Module 9: Business at the Base of the Pyramid (BoP)
The Base of the Pyramid (BoP) refers to the 4 billion people who earn annual per capita incomes below $1500, the minimum considered necessary to maintain a decent life.
BoP’s Latent Market Potential
The strength of the BoP market comes from its numbers:
“In fact, given its vast size, Tier 4 [the Base of the Pyramid] represents a multi trillion-dollar market. According to World Bank projections, the population at the bottom of the pyramid could swell to more than 6 billion people over the next 40 years, because the bulk of the world’s population growth occurs there.”(2)
Companies that want to tap into this latent market potential must strike a balance between profit-creation for themselves and value-creation for their consumers at the BoP.
Is It Not Unethical to Sell to the Poor?
In order to appeal to the BoP demographic, over a billion of who live on a per capita income of less than $l a day,(3) companies must design products and services that are useful (e.g. life-saving technologies like water filters, mosquito nets etc.) and affordable (appropriate cost structure).(4) It is ethical to sell to the poor provided that basic requirements of usefulness and affordability are met. At the end of the day, value creation for the BoP consumers is paramount.
“HealthStore was running a malaria promotion, including a discount on bed nets. They thought they’d have enough nets to last 2 months, but they sold out in a week. It showed us that low-income people have the ability and willingness to pay for healthcare, something development experts tend to discount. Not only did customers turn out in droves, but promotions were effective at driving traffic to the franchises. At one HealthStore, pre-promotion traffic was about 200 customers per month. After a series of promotions, they recorded 1,000 customers per month in steady traffic. Basic business practices work in developing country contexts – all you need is good training and dedicated entrepreneurs.”(5)
The Business Strategy
“While commendable as an initial step, most “first generation” corporate BoP strategies have, in our view, failed to hit the mark. From Nike’s “World Shoe” misstep to create an athletic shoe for low-income markets to Hindustan Lever’s sachet-packaged soaps, shampoos, and creams, these strategies represent arm’s length attempts to quickly tap into a new market. Pushing the company’s reformulated and repackaged products onto shantytown dwellers and rural villagers may indeed produce incremental sales in the near term. But in the long run, this strategy will almost certainly fail because the business remains alien to the communities it intends to serve.”(6)
Companies cannot just “sell to the poor,” or simply transfer first-world business strategies to a developing world context. Rather, their business strategy must be geared towards the development of products and services that address the fundamental problems of poverty and sustainable development. BoP communities must be regarded as business partners, not just passive consumers.So instead of maintaining an arm’s length relationship, companies must routinely engage in close dialogue with BoP communities to be in tune with local wants and needs.(7) Companies must create value for BoP consumers even as they generate profits for themselves.
NGOs & Private Companies: A Symbiotic Relationship in BoP Business(8)
While NGOs pursue social equity, private companies aim for scale and profits. In fact, both parties can form a powerful alliance to promote these dual aims. NGOs or nonprofits can harness the entrepreneurial expertise of for-profit executives to help BoP clients develop effective business enterprises. Private companies, on the other hand, can hire expertise from NGOs to reach BoP consumers.
“For example, Danone has set up a joint venture with Bangladesh's Grameen Bank to manufacture and sell bottom-of-the-pyramid dairy products. Microsoft has tied up with the NGO Pratham to deliver personal computers to Indian villagers, while Intel and two large Indian information technology firms, Wipro and HCL Infosystems, have launched the Community PC in partnership with other NGOs to do the same. Nestlé has joined hands with health professionals and NGOs in Colombia, Peru, and the Philippines to deliver educational programs on nutrition and nutritionally fortified food products to the poor.”(9)
NGOs are in a position to help private companies break into new markets. Many NGOs have earned the trust and loyalty of local communities that they assist in times of poverty, natural disasters, wars, etc. Moreover, they command a deep knowledge and understanding of local cultures and needs. Private companies that leverage the strengths of NGOs often develop the most successful commercial projects that serve the bottom-of-the-pyramid market. As a result of the partnership between NGOs and private companies, the poor can now afford essential technologies like cell phones or infectious disease test kits.
“For instance, Telenor has teamed up with Grameen Bank to sell cellular telephones to rural consumers. Telenor has taken advantage of the bank's knowledge of rural microcredit groups' collection and payment system to set up a joint venture, Grameen Phone, in which it has a 62% equity stake. Similarly, World Diagnostics found that, in Uganda, it could best sell its HIV, STD, and malaria test kits through NGO-operated health care networks.”(10)
Ethical, Responsible & Profitable BoP Business Practices in Healthcare
The private sector plays a vital role in improving the delivery of healthcare in developing countries. However, healthcare businesses that promote medical practice by non-licensed and unqualified personnel serve as a barrier to effective healthcare. Patients who unknowingly receive medical treatment or medical products from non-medical practitioners incur risks of permanent damage to their health and more substantial barriers to proper healthcare.
Poor Healthcare Practices Marketed To BoP
The lack of eye care professionals contributes to poor eye care practices in developing countries. In West Africa, particularly in Ghana, people who sell glasses often have no formal training in optometry. Moreover, nursing and medical staff often provide eye care despite not having prior ophthalmic training. Additionally, some people consult chemical sellers because they are under the incorrect impression that they are eye care professionals, when instead they are merely individuals licensed to sell drugs that do not require a prescription.
