Book Summary: The Fortune at the Bottom of the Pyramid (BOP)

This book by C K Prahalad, Harvey C. Fruehauf Professor of Corporate Strategy and

International Business at the University of Michigan Business School addresses a challenge
that the author had thrown to himself in 1995 - "What are we doing about the poorest people
in the world? … Why can't we mobilize the investment capacity of large firms with the
knowledge and commitment of NGOs and the communities that need help? Why can't we co
create new solutions?"

The ideas given in the book had earlier been propounded in a working paper, called "The
Strategies for the Bottom of Pyramid", which the author had produced with his colleague,
Professor Stu Hart but was considered too radical for publication by journals. However, a
number of managers at Hwelett-Packard, DuPont, Monsanto and others read it on the internet
and accepted its premise. Widespread discussions and acceptance came with publication of
two articles, "The Fortune at the Bottom of the Pyramid" in Strategy+Business (January
2002) with Stu Hart, and "Serve the World's Poor Profitably" in the Harvard Business
Review (September 2002) with Allen Hammond.

The book is divided into three parts. First part, 'The Fortune at the Bottom of the Pyramid'
gives a framework for active engagement of the private sector at the Bottom of Pyramid
(BOP) and is divided into six chapters. The starting proposition of the author is that 'if we
stop thinking of the poor as victims or as a burden and start recognizing them as resilient and
creative entrepreneurs and value-conscious consumers, a whole new world of opportunity
will open up.'

The first Chapter is titled "The Market at the Bottom of the Pyramid" and discusses the
unique character of the BOP market. The BOP as a segment consists of an estimated 4 billion
people who live at below $2/day. They represent a latent market for goods and services.
Active engagement of private enterprises at the BOP is a critical element in creating inclusive
capitalism as private sector competition for this market will foster attention to the poor as
consumers. The author states that each of the groups that is focusing on poverty alleviation -
the World Bank, rich countries providing aid, charitable organizations, national governments
and private sector - is conditioned by its own dominant logic. For example India had a deep
suspicion about the private sector. Multinational companies (MNCs) suffer from deeply
entrenched logic regarding cost structure, consumers and BOP sector. The donors consider
private sector greedy. All these agencies have come to an implicit agreement that market
based solutions cannot lead to poverty reduction and economic development.

If these agencies cross the barriers posed by their dominant logic, a whole set of opportunities
emerge in terms of BOP market, representing a major engine of growth and global trade. This
market has its own set of characteristics which are discussed in the book as under:

a. The dominant assumption is that there is no money at the BOP. The reality is that BOP
offer huge opportunity due to their large numbers. BOP consumers also pay a high premium
for the product and services they avail.

b. The dominant assumption is that distribution access to BOP markets is very difficult and
therefore represents a major impediment for the participation of large firms and MNCs. The
reality is that with urbanization and widespread migration of poor to the cities, distribution
logistics have become easier. In rural areas, there may be "media dark" areas and dispersed

1
communities. Solutions have emerged in different contexts - Project Shakti from Hindustan
Lever Limited and "Avon ladies" in Brazil. These cases have been discussed in detail in part
II of the book (discussed later in this review).

c. The third dominant assumption is that the poor are not brand-conscious. On the contrary,
the poor are very brand-conscious. They are also extremely value conscious by necessity.

d. Contrary to the popular view, BOP consumers are getting connected and networked. They
are readily exploiting the benefits of information networks.

e. Contrary to popular belief, the BOP consumers accept advanced technology readily.

The task therefore, is to convert the poor into consumers through market development. This
would require giving the poor capacity to consume on a sustainable basis. Philanthropy might
feel good but does not yield scalable and sustainable solutions. One illustration is innovative
purchase schemes of Casas Bahia, a retail chain started by Samuel Klein in 1952 in Brazil
and Cemex, started by Patrimonio Hoy in Mexico. Single serve packaging by consumer
goods marketers is another example. The principles in creating the capacity to consume has
been described as "Three As"

i. Affordability: Without compromising quality or efficacy

ii. Access: To be ensured through geographically intensive distribution

iii. Availability: To be ensured through distribution efficiency.

The ideal situation is to create capacity to earn more so that BOP consumers can afford to
consume more. ITC's e-Choupal is a successful example in this regard. The critical
requirement is the ability to invent ways that can take into account the variability in the cash
flows of BOP consumers that makes it difficult for them to access the traditional market.
The involvement of the private sector at the BOP can provide opportunities for the
development of new products and services, poor as consumers get more access to products
and services and acquire the dignity of attention and choices from the private sector that were
previously reserved for the middle-class and rich. The prerequisite is that both sides, the large
firms and the BOP consumers develop trust, which has been missing traditionally.

