Economist on Prahalad

The Economist writes in its profile of CK Prahalad and his view that “there can be a win-win relationship between business and the poor:”

Mr Prahalad reckons that there are huge potential profits to be made from serving the 4 billion-5 billion people on under $2 a dayan economic opportunity he values globally at $13 trillion a year. The win for the poor of being served by big business includes, he says, being empowered by choice and being freed from having to pay the currently widespread poverty penalty. In shanty towns near Mumbai, for example, the poor pay a premium on everything from rice to creditoften five to 25 times what the rich pay for the same services. Driving down these premiums can make serving the BOP more profitable than serving the top, he argues, and points to a growing number of leading firmsfrom Unilever in India to Cemex in Mexico and Casas Bahia in Brazilthat are profiting by doing precisely that.

But to be profitable, firms cannot simply edge down market fine-tuning the products they already sell to rich customers. Instead, they must thoroughly re-engineer products to reflect the very different economics of BOP: small unit packages, low margin per unit, high volume. Big business needs to swap its usual incremental approach for an entrepreneurial mindset, because BOP markets need to be built not simply entered. Products will have to be made available in affordable unitsmost sales of shampoo in India, for example, are of single sachets. Distribution networks may need to be rethought, not least to involve entrepreneurs from among the poor. Customers may need to be educated in how to consume, and even whyabout credit, say, or even about the benefits of washed hands. The corruption now widespread in poor countries must be tackled.

Prahalad’s new book “Fortune at the Bottom of the Pyramid” has just been published.

I am increasingly coming to the view that in the emerging markets there is also a “middle of the pyramid” that needs to be tapped before (or at the same time as) the bottom of the pyramid.

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Rajesh Jain

An Entrepreneur based in Mumbai, India.