Attempts at medical care provided by non-medical professionals can cause great harm to patients. The herbal eye drops formulated by traditional healers are made by using root extracts and juices squeezed out of fresh leaves. This type of treatment can contribute to poor outcomes in the form of corneal diseases. Another concerning practice is couching, which is widely performed by traditional healers in parts of Africa. Couching is a cataract technique that involves the application of physical pressure to the eye to dislodge the cloudy lens from its correct position, thereby allowing light to pass through to the retina. This procedure, however, oftentimes causes the eye to sustain permanent damage.(11) When a patient finally consults an ophthalmologist, the eye is usually too damaged to undergo sight-restoring cataract surgery. Unfortunately, most patients are unaware of the distinction between a community member who practices couching and an ophthalmologist who provides cataract surgery. Often, they are unaware that cataract surgery can restore their sight.(12)
Healthcare businesses that profit from patient unawareness are unethical and irresponsible, and patients must be taught to recognize and avoid them. Most living in poverty trust only the services of traditional healers, chemical sellers, and local community members who sell glasses because these individuals are familiar to those in the community. In contrast, many have never before met a medical doctor or seen medical techniques or surgeries, thereby leading to discomfort and fear about seeking medical care from a doctor. The Unite For Sight outreach teams frequently encounter patients who have permanent eye damage from couching and traditional medicines, while they meet others who have purchased incorrect glasses prescriptions from non-medical professionals. Unite For Sight and its partner eye clinics work to dispel myths about these non-medical services while raising awareness regarding the importance of seeking eye care, medication, and eyeglasses only by eye doctors.
Patients similarly often choose other traditional methods of cure over medical care provided by doctors and nurses. For instance, in Accra, Ghana, where 560 women die for every 100, 000 births according to the World Health Organization, women often turn to prayer camps, where church healers perform healing rituals for a fee of $10-$20, instead of professional medical care, which is provided at hospitals free of charge. According to the Ghana Health Service, only 35% of all deliveries are professionally supervised, while the remaining 65% use traditional assistance.(13)
Social Entrepreneurs Benefit the BoP
By delivering innovative, technology-based solutions to the BoP, social entrepreneurs enhance the quality of life at the BoP. Often, this means bringing low-cost, life-saving technologies to the developing world. A healthcare technologies company, Vestergaard Frandsen developed a mosquito net that releases insecticide into the environment (even after multiple washes), a technology that has been used with great success at various African sites to combat malaria. The same company also designed a portable water filter that provides safe drinking water to millions in the developing world, as well as a pipe filter technology that removes guinea worm larvae from drinking water.
The company does not provide these useful technologies free of charge to the BoP consumers. Rather, they strive to make them available at affordable prices. A portable water filter that can provide safe drinking water for a year, for example, costs as little as $5. Moreover, various financing programs ensure that these technologies reach those who need them the most. Social entrepreneurship thus revolutionizes the concept of philanthropy, regarding people at the BoP not as mere recipients of charity but as business partners.
(1) Prahalad, C.K. and Stuart L. Hart. "The Fortune at the Bottom of the Pyramid." strategy + business first quarter 2002 Web.24 July 2009.
(2) Prahalad, C.K. and Stuart L. Hart. "The Fortune at the Bottom of the Pyramid." strategy + business first quarter 2002 Web.24 July 2009.
(3) Prahalad, C.K. and Stuart L. Hart. "The Fortune at the Bottom of the Pyramid." strategy + business first quarter 2002 Web.24 July 2009.
(4) Katz, Rob. "Social Capital Markets: Design in the Developing World." Next Billion. 15 Oct 2008. 22 Jun 2009.
(5) Katz, Rob. "Healthcare delivery at the BOP: The HealthStore Interview." Next Billion. 09 Nov 2005 Accessed 27 July 2009.
(6) Simanis, Erik and Stuart Hart. "The Base of the Pyramic Protocol: Toward Next Generation BoP Strategy." 2008 Web.24 July 2009.
(7) Simanis, Erik and Stuart Hart. "The Base of the Pyramic Protocol: Toward Next Generation BoP Strategy." 2008 Web.24 July 2009.
(8) Brugmann, Jeb and C.K. Prahalad. "Cocreating Business's New Social Compact." Harvard Business Review Feb 2007 80-90. Web.24 July 2009.
(9) Brugmann, Jeb and C.K. Prahalad. "Cocreating Business's New Social Compact." Harvard Business Review Feb 2007 80-90. Web.24 July 2009.
(10) Brugmann, Jeb and C.K. Prahalad. "Cocreating Business's New Social Compact." Harvard Business Review Feb 2007 80-90. Web.24 July 2009.
(11) Siddig, Mohamed Ahmed and Nadir Ali Mohamed Ali. "Complications of couching and visual outcome after IOL implantation – A study of 60 patients in Sudan." Sud J Ophthalmol. Jan 2009 33-36. Web.29 Jul 2009.
(12) Schemann, JF, Bakayoko S, and Coulibaly S. "Traditional couching is not an effective alternative procedure for cataract surgery in Mali." Ophthalmic Epidemiol. Dec 2000 271-83. Web.29 Jul 2009.
(13) " GHANA: Pregnant women turn to prayer over medicine ," IRIN 5 Feb 2009. UN Office for the Coordination of Humanitarian Affairs. Web.29 Jul 2009.