Chapter 2, on "Products and Services for the BOP" calls for a new philosophy of product
development and innovation in tune with the realities of the BOP market. The author has
identified 12 principles of Innovations for BOP Markets:

1. Price performance: Quantum jumps in the price performance are required.

2. Hybrid Solutions: Advanced and emerging technologies that are creatively blended with
existing and rapidly evolving infrastructure.

3. Scalable, transportable across countries, cultures and languages: Ease of adoption in

similar BOP markets is a key consideration for gaining scale.

4. Focus on conserving resources: Eliminate, reduce and recycle resources.

2
5. Product development must start from a deep understanding of functionality not just form.

6. Process innovations are as important as product innovations.

7. Deskilling work is critical. Products and services must take into account skill levels, poor
infrastructure, and difficulty of access for service in remote areas.

8. Education of customers on product usage is key.

9. Products must work in hostile environments.

10. Research on interfaces is critical given the nature of consumer population.

11. Innovations must reach the poor – designing methods for accessing the poor at low cost is
critical.

12. Product developers must focus on the broad architecture of the system – the platform – so
that new features can be easily incorporated.

Innovating at the BOP may seem daunting, but it is highly rewarding. It is also necessary for
the MNCs who want to stay ahead of the curve. Such successful innovations are seen in
Reliance Telecom’s “Monsoon Hungama”; Dr Venkataswamy’s Aravind Eye Care system in
Madurai; Molecular encapsulation technology for iodizing salt by Hindustan Levers Limited;
Amul’s Automatic Milk Collection System Units; Ram Chandra and Dr P K Sethi’s Jaipur
Foot; Device agnostic system by Voxiva, Peru; ICICI banks multi channel delivery mode;
ITC and EID Parry’s access to farmers through their networks.

Chapter 3 is titled “BOP: A Global Opportunity”. It justifies the efforts required for
innovating for BOP by identifying four source of opportunity for a large firm that makes and
effort to understand and cater to BOP:

a. Some BOP markets are large and attractive as stand-alone entities.

b. Many local innovations can be leveraged across other BOP markets, creating a global
opportunity for local innovations. For example, Unilever has replicated products in India in
other BOP markets – lessons from developing Wheel were used to launch a similar product,
“Ala” in Brazil.

c. Some innovations from the BOP will find applications in developed markets. The Voxvia
system found use in the U. S. Department of Defense in its inoculation programme.

d. Lessons from BOP markets can influence the management practices of global firms –
Nirma and Wheel operate on lower gross margin but yield a higher return on capita
employed.

The BOP market pose challenge emerging from rapid acceptance of innovation (a “I curve”
as compared to traditional “S curve”. The rapid growth demands new approaches.
Innovations such as SHGs and Shakti Amma cut costs drastically and reduce risks.

Chapter 4, “The Ecosystem for Wealth Creation”, shows how large firms can create a

3
private sector ecosystem and act as a nodal firm. The author has included social organizations
of different types – individual entrepreneurs, SMEs, Cooperatives and MNCs. A market
based ecosystem for wealth creation consists of the following players:

• Extralegal NGO enterprises

• Micro enterprises

• Small and medium enterprises

• Cooperatives

• Large local firms

• MNCs

• NGOs

Every country has all these players, the relative importance of these firms differs across
countries and the policymakers face a dilemma in this regard – If we can’t pick one sector for
special attention, how do we mobilize the whole ecosystem? Alternatively, how do we move
the composition of the ecosystem towards large firms? The author says that the debate must
shift towards building market-based ecosystems for broad-based wealth creation. The HLL
project Shakti and ITC’s e-chaupal are such examples. The benefit of private sector
ecosystems result from the acceptance of sanctity of contracts by BOP and reduction in
inequities of traditional money-lender, local slum lord based contract system. The private
sector, in its desire to leverage resources and gain market coverage, will invest new systems
depending on the nature of the market. This means not only gaining the benefits of
globalization but also accepting the disciplines that it imposes. Also, opaque, local
moneylender based contract enforcement and participating in a national or regional private-
sector ecosystem are not compatible.

Chapter 5, “Reducing Corruption: Transaction Governance Capacity”, addresses the issue of

corruption. Corruption is a market mechanism for privileged access. It adds to cost burden
and business uncertainty. The author refers to the work of Hernando De Soto titled 'The
Mystery of Capital' and establishes that substantial values lies locked within the
underdeveloped societies due to corruption. This can be overcome by developing Transaction
Governance Capacity (TGC) in the BOP.

