Bottom of the pyramid
An evaluation of the merits of targeting customers at the “bottom of the pyramid”. In what sectors and in which ways, if any, do the considerations raised by this approach alter the strategies of multinational corporations selling into emerging markets?
Graduate Institute of International Studies, Geneva
May 2007
Maja Rüegg
May 2007
International Business
Second Assignment
The income pyramid in emerging markets can be divided in four segments: From top down, it contains the global, the glocal, the local segments and the “bottom of the pyramid” (BOP).
According to an approach first introduced by C.K. Prahalad, the BOP is an untapped market.
He maintains that multinational corporations (MNCs) which sell to the poor will not only gain huge profits, but also alleviate poverty.1 In this paper, I will evaluate the merits of the BOP approach from a business perspective by focusing on the strategic implications for a MNC willing to sell to the BOP. Taking the example of India, I will first define the market at the
BOP in terms of size and characteristics. Then, I will discuss three dimensions in which the
BOP approach alters the corporate strategies of MNCs, namely the collaboration with nontraditional partners, the efforts for custom solutions and the creation of a local base of support. After each dimension, I will evaluate the success of such a strategy for MNCs active in the sectors of basic sanitary products and prostheses. Finally, I will compare the prospect of profits for MNCs with those of local firms.
Prahalad is not very consistent when defining the upper limit of the BOP. Yet the mostly used figure is a dividing rule of 1500$ income per year. In the case of India, however, this definition is inadequate, as it would include 94% of the whole population.2 Instead, I propose to adopt Aneel Karnani’s delimitation line of 2$ income per day.3 Measured this way, the bottom of the pyramid contains 87.5% of the rural and 61.5%
Graduate Institute of International Studies, Geneva
May 2007
Maja Rüegg
May 2007
International Business
Second Assignment
The income pyramid in emerging markets can be divided in four segments: From top down, it contains the global, the glocal, the local segments and the “bottom of the pyramid” (BOP).
According to an approach first introduced by C.K. Prahalad, the BOP is an untapped market.
He maintains that multinational corporations (MNCs) which sell to the poor will not only gain huge profits, but also alleviate poverty.1 In this paper, I will evaluate the merits of the BOP approach from a business perspective by focusing on the strategic implications for a MNC willing to sell to the BOP. Taking the example of India, I will first define the market at the
BOP in terms of size and characteristics. Then, I will discuss three dimensions in which the
BOP approach alters the corporate strategies of MNCs, namely the collaboration with nontraditional partners, the efforts for custom solutions and the creation of a local base of support. After each dimension, I will evaluate the success of such a strategy for MNCs active in the sectors of basic sanitary products and prostheses. Finally, I will compare the prospect of profits for MNCs with those of local firms.
Prahalad is not very consistent when defining the upper limit of the BOP. Yet the mostly used figure is a dividing rule of 1500$ income per year. In the case of India, however, this definition is inadequate, as it would include 94% of the whole population.2 Instead, I propose to adopt Aneel Karnani’s delimitation line of 2$ income per day.3 Measured this way, the bottom of the pyramid contains 87.5% of the rural and 61.5%
Bibliography: Articles Ghemawat P., “The Forgotten Strategy”, Harvard Business Review, 2003 transnational model”, Journal of International Business Studies, 2004 Karnani A., “Mirage at the bottom of the pyramid”, William Davidson Institute Working Competition, Issue 26, 2002 Prahalad C.K