The Fortune at the bottom on the pyramid Essay

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The Fortune at the Bottom on the Pyramid (Prahalad and Hart)

Question: Can focusing your growth strategy at the bottom of the world’s economic pyramid provide financial growth, drive innovation and an opportunity for the poor to better themselves?

MNC’s (Multinational Corporations) have primarily focused growth, innovation, marketing and resources at the top of Economic Pyramid.
The top of the pyramid represents 100M consumers comprised of upper and middle income that have >$20K in annual income.

Q: Is it time for these MNC’s to look at globalization strategies through a new lens of inclusive capitalism? If so how would this affect MNC growth, business models, innovation of radical technology and ultimately help the tier 4 population, which represents 4B people? Data shows that Tier 4 represents a multi-Trillion dollar market opportunity.

The tier 4 pyramid population represents an annual income of $1.5K. yr or ~$1 per day. The income gap between rich and poor is increasing and according to United Nations, the richest 20% in the world account for about 85% of total income in the yr 2000.
Most Tier 4 people live in rural villages, urban slums or shantytowns and they do not hold legal title or deeds to their assets (homes, farms, businesses).
They have very little or formal education and are difficult to reach with conventional distribution, credit and communication.
The extreme inequity of wealth distribution reinforces the view that the poor cannot participate in the global market economy, even though the make up the majority of the population.

The Invisible Opportunity:
The Tier 4 market is wide open for technological innovation and MNC’s can be leaders in leapfrogging to products that don’t repeat the environmental mistakes of developed countries over the last 50yrs.
There is a Tier 1 Bias and US corporations dominate this sector, followed by Japan. So it is not surprising that MNC’s views are conditioned by their knowledge and familiarity with Tier 1 consumers.
If you are in agreement, several assumptions should be reevaluated:
The poor are not our target consumers because our current cost structures will not allow us to be profitable for Tier 4 markets
The poor cannot afford and no use for products used in developed markets
Only developed markets appreciate and will pay for new technology. The poor can use the previous generation of technology
The bottom of the pyramid is not important for Long term viability of our business. Leave Tier 4 to the government and nonprofits
Managers are not excited about business challenges that have a humanitarian dimension
Intellectual excitement is in developed markets and it is difficult to find talented managers who want to work the bottom of the pyramid.

Pioneers in Tier 4
Several companies have been successful with taking the time understand Tier 4 and offering products for these consumers and have created a business system to include new product formulations, low cost manufacturing process’, special packaging and value pricing
Ex: HLL (division of Unilever) began offering detergent products for poor consumers in rural areas, who often wash their clothes in rivers and other public water systems.
HLL’s new detergent, called Wheel, was formulated, produced, marketed and distributed through the abundant labor pool in India and through thousands of small distribution outlets at the bottom of the pyramid.
They changed the cost structure to a low price point and have captured 38% of the market share to realize 20% growth in revenues and 25% growth in profit between 1995-2000. As a result, Unilever is replicating this model and adopted the bottom of the pyramid strategy for the entire corporation.
Tier 4 is not the market that allows for the traditional pursuit of high margins, but instead is fueled by profits from high volumes and capital efficiency.
Thus, serving Tier 4 markets efficiently requires infrastructure tailored to the needs and challenges of these specific