TGC constitutes
a. Law to protect the property;
b. Micro regulation;
c. Social norms; and d. Institutions for enforcement.

BOP consumers live in a varying degrees of TGC – arbitrary, those where laws and market
economy exist or where all the components are well developed. The specifications prescribed
for building TGC are four fold:
a. A system of laws that allows for ownership and transfer of property
b. A process for changing the laws governing property rights that is clear and unambiguous.
c. A system of regulations that accommodates complex transactions.

4
d. Institutions that allow the laws to be implemented fairly, in a timely fashion and with
transparency.

A successful attempt at building TGC is Government of Andhra Pradesh’s e-governance

initiative. Here, however, it has been discovered that the level of corruption has initially
increased during the transition period. However, once the transition to digital delivery of
service and transfer of data in electronic mode is made and people become conversant with
the new technology, the accompanying transparency would ensure an almost nil level of
corruption.

Given the capacity to solve problems of poverty through profit, innovations are required in
product design and in converting poor into market. The process generates TCG. These factors
can trigger rapid economic and social development. The author discusses this aspect
in Chapter 6, titled Development as Social Transformation.

Building markets help in breaking down barriers in communication. This is evident in e-

choupal model. Farmers from villages could get information from Chicago Board of Trade.
One of the farmers also wrote an e-mail to one of the researchers who was assisting the
author in compiling the case studies. The BOP consumers are constantly upgrading in the
process of participating in expanded market, gain access to knowledge and identity as
individuals.

Another well understood but poorly articulated reality is the role of women in development.
Their critical role is to be seen in the case of Avon Ladies, SHGs, Amul and in Cemex.
Another feature is that a system of checks and balances are emerging, thanks to civil society
organizations and free press. The last point the author makes is that the social transformation
should lead the pyramid structure to morph a diamond. Pyramid depicts unequal distribution
in the society. A diamond structure represents a minority at top and bottom and a majority of
middle class. He quotes National Council of Applied Economic Research to discern such
trend in states such Gujarat and Haryana. While states like Bihar and Orissa show a pyramid
type of structure, Maharashtra and Punjab show an inverted pyramid. This pattern is likely to
repeat itself in rural and urban India. The author concludes by emphasizing that the best allies
in fighting poverty are the poor themselves and also conjectures that the bold initiatives
would lead to elimination of poverty by 2020.

Part II of the book is a detailed discussion on the successful innovations under the heading
Innovative Practices at the Bottom of the Pyramid. The cases are categorized into different
sections –
1. The Market at the BOP, discusses Casas Bahia and CEMEX;
2. Known Problems and Known Solutions: What is the Missing Link, discusses Annapurna
Salt Story and HLL’s initiative in soap market and public health;
3. Known Problems and Unique Solutions; Documents the Jaipur Foot and Aravind Eye Care
System.
4. Known Problems and System Wide Reform; Documents ICICI Banks innovation in
finance, ITC’s e-choupal storey and The EIC Parry Story (on CD);
5. Scaling Innovations: The Voxiva story and Innovations in Energy by E+Co’s Investment
in Tecnosol (on CD);
6. Creating Enabling Conditions for the Development of Private Sector: E-Governance in
Andhra Pradesh (on CD).

5
The cases are quite detailed with the objective of providing information about how to
innovate at the BOP. The author also says that the cases go on to establish that there is no
mystery to unlocking the potential of these markets. Finally, they demonstrate the size of the
market.

6
What is it all about?

The Fortune at The Bottom of The Pyramid provides you with these facts, while telling you
why what you know about BOP markets is wrong. This book, for a refreshing change, is not
about BPO, but BOP, the bottom of the pyramid, the real source of market promise. “Why is
it that with all our technology, managerial know-how, and investment capacity, we are unable
to make even a minor contribution to the problem of pervasive global poverty and
disenfranchisement?” This profound question hits you only to leave you answerless. This is
definitely a book which makes you sit up and think from the very beginning. Whether you're
a business leader or an anti-poverty activist, this book shows you why you can't afford to
ignore "Bottom of the Pyramid" (BOP).

The man at the BOP is a consumer too

University of Michigan Business School professor C.K. Prahalad challenges business's

common beliefs about the world's impoverished and introduces readers to the Bottom of the
Pyramid (BOP), an untapped market of more than four billion people, many of whom are
seen as “poor” in the public eye. This is the market companies should be paying attention to,
he says, even more so than the few rarified consumers at the high-profit pinnacle, or even the
growing middle markets. In short, Pralahad’s vision “is not about philanthropy and corporate
social responsibility”; but is centered around the idea that "If we stop thinking of the poor as
victims or as a burden and start recognizing them as resilient and creative entrepreneurs and
value-conscious consumers, a whole new world of opportunity will open up." That "simple
proposition" begins a controversial new management book that is poised to become essential
reading not just for the financial world but also in government offices.

