Reality Check at the Bottom of the Pyramid
The Globe
Erik Simanis is the managing director of Market Creation
Strategies at the Center for Sustainable Enterprise at Cornell
University’s Johnson School of Management.
To succeed in the world’s poorest markets, aim for much higher margins and prices than you thought were necessary—or possible. by Erik Simanis
ABOVE MightyLight customers in Barmer,
Rajasthan, India
120 Harvard Business Review June 2012
M
ost companies trying to do business with the 4 billion people who make up the world’s poor follow a formula long touted by bottom-of-thepyramid experts: Offer products at extremely low prices and margins, and hope to generate decent profits by selling enormous quantities of them. This “low price, low margin, high volume” model has held sway for more than a decade, largely on the basis of Hindustan Unilever’s success in selling Wheel brand detergent to lowincome consumers in India.
However, as an abundance of recent experience shows, the model has a fatal aw:
It inevitably requires an impractical pene-
tration rate of the target market—often 30% or more of all consumers in an area.
Stories of well-meaning commercial ventures that couldn’t make sustainable pro ts are all too common in low-income markets. Despite achieving healthy penetration rates of 5% to 10% in four test markets, for instance, Procter & Gamble couldn’t generate a competitive return on its Pur water-purification powder after launching the product on a large scale in
2001. Although the price—equivalent to 10
U.S. cents a sachet—provided a margin of about 50%, on par with that of the company’s products worldwide, P&G gave up on
Pur as a business in 2005 and announced
PHOTOGRAPHY: COURTESY OF MIGHTYLIGHT
Reality Check at the
Bottom of the Pyramid
hbr.org
that the sachets would be sold only to humanitarian organizations at cost.
DuPont ran into similar problems with a venture piloted from 2006 to 2008 in
Andhra Pradesh, India, by its
Erik Simanis is the managing director of Market Creation
Strategies at the Center for Sustainable Enterprise at Cornell
University’s Johnson School of Management.
To succeed in the world’s poorest markets, aim for much higher margins and prices than you thought were necessary—or possible. by Erik Simanis
ABOVE MightyLight customers in Barmer,
Rajasthan, India
120 Harvard Business Review June 2012
M
ost companies trying to do business with the 4 billion people who make up the world’s poor follow a formula long touted by bottom-of-thepyramid experts: Offer products at extremely low prices and margins, and hope to generate decent profits by selling enormous quantities of them. This “low price, low margin, high volume” model has held sway for more than a decade, largely on the basis of Hindustan Unilever’s success in selling Wheel brand detergent to lowincome consumers in India.
However, as an abundance of recent experience shows, the model has a fatal aw:
It inevitably requires an impractical pene-
tration rate of the target market—often 30% or more of all consumers in an area.
Stories of well-meaning commercial ventures that couldn’t make