TECH TALK: My Mental Model: for the Bottom of the Pyramid

The inspiration for the next phrase comes from CK Prahalad, who has been championing the opportunity of the underserved markets at the bottom of the population pyramid the poor in countries like India and China who earn USD 1-2 a day. This is the essence of what Prahalad says, in a paper with Stuart Hart:

Consider the 4 billion people at the bottom of the pyramid. Their annual per capita income based on purchasing power parity in U.S. dollars is less than $1,500, the minimum considered necessary to sustain a decent life. For well over a billion people roughly one-sixth of humanity per capita income is less than $1 per day.

This extreme inequity of wealth distribution reinforces the view that the poor cannot participate in the global market economy, even though they constitute the majority of the population. In fact, given its vast size, they represent a multitrillion-dollar market.

The perception that the bottom of the pyramid is not a viable market also fails to take into account the growing importance of the informal economy among the poorest of the poor, which by some estimates accounts for 40 to 60 percent of all economic activity in developing countries.

To appreciate the market potential of [those at the bottom of the pyramid], MNCs must come to terms with a set of core assumptions and practices that influence their view of developing countries. We have identified the following as widely shared orthodoxies that must be reexamined:

Assumption #1: The poor are not our target consumers because with our current cost structures, we cannot profitably compete for that market.
Assumption #2: The poor cannot afford and have no use for the products and services sold in developed markets.
Assumption #3: Only developed markets appreciate and will pay for new technology. The poor can use the previous generation of technology.
Assumption #4: The bottom of the pyramid is not important to the long-term viability of our business. We can leave Tier 4 to governments and nonprofits.
Assumption #5: Managers are not excited by business challenges that have a humanitarian dimension.
Assumption #6: Intellectual excitement is in developed markets. It is hard to find talented managers who want to work at the bottom of the pyramid.

I have two twists on Prahalads pronouncements: focus first on the top of the bottom of the pyramid, and also think of the enterprise pyramid.

The bottom of the pyramid, by definition, will always be the majority of the market. The numbers are vast. For example, in India, if we look at the rural markets, there are 700 million Indians living there. In China, there are a billion people in the rural areas. But is not possible to create solutions or focus on each one of them. The first goal should be to tap those at the upper edge: the top of the bottom of the pyramid. By creating solutions for this segment, we make it possible for those best equipped to understand and leverage the innovations to first do so. Over time, the more entrepreneurial among them will automatically create opportunities for the others lower down in the pyramid. Even the top 10% of the rural markets in India and China account for 170 million people.

The second variation on the bottom of the pyramid principle applies to the enterprise segment. There are nearly 50 million small- and medium-sized enterprises (SMEs) in the world. By and large, technology has only had a limited impact on this segment because they are small, scattered, less IT-mature, hard to reach, and even harder to support and please. Appropriate solutions are what they need.

Thus, if we put the first two phrases together, what I am driven by is creating disruptive innovations for the (top of the) bottom of the pyramid. It is a market full of nonconsumers, invisible to the big players with their high cost structures (think: no competition!), but one rich with promise and opportunity, and waiting to be delighted with products and services which are good enough.

Tomorrow: requires Ecosystems

TECH TALK My Mental Model+T

Published by

Rajesh Jain

An Entrepreneur based in Mumbai, India.