Constant innovation is the need of the hour

According to the author, we need to find new and innovative approaches to rise to the
challenge of this fast growing population. One of the assumptions that he makes is that the
poor need to seen as a market, but one different from the conventional perception of a market.
This assumption has some immediate consequences - all of the traditional business concepts
are applicable but each and every one of those concepts needs to be applied from a distinct
perspective. What results is a practical example of the application of innovative thinking and
innovation to an intractable problem – How to cater to the more than 4-billion humans who
do not form part of the target market of the organizations that are driven by conventional
assumptions about products, services, value and needs.

Prahalad demonstrates that the process of making products more affordable to the world's
poor can provide substantial returns to create real partnerships and innovations for established
companies. One such example quoted is Dharavi, an area in Mumbai, India whose claim to
fame is that it is the largest single slum area in Asia. Its dwellers, not being property owners,
do not spend a lot of money improving their living quarters. But they do spend money on
luxury items-85 percent of households in this village own a television set, 75 percent own a
pressure cooker and blender, 56 percent a gas stove, and 21 percent have telephones.

Do the poor care about brand names?

7
And if you thought that brand names are not a factor to members of this group, then think
again. In fact, the author's research shows that brand consciousness among the poor is
universal. Prahalad points out that companies who want to invest in BOP markets must make
it part of their core business, and not make the mistake of considering it a corporate social
responsibility initiative. On the contrary, this is real investment that takes attention, planning,
and resources. It may seem improbable that companies can make money by selling to people
who have limited purchasing power, but, as Prahalad demonstrates, companies that have
actually bothered to try are flourishing.

Prahalad concedes that change will not be easy, but he does present well-researched case
studies and compelling reasoning for why the BOP is a market worthy of attention. The book
brims with interesting facts and statistics.

Some interesting cases

+ There are 5.5 million amputees in India. An additional 25,000 lose their limbs each year
due to disease, accidents or other hazards. Most of these people live well below the poverty
line and can afford neither a prosthetic limb (average cost = $7000) nor the subsequent
replacements and hospital visits. How did Dr. P.K. Sethi along with craftsman Ram Chandra
develop an effective prosthesis (cost = $30) that even enabled a professional dancer to further
her career on stage?

+ The world’s leading cause of mental disorders and retardation is Iodine Deficiency
Disorder (IDD). In India alone there are 70 million people who have IDD and another 200
million are at risk. How did Hindustan Lever Ltd, a branch of a multinational company, solve
the problem and make a profit at the same time?

+ More than 24 million Mexicans earn less than $5 a day, hence they have been unable to get
access to credit. How did this change so that the Mexicans could build affordable housing for
themselves while the third largest cement manufacturer in the world, Cemex, continues to
reap the financial rewards?

+ Blindness affects 12 million people in India. How could the Aravind eye care system serve
more than a million patients and do it mostly for free, yet continue to be highly profitable?

     These are four examples of the provocative 12 in-depth case stories from India, Peru,
Mexico, Brazil and Nicaragua that illustrate the world’s most exciting, and perhaps most
lucrative market.

Is it as easy as he makes it sound?

A skeptic might question the rationality of Prahalad’s vision and goals. The truth is, as the
author readily admits, that we have “a long way to go before the social transformation of
inequalities around the world will be accomplished”. But being a long way from reaching that
goal should not be a deterrent in working towards it. Indeed, if what is happening in the hi-
tech industry is anything to go by, companies have no way but to find unique ways of
servicing the BOP if they are to compensate for the trend of slowing growth in over-
consumed developed markets.

8
This book may not be superbly written but all the same, it is reeks of the indomitable force of
detail and meticulous research. It challenges so many conventional theories about the poor
and economically deprived, that it is sure to not only create a ripple in the world of finance
but also generate some controversy.  Yet, the ramifications of this book are just beginning.

Globally, this is a movement in the making that will affect each and every human being in the
broad sense. The book’s content is a challenge to the way in which we approach the world.
And the responses to the challenges are illustrated by powerful and convincing examples. It is
only a very obdurate mind that will not receive an dose of ground-breaking thinking and zeal
for the opportunities that can be created by adopting an altered and innovative approach with
respect to one’s business activities concerning the bottom or for that matter even the top of
the pyramid.

After all, what entrepreneur wouldn’t want to “save the world”, get famous and make some
money while he is at it?