Bottom of Pyramid Mirage?
Atanu Dey discusses a paper by Aneel Karnani:
Karnanis paper argues against the BOP proposition. He summaries the BOP proposition as: there are profits to be made by selling to the billions of the worlds poor, and by doing so, bring prosperity to them, thus alleviating poverty, and that multinational corporations (MNCs) should sell to the poor to do good while doing well for themselves.
First there is the disagreement regarding the actual size of the BOP market. The BOP camp estimates that the potential market at PPP terms is US$13 trillion. Karnani estimates a more modest US 1.2 trillion at PPP, and more like US$ 0.3 trillion at the financial exchange rate. Thats an order of magnitude difference there.
Furthermore, Karnani points out that the poor spend most of their income on food; the poor have little disposable income. Therefore, if their incomes dont rise, they cannot afford to consume more than they actually do. If there are ways of making stuff more affordable to the poor, it is certainly not by selling stuff in smaller packages. Smaller packages in fact have a higher unit cost, not lower. Pretending that smaller packages increase affordability is similar to pretending that selling food in very small packets will solve the hunger and malnutrition problem of the poor. He concludes that the single serving revolution is a dud.