Creating wonders at the Bottom of the Pyramid

The expression “bottom of the pyramid” was coined by C.K. Prahalad and Stuart Hall and refers to the potential market of four billion people in the developing countries living on less than $1,500 per year. They state it as follows:

“The real source of market promise is not the wealthy few in the developing world, or even the emerging middle-income consumers: It is the billions of aspiring poor who are joining the market economy for the first time.”

I found the topic quite interesting and welcomed the opportunity to contribute to a whitepaper on the subject. So after some weeks of discussion and sharing of examples on the platform I was wondering how I could best contribute to the topic. I decided that it could be interesting to look at the shared examples through the business model lens, which I explained in an earlier post (what is a business model). In this blog (which I am writing from Yaoundé, Cameroon) I will simply share an interesting business case for each of the nine business model blocks I usually use to describe a business model. What I learned was that doing business at the bottom of the pyramid is really nothing else than real

There are examples of business model innovations in each building block. The most obvious is innovating in the value proposition. When mobile phones appeared in the market they offered a completely different value proposition than fixed line phones. In developing countries where fixed telecom infrastructure is weak and waiting lists for phone lines unbelievably long, mobile services were destined to thrive. In Nigeria MTN, a South African Telco set up a successful venture to tap into the 130 million person market.

Regarding target customer segments and distribution channels, Arvind Mills Ruf n Tuf Jeans (www.arvindmills.com) is a particularly interesting case. The entrepreneur Arvind Mills saw a niche market in stylish jeans at an affordable price that was not being filled by any company. Target customers are Indians who cannot afford conventional jeans but still wish to purchase them. So Ruf n Tuf offers a jeans kit at $6/pair to local tailors who function as a distribution channel to reach the final local customers. Due to the large scale Arvind Mills manages to make a profit on the low margins per jeans.

Anand Milk Union Limited (www.amul.com) is an interesting case of how a business innovation can change the fortunes of the poor in a developing country like India by integrating local skills and local activities into its business model. India was a country with milk shortfall and imported milk every year in form of milk powder. Then AMUL built up a huge milk industry from scratch together with local farmers. Today India is the world’s largest milk producer and it even exports milk. AMUL products are found on the shelves of Walmart in the USA and many other retail giants in the world.

A nice example of how partnerships can lead to BOP success is the case of GrameenPhone (www.grameenphone.com) in Bangladesh. Its founder, Iqbal Quadir, realized that if a woman could be given a micro-credit to buy a cow and sell milk then the same could be done for phone services. GrameenPhone was born. Supported by the multinational company Telenor he bought a mobile network license and set up a mobile phone network. Then he partnered with Grameen Bank, an established micro-credit institution in Bangladesh who brought in the knowledge on credits and a database of potential customers. The bank started offering women in villages a credit to buy mobile phones, which they used to sell phone calls to the villagers, repay their debts and make a daily living. Grameen Bank expanded its lending and GrameenPhone harvested a network of women reselling phone calls through their network.

Hindustan Lever Limited (www.hll.com) has been able to create new revenue streams by being proactively engaged in rural development in India for nearly 30 years. It set up Project Shakti (www.hllshakti.com) in 2001 with the objective of creating income-generating capabilities for underprivileged rural women, by providing a sustainable micro enterprise opportunity, and improving rural living standards through health and hygiene awareness. With working capital provided by HLL, Shakti women entrepreneurs sell HLL products to their local village. This gives HLL access to large markets that would not otherwise be easily accessible. 70% of the Indian population lives in villages, of which there are around 627,000.

Regarding the cost structures of BOP business models there is often a huge pressure to produce extremely efficiently, because products usually have to be cheap enough for Tier 4 customers. In general BOP cost structures are kept low by selling very large volumes and thus profiting from economies of scale. In addition many of the BOP business models described above make use of affiliation and entrepreneurship to shift parts of the costs to other partners in the business model. GrameenPhone, Arvind Mills and Project Shakti are just three examples of how tapping into local entrepreneurship by promoting micro business ownership can give access to powerful free distribution networks of incredible reach. This could have never been achieved by the companies themselves

Teach India-Right to Education is Light to Education!

Accelerating progress towards education for all is one of the defining development challenges of the early twenty-first century. In recent context of India, approval of Right to Education Bill is a very important step towards the dream of the developed Nation. Prospects for achieving equal opportunity and accessibility to basic education will definitely influenced by this bill. Like any human right, this right should also be protected and extended as an end in itself.

In other aspects of education, prospectus for reducing poverty, narrowing extreme inequalities and improving public health are also heavily influenced by what happens in education. Accessibility to basic information and knowledge through basic education is one of the most important conditions for overcoming social injustice and reducing social disparities in any country. It is also a condition for strengthening economic growth and efficiency: no country can afford the inefficiencies that arise when people are denied opportunities for education because they are poor, female or members of a particular social group. Some benefits of education are less tangible and harder to quantify than others.

People denied an opportunity for achieving literacy and wider education skills are less equipped to participate in societies and influence decisions that affect their lives. That is why broad-based education is one of the foundations for democracy and government accountability, and why it is such a vital input for informed public debate in areas such as environmental sustainability and climate change that will have a bearing on the well-being of future generations.

The impact of education is strongly conditioned by other factors, from macroeconomic and labour market conditions to the state of public health provision and levels of inequality based on wealth, gender and other factors. The benefits of education are likely to be greatest in contexts marked by broad-based economic growth, a strong political commitment to poverty reduction, high levels of equity in access to basic services, and a commitment to democratic and accountable governance.

Opportunities can strengthen economic growth by raising productivity, supporting innovation and facilitating the adoption of new technology. And broad-based access to good quality basic education is one of the foundations for broad-based growth, since it enables poor households to increase their productivity and secure a greater stake in national prosperity.

The ultimate goal of education is to equip children with the knowledge, skills and opportunities they need to realize their potential and to participate in social and political life.