instance. Prahalad gives the introduction, then roughly a dozen case studies follow. From Appliance sales companies in Brazil, to a Cement company in Mexico; seeing the passion on the faces of their customers, how the companies have changed their lives, it is incredibly touching. You aren't watching customers, you're watching "evangalists" that would make your most devout American iPod fan seem like an unsatisfied customer.
The power of University of Michigan Professor C.K. Prahalad's fine treatise lies in the wealth of valid case studies he provides to prove his point that poverty can be overcome through corporate profitability, a seemingly ironic cause-and-effect that he argues with conviction. Since 1997, with the exception of a brief and unsuccessful stint within the dot com bubble, he has been evolving his ideas about how firms should focus on the bottom of the pyramid, which he euphemistically calls the BOP versus the wealthy at the TOP. He wholeheartedly believes there can be a win-win relationship between business and the poor, and he's done his homework to support his claim. According to his statistics, there are 4-5 billion people living on under $2 a day, which in aggregate, represents an economic opportunity he values globally at $13 trillion a year. The win for the poor seems obvious, being empowered by choice and being freed from having to pay a "poverty penalty", a practice that appears widespread in certain developing countries like India. There, the poor pay a premium on everything from rice to credit-often five to 25 times what the rich pay for the same services. He argues that driving down these premiums can make serving the BOP more profitable than serving the top, but the challenges inherent in implementing BOP economics are daunting.
Prahalad divides his book into three main sections. The first spells out his BOP theories; the second provides twelve case studies; and the third presents specifics from these case studies via video clips contained on an accompanying compact disc. This last section is particularly valuable in recording how the poor themselves feel about the impact of BOP economics. Otherwise, Prahalad can sound somewhat pedantic in expressing his abstract thinking, even though he makes a lot of valid points along the way. For instance, he strongly feels the traditional top-down thinking on aid by management in both public and private sectors is vehemently wrong-headed because there is an inevitable attitude of charitable giving. The poor are seen as victims who need help, not as people who can be part of the solution, so their help often creates an unwarranted dependency. Prahalad also does not have much confidence in corporate social responsibility (CSR) programs of many corporations, which he views as more a public relations ploy. Philanthropy, he asserts, cannot be at the root of helping to eradiate poverty, and the BOP markets must become integral to the success of the firm in order to command senior management attention and sustained resource allocation.
Simple applications of TOP marketing and distributing strategies will not work, so Prahalad outlines new tactics to reach the BOP through his case studies. There will be a more diverse set of stakeholders involved - governments, nongovernmental organizations (NGOs), and BOP consumers themselves. Engaging the BOP consumers directly will be essential by means of the products produced there. The accompanying CD is a huge plus here, as it effectively shows the individual cases that fortify Prahalad's argument. There is a three to four-minute video clip of each study, each one a mini-documentary filmed in various locations in India, Peru, Mexico, Brazil and Venezuela. Once I digested all the facts presented, I still feel Prahalad does not quite recognize the full extent of involvement it will take corporate leaders to buck current traditions to establish the right positioning and right fulcrum toward change. Moreover, there is a need to allocate resources to more fully-developed solutions toward the attendant environmental problems that BOP economics will inevitably create. Realistically, it will take the optimal mix of BOP and TOP to eradicate poverty through profit and that the real benefit is in understanding fruition is actually superior to profit. However, Prahalad raises strong points here well worth continued investment, and I look forward to more of this thinking in the next chapter of Prahalad's studies.
The 80/20 rule is one that you hear all the time in business and it is applied to several different contexts. For example, "80 percent of your profits will be from 20 percent of your customers" and "80 percent of your time and effort will be spent completing the last 20 percent of the project." Another "rule" that has proven effective is that it costs far more to acquire a new customer than it does to retain those that you have. The end result of these rules is that it is considered "best" business practice to concentrate on your most profitable customers and to make little effort to acquire new ones where the profit margin will be lower.
One of the consequences of these strategies is that the majority of people planetwide are largely ignored by large businesses. A companion consequence is that poor people often pay higher prices for the same goods and services than wealthier people do. In order to guarantee their profits in what is considered a limited market, businesses generally charge more, often to offset higher overhead. This leads to a negative feedback, because the poor cannot afford to purchase more, which restricts the growth and leads to more firmly entrenched perceptions that the market is limited.
The main premise of this book is that such thinking is completely wrong and that the greatest potential for economic growth is in the billions of people who are at the bottom of the economic pyramid. Several case studies of significant economic success achieved by cultivating poor customers are described. Some companies with the ability to alter their perceptions and tactics have learned that there are substantial business opportunities and profits to be made by cultivating poorer customers. After reading the case studies, I thought how obvious the potential for success was. This is another one of the situations where it is necessary to break a limited mental model and have the courage to think outside the "safe zone." The arguments are convincing and the potential to improve overall global conditions are substantial.
This is a book that should be read by all managers of companies with a global reach. More than that, it should be required reading in all college business programs. There are many lessons in it that can be applied to any business, independent of how far it reaches.
Poor people in developing countries are at the bottom of Maslow's hierarchy. They are often focusing on scratching out the most fundamental needs for food, clean water, shelter and a chance to earn a living to provide for those same needs. Economic statistics suggest that they have no money to spend, and many companies act as though the poor don't exist.
C.K. Prahalad and his graduate student collaborators strive to make a different case. Large companies can earn good profits by providing solutions to those problems the poor have that are most costly to them economically. Solving the problems then generates spendable income that will find its way to the large company. A good example comes in creating reasonable cost credit and access to futures markets to farmers so they earn more profits. The inefficient system that most go through now simply clips them like the feudal lords did on their domains.
The strength of the book comes in its detailed case histories which I found to be much more revealing than the primary text. In fact, the text seemed sometimes almost to be at odds with the main points of the case histories. If you find you are pressed for time, read the case histories and skip the text. There is also a brief CD to help illustrate the cases. Some of the cases are only on the CD so be sure to watch it.
I especially found the cases of Aravind Eye Care, CEMEX, Jaipur Foot, ITC e-Choupals and Voxiva to be interesting. These are essentially business model innovation stories, something that interests me very deeply. I learned from these cases how using local people can eliminate unnecessary overhead and that adapting the business model to the situation requires the local perspective of the poor . . . not that of the executives of a large company.
One reason that the main text reads a little strangely is that if everyone focused just at the bottom of the poorest consumers you would have too many companies working on the same problems (clean water, hygiene, overcoming simple forms of disease, etc.). It looked to me like the best business areas were ones that catered to those further up the ladder economically . . . but who were still poor. I was especially fascinated by how the Aravind solution is so powerful that people will be coming to India from the developed world to have their cataracts treated . . . and will save money even after paying for the travel costs! In this way, poor countries could become laboratories for better business models that could be transferred at least in part to wealthier people and countries.
I was also surprised not to see any material in here about Philip Morris, Coca Cola and Gillette who have been selling their products to the poorest people around the world for decades. When I first wanted to learn about the problem defined by this book, I went to visit those countries and learned many helpful answers that are only partially captured by this book.
Finally, I felt like the book makes a mistake in primarily looking at cases involving quite large companies. The bulk of innovation comes from much smaller firms. What role can these organizations plan in partnering with poor consumers around the world to create better business models and products? Genius isn't determined by whether you are born rich or poor. How can we tap into the potential of genius in more ways?
"Fortune" is an interesting, inspiring book. The study of poverty eradication gets short shrift in most business schools but this book suggests that a lot of resources and a phalanx of graduate students (since most graduate students claim to be poor, perhaps they empathize better; at least they're cheaper to hire than business faculty) at Wharton and Michigan did a lot of digging for answers. This is a noble cause, well-financed, and maybe these two business schools will support these efforts with a revision to their MBA curricula. While teaching a man to fish is better than giving a man a fish, it is better still to teach a village how to raise fish (or capital, or critical mass, or some other key resource), and that is the fundamental if implicit message and philosophy here. Poor people don't need charity; they need access to and information about the tools of capitalism, and governments and other not-for-profits are not likely to do this as such actions would put them out of business. Read the "Twelve principles of innovation for BOP markets" (pp. 25 - 27) and you'll get the basic Reader's Digest, Harvard Business Review executive summary.
The mendacity of the claim, "I'm from the government and I'm here to help you," gets a lot of reinforcement here. Rather than help poor people, an early table (p. 11) shows that the government charges poor people more than rich people for the same water service. And the evidence, much of it discovered by Peru's Hernando De Soto, that governments delight in making entrepreneurship, innovation and capitalism almost a criminal offense, shines right through.
The false conceit exposed here is that governments are not likely to fix poverty, nor are NGOs, the UN, or other alphabetical, "not-for-profit" agencies. Maybe HLL, CEMEX, SMEs or some other, similarly acronymed, profit-seeking organizations will do it. It is not clear that there is a fortune at the bottom of the pyramid, even if there are four billion people (depends, really, on how you define poverty) willing to spend a penny a day on shampoo. There certainly is a profit to be made, but this time it is the poor who stand most to profit from free, global markets.
"Fortune" also has little, nagging problems. Like most empiricists, this book wants to use data as a singular noun. The font is small and flourished, making the text physically difficult to read. There is a cryptic table (exactly what is a `nos' anyway"?), a graph with no labels for the x- and y-axes. The book is awash with acronyms and academic jargon. Some of the bold-faced assertions read like doctoral dissertation hypotheses. Maybe because the book is primarily graduate-student written case studies with a lengthy introduction by the author, there is a tendency to repeat information from previous chapters. Decrying excessive packaging and high transaction costs, the authors also commend single-use purchases on a daily basis, filling land fills with sachets and making shopping a daily chore. If we are going to `microfinance' progress, we might want to start with a store credit for a refillable shampoo bottle (I am pretty sure that Coca-Cola mastered this marketing concept in South America years ago). In case the bookstore browser is unsure as to what the book is about, the book has a title ("The fortune at the bottom of the pyramid"), a subtitle ("Eradicating poverty through profits" and a sub-subtitle ("Enabling dignity and choice through markets"). And the dust cover blurbs from Bill Gates, Madeleine Albright, and similar `names' are a bit hyperbolic.
David Landes ("The wealth and poverty of nations") did a better job of explaining the cultural and legal system changes needed to make transactions easier for the customers. TGO (I'll let you look it up) means we have to have a government that assists wealth creation rather than simply tax, block, or prohibit progress out of poverty by people.
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An interview with C.K. Prahalad [Windows Media Video]
One Step at a Time Approach in Connecting Profitability with the Poor, July 6, 2005
