BOP – Bottom of Pyramid part-1

 

BOP – Bottom of Pyramid part-1

MBA / BBA MARKETING MANAGEMENT 

                                QUESTION PAPER OCTOBER 2019    

                PUNE UNIVERSITY 

 The more current usage refers to the billions of people living on less than $2.50 per day, the definition proposed in 1998 by C.K. Prahalad and Stuart L. Hart. It was subsequently expanded upon by both in their books: The Fortune at the Bottom of the Pyramid by Prahalad in 2004 and Capitalism at the Crossroads by Hart in 2005.

 Prahalad proposes that businesses, governments, and donor agencies stop thinking of the poor as victims and instead start seeing them as resilient and creative entrepreneurs as well as value-demanding consumers.

 He proposes that there are tremendous benefits to multi-national companies who choose to serve these markets in ways responsive to their needs.

After all the poor of today are the middle class of tomorrow.

There are also poverty reducing benefits if multi-nationals work with civil society organizations and local governments to create new local business models.

 However, there is some debate over Prahalad's proposition. Aneel Karnani, also of the Ross School at the University of Michigan, argued in a 2007 paper that there is no fortune at the bottom of the pyramid and that for most multinational companies the market is really very small.

  Karnani also suggests that the only way to alleviate poverty is to focus on the poor as producers, rather than as a market of consumers.

 Prahalad later provided a multi-page response to Karnani's article. Additional critiques of Prahalad's proposition have been gathered in "Advancing the 'Base of the Pyramid' Debate".

 Approximate visualisation of the wealth pyramid when 1% population controls 50% of the wealth

 It has been reported that the gap between the ToP and BoP is widening over time in such a way that only 1% of the world population controls 50% of the wealth today, and the other 99% is having access to the remaining 50% only.  On the basis of this report the wealth pyramid would look like the one shown in the illustration.

 How low is the bottom?

The standards and benchmarks developed – for example less than $2.5 a day – always tell us about the upper limit of what we call the BoP, and not actually about its base or bottom. The fact is that the bottom or the base is much much lower. Even going by the official definition, for example in India the Rangarajan Committee after re-examining the issue of poverty defined the poverty line in 2011-12 at INR 47.00 ($0.69) per capita per day for urban areas and INR 32.00 ($0.47) per capita per day in rural areas (June 2016 conversion rate),[15] obviously much less than the $2.5 per day benchmark. This again is the upper layer of the poor as defined by the Rangarajan Committee. Where is the actual bottom? and how low? This can perhaps only be visualised by observing the slums right in the hearts of the cities in the developing countries.

 Examples of BoP business

Microcredit

One example of "bottom of the pyramid" is the growing microcredit market in South Asia, particularly in Bangladesh. With technology being steadily cheaper and more ubiquitous, it is becoming economically efficient to "lend tiny amounts of money to people with even tinier assets". An Indian banking report argues that the microfinance network (called "Sa-Dhan" in India) "helps the poor" and "allows banks to 'increase their business'".[21] However, formal lenders must avoid the phenomenon of informal intermediation: Some entrepreneurial borrowers become informal intermediaries between microfinance initiatives and poorer micro-entrepreneurs. Those who more easily qualify for microfinance split loans into smaller credit to even poorer borrowers. Informal intermediation ranges from casual intermediaries at the good or benign end of the spectrum to 'loan sharks' at the professional and sometimes criminal end of the spectrum.[22]

 Market-specific products

One of many examples of products that are designed with needs of the very poor in mind is that of a shampoo that works best with cold water and is sold in small packets to reduce barriers of upfront costs for the poor. Such a product is marketed by Hindustan Unilever.

 Innovation

There is a traditional view that BOP consumers do not want to adopt innovation easily. However, C. K. Prahalad (2005) claimed against this traditional view, positing that the BOP market is very eager to adopt innovations. For instance, BOP consumers are using PC kiosks, Mobile phone, Mobile banking etc. Relative advantage and Complexity attributes of an innovation suggested by Everett Rogers (2004) significantly influence the adoption of an innovation in the Bottom of pyramid market (Rahman, Hasan, and Floyd, 2013). Therefore, innovation developed for this market should focus on these two attributes (Relative advantage and Complexity).

 Venture capital

Whereas Prahalad originally focused on corporations for developing BoP products and entering BoPmarkets, it is believed by many that Small to Medium Enterprises (SME) might even play a bigger role. For Limited Partners (LPs), this offers an opportunity to enter new venture capital markets. Although several social venture funds are already active, true Venture Capital (VC) funds are now emerging.

 Brand

There is a traditional view that BOP consumers are not brand conscious (prahalad, 2005). However, C. K. Prahalad (2005) claimed against this traditional view, positing that the BOP market is brand conscious. For instance, brand influences the new product adoption in the bottom of pyramid market (Rahman, Hasan, and Floyd, 2013). Rahman et al. (2013) mentioned that brand may positively influence the relative advantage of an innovation and it leads to adoption of innovation in the BOP. In point of traditional view BOP market, people were not aware about brand concept. Sopan Kumbhar (2013)

 Business and community partnerships

As Fortune reported on November 15, 2006, since 2005 the SC Johnson Company has been partnering with youth groups in the Kibera slum of Nairobi, Kenya. Together SC Johnson and the groups have created a community-based waste management and cleaning company, providing home-cleaning, insect treatment, and waste disposal services for residents of the slum. SC Johnson's project was the first implementation of the "Base of the Pyramid Protocol".