Zahra Hussain 11454024
Deadline: 22nd Nov 2013 (11pm)
Word count: 2187
In economics, wealth and income belonging to each country is commonly portrayed in the form of a pyramid. Countries placed at the top of the pyramid are amongst the most affluent and wealthiest with innumerable opportunities, whilst at the bottom of the pyramid (BoP) lies the largest socio-economic group consisting of 4 billion people who make ends meet on $2 per day. The BOP strategy, first discussed by Professor Prahalad (1998), maintained the belief that this market entails a fortune to be made by those firms who decide to operate within this sector.
Prahalad upheld that this market has the immense profitable potential for firms as well as opportunities for the poor population of this market, hence creating a win-win situation for both parties. Such was his certainty that he remarked this as a market opportunity which mustn’t be ignored and that if done so it is “at their own peril.” Prahalad’s strategy has been adopted by many businesses however contrarily; his strategy has been criticised by the likes of Karnani which will also be discussed throughout this assignment.
The BoP strategy holds that consumers with low levels of income could become profitable customers which could be attained using social goals to recognise business targets. Prahalad states that “low-income markets present a prodigious opportunity for the world’s wealthiest companies– to seek their fortunes and bring prosperity to the aspiring poor” (Prahalad and Hart 2002); implying that Prahalad’s statement reiterates that poverty is an issue at hand which may be lessened through this strategy rather than become an unavoidable issue (Hart 2005, Prahalad 2004.)
Prahalad’s thesis is contrary to the assumptions that, according to Prahalad, many multinational companies make; that there is no potential in BoP markets as this low income market cannot afford the services and products that their high cost structures consist of. Thus, innovation is deemed valuable only in developed markets, suggesting that this segment should be left to the governments. Prahalad instead argues that the poorest socio-economic group can also be deemed valuable customers as they require value from their purchases. Hence a Prahalad debates that given a company fulfils the criteria, investing ample resources to satisfy the requirements of the BoP, they can overcome any BoP market barriers. This will boost the economy and help the poor, providing employment opportunities for them, which plays an important part in Prahalad’s strategy (Karnani. 2013.)
Prahalad distinguishes that to operate in BoP markets; a viable approach is required to cater to the needs of people. He suggests that to flourish in BoP markets, four elements are essential; creating buyer power, product innovation and consumer education, improving access through better distribution and communication systems and modifying local solutions. He recognises that each BoP market will be subject to differentiated approaches according to their country of operation, which can achieved via innovation, which he believes to be working within limitations like those that may be experienced in a BoP. According to Prahalad, innovation is not just about products as it encompasses “developing an appropriate ecosystem that enables a new business system to function” (Prahalad 2012).
However according to Prahalad, a business must envision many concepts before making any intention to move into BoP markets, determining how beneficial BoP markets will be. He states that access to BoP markets is easy as they are untapped and commonly overlooked markets which hold promising potential. Prahalad argues that the poor are brand conscious and aspire to own leading brands, hence making the poor brand aware will be of benefit to them and the business. Additionally, Prahalad states that BoP markets are