The Fortune at the Bottom of the Pyramid

The Fortune At The Bottom Of The Pyramid

C.K Prahalad

www.outlineindia.com

Introduction• Bottom Of Pyramid (BOP) consists of 4-5 billion people unserved by private

sector• They demand innovations in technology, products and services and

business models• Market development will create new entrepreneurs at grass root level• Goal should be to build capacity and build self sustaining market based

systems• BOP is like kaleidoscope- No single view illuminates the total opportunity• They account for 5 trillion purchasing power with different segments

needing special attention• The capacity to adapt and innovate will determine success


BOP as Business Opportunity• Awareness, Access, Affordability and Availability are the key ingredients to

market development• No amount of investments can substitute skill and knowledge of an

ecosystem Collaborative Capacity > Investment Capacity• The market demands local knowledge and trust- be it micro consumers or

micro producers• Decentralized origination, centralized processing and marketing are the

key to increase scalability• Technology is the key as it leads to reduction in capital expenditure by

converting fixed cost into variable costs


BOP as Business Opportunity• BOP will be the major source of ecologically sustainable innovations in the

near future

• Market development by changing existing mindset is hard to adopt

• Instilling trust and making them believe is the biggest challenge

• Private enterprises must work collaboratively with civil society, governments, aid agencies and philanthropy to create innovative solutions to serve the ever evolving bottom of the pyramid market


Democratizing Commerce- The Real Challenge• It involves bringing benefits of globalization to all micro consumers,

producers, innovators, investors and entrepreneurs

• It can be achieved only by provision of access to information, micro finance and access to regional and national market

• Active engagement of private enterprises is critical in creating inclusive capitalism

• This involvement will lead to change in perception and result in emergence of the poor as powerful and important consumers and is a crucial ingredient to poverty alleviation


Nature of BOP market• There is huge potential with 5 trillion purchasing power. They represent a

viable market but the area of concern is the poverty penalty as a result of in efficiencies in access to distribution and role of local intermediaries

• Access to BOP market is still an area of concern as it cannot have single distribution solution

• Contrary to the local belief: 1. Rural people are very brand conscious 2. BOP market is well connected3. BOP consumers accept advanced technology readily


BOP Market Development Imperative• Create the capacity to consume

• It is based on three principles:1. Affordability2. Access3. Availability

• Develop innovative new products and services

• Focus on building trust as traditionally mistrust runs deep


Principles of Innovation for BOP Markets• Focus on price performance of products and services: Price war between mobile service providers

• Innovation requires hybrid solutions Introduction of Annapurna salt by HLL

• Solutions must be scalable, transportable and adaptable Jaipur Foot for prosthetics

• Innovations must focus on conserving resources: eliminate, reduce and recycle


Principles of Innovation for BOP Markets• Process innovations are just as critical as product innovations Like in the case of Aravind Eye Care Systems and Amul

• Design of products and services must account for skill levels, infrastructure and difficulty of access

• Education of customers on product usage is key Lifebouy campaign of HLL

• Products must work in hostile environments ITC e-Choupal: Technology for the poor


Principles of Innovation for BOP Markets• Research on interfaces is critical given the nature of the consumer

population Retailer Elektra in Mexico

• Innovations must reach the consumer ICICI: Financial service for the poor

• Right combination of scale, technology, price, sustainability and usability requires zero based view of innovations for the BOP market


Reducing Corruption through TGC• Transaction governance capacity (TGC) is about making the entire process

as transparent as possible and consistently enforced

• All form of foreign investments is just a fraction of the trapped capital of most developing countries

• Absence of enforceable contract laws and weak contract enforcement systems add to the problem


Reducing Corruption through TGC• Building TGC: 1. System laws that allows ownership and transfer of property 2.Process for changing laws governing property rights is clear and unambiguous 3.System of regulations to accommodate complex transactions in timely fashion 4. Should provide access to information and transparency for all transactions


Andhra Pradesh e-Governance Story• Used digital technology to make his government responsive and citizen

centric

• Made the entire process of land registration- transparent, accessible and quick

• Upon installation the corruption initially increased but then reduced dramatically

• After the system is fully operational it is difficult to change the data in the system


Overview and Learnings• If BOP people are treated as customers they can reap benefits of respect,

choice and self esteem and have an opportunity to climb out of the poverty trap

• The conversion of BOP into a market will require innovation

• If BOP consumers participate in market mechanisms, the social and economic transformation can be rapid

• Women are critical for development


Jaipur Rugs: Connecting Rural India to Global Markets• Registered in 2006 Jaipur Rugs is the largest manufacturer and exporter of

