This is “Innovation for the Bottom of the Pyramid”, section 13.5 from the book Challenges and Opportunities in International Business (v. 1.0).
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In 1998, Professors C. K. Prahalad and Stuart L. Hart defined the bottom of the pyramid (BOP)Also known as the base of the pyramid, the market represents the four billion to five billion people living on less than $2 per day, typically in emerging economies. as the billions of people living on less than $2 per day. Both men expanded this definition of BOP in their subsequent writing (e.g., Prahalad’s The Fortune at the Bottom of the Pyramid in 2004 and Hart’s Capitalism at the Crossroads in 2005).C. K. Prahalad, The Fortune at the Bottom of the Pyramid (Upper Saddle River, NJ: Wharton School Publishing, 2004); Stuart L. Hart, Capitalism at the Crossroads (Upper Saddle River, NJ: Wharton School Publishing, 2005). The BOP is estimated to comprise between four billion and five billion people.
Professor Aneel Karnani at the University of Michigan argues that the BOP proposition is indeed too good to be true. “It is seductively appealing, but it is riddled with fallacies. There is neither glory nor fortune at the bottom of the pyramid—it is all a mirage.”Aneel Karnani, “Fortune at the Bottom of the Pyramid: A Mirage,” Ross School of Business Working Paper Series, Working Paper No. 1035, July 2006, accessed February 12, 2011, http://deepblue.lib.umich.edu/bitstream/2027.42/41223/5/1035-Karnani_ OLD.pdf. He argues that the BOP proposition is logically flawed and is not supported by empirical evidence. He proposes an alternative approach for the private sector to alleviate poverty by viewing the poor as producers, not consumers. This shift in view, Karnani argues, is the way to alleviate poverty by raising the incomes of the poor.
In Prahalad and Hart’s view, companies that understand the potential for commercial consumption at the BOP can open a new, potentially lucrative market that benefits the business as well as BOP consumers. By innovating to meet the needs of BOP customers, a company treats them with dignity and respect that previously was afforded only to the wealthy, Prahalad and Hart say.
Addressing the bottom of the pyramid requires a fresh managerial mind-set, summarized below in Prahalad’s “12 Principles of BOP Innovation”—which are innovations themselves.C. K. Prahalad, The Fortune at the Bottom of the Pyramid (Upper Saddle River, NJ: Wharton School Publishing, 2004), 25–27. In developed markets, Prahalad suggests that one may take the availability of electricity, telephones, credit, refrigeration, and other such amenities for granted. At the BOP, the infrastructure is much spottier and more hostile. Consumers may have to cope with frequent electric-power blackouts and brownouts. Credit may be extremely costly. Refrigeration may be unavailable. Products marketed to the bottom of the pyramid must be able to withstand such an environment.
Below are Prahalad’s “12 Principles of BOP Innovation,” along with examples of each.
NextBillion.net began as an initiative of the World Resources Institute’s Markets and Enterprise Program. The name refers to the next billion people to rise from the bottom of the pyramid into the middle class and connotes the next billion in profits that companies can make serving this market. The purpose of the site is to provide a source for news, analysis, research and discussion on development through enterprise and BOP ideas. In addition, the NextBillion.net website has a career center that posts jobs (consulting projects as well as full-time jobs and academic appointments). As the site states, its mission is to “highlight the development and implementation of business strategies that open opportunities and improve the lives of the world’s approximately 4 billion low-income producers and consumers.”“About NextBillion,” NextBillion, accessed May 11, 2011, http://www.nextbillion.net/about.
(AACSB: Reflective Thinking, Analytical Skills)