Indian hand-knotted rugs• With fiscal revenue of $21.1M and growth rate of 38% the company prides

itself on design and quality of its finished products• They built an ecosystem of field managers, independent weavers and

outsourced most of their operations such as procurement of wool, its processing, spinning, dyeing etc. which led to lower fixed cost thus less capital expenditure, but the variable cost was high• They used hand carded wool spun by women in villages giving them

employment and in return getting superior quality wool• Thorough quality check is done at every level of production


Jaipur Rugs: Connecting Rural India to Global Markets• They uplifted the independent weavers be eradicating the middleman

ownership of looms • They promoted leadership and entrepreneurship among weavers• 90% of their products are exported to America with whom they have had a

long-existing relationship• Their business model is to spend less on capital and outsource most of their

operations building key relationships and an ecosystem of the entire supply chain in order maintain superior quality


Hindustan Unilever: Lifebuoy Soap

• Diarrhea is the 3rd largest cause of death in the world which accounts for 2.2 million deaths annually• It is particularly present in developing world and India alone accounts for

30% of all diarrheal deaths in the world• Hindustan level Limited (HLL), the largest soap retailer in India decided to

create awareness and educate people about basic hygiene practices• As hands are the main vector of diarrheal pathogens, the hand washing

habits differ from urban and rural areas• As many rural parts are media dark therefore the message from HLL did not

reach them• HLL entered into initiatives with UNICEF, USAID and World Bank

collaborating with them on campaigns


Hindustan Unilever: Lifebuoy Soap

• HLL made some changes in the product which resulted in better longevity and better smell and targeted the entire family• They contradicted the perception of “visual clean is safe clean”• They teamed up with rural India outreach arm of Ogilvy and Mather to

design a behavior change education• They brainstormed a way to communicate the negative effects of “invisible”

germs and titled the program Lifebuoy Swasthya Chetna• This led to increase in their sales and also helped other products of HLL as

this initiative gave them immense visibility and good press


Aravind Eye Care: The Most Precious Gift

• Dr Venkataswamy wanted to continue his work of Ophthalmology even after retiring• He started a modest hospital with his personal savings with the vision:

“Eradicate Needless Blindness”• With a 30-bed hospital in 1977, it grew to 3649 bed with 5 hospitals • Most of the beds were reserved for free patients and their initial focus was

cataract surgery but they also dealt with retina, cornea, glaucoma etc.• They never compromised on quality and were self sufficient in terms of

operational income and expenditure• Eye camps represented a popular way to reach out to rural communities


Aravind Eye Care: The Most Precious Gift

• Generally local NGO’s, Rotary club, businessman and philanthropists sponsored the camps along with publicity expenses• Their core business model lies in their operational activities• They streamlined all their processes and recruited staff who were willing to

work for them irrespective of the less pay• Therefore despite having majority of patients as free patients, Aravind Eye

Care has always been financially self supporting


Learnings from the Case Studies• Through Jaipur Rugs Case study we get to know about the power of having

a social ecosystem• They only provided design maps and rest 90% of their operations were

outsourced and still they get to keep the largest chunk of revenue• Building key relations and forming trust between clients and partners was

the key take away • Lifebuoy case presented us with the importance of collaboration with key

partners and initiatives• Sales of Lifebuoy were falling and because of their social initiative and R&D

they managed to bring them up • Association with a social cause helped in marketing and educating

consumers about the product


Learnings from the Case studies • Aravind Eye Care presents us with a business model of optimized

operational activities which reduces time and money involved • Technology plays a vital role in any business and as described earlier the

BOP market is very open to new technologies • Low fixed cost and high variable cost model generally works as it gives more

flexibility to the company to expand and invest in new opportunities as their working capital is low


Incorporating into Outline India model• As the advantages of being part of an ecosystem has been established

Outline India needs to tap into social enterprise networks such as Villgro and Sankalp foundations and connect with existing investors, incubators, think tanks, government policy makers etc.• Optimizing operational activities and cost reduction in field work and other

on ground activities• Building local partners through collaboration and focusing on making

relationship which instills trust and provide jobs and income to field workers• Bringing technology into the business like data collection through tablets,

cloud computing and introduction of drones for area mapping• Educating researchers about the unreliability of data and joining initiatives

to address the issue which will also lead to marketing of the company

Thank You

The Fortune at the Bottom of the Pyramid

Small Business & Entrepreneurship

Transcript of The Fortune at the Bottom of the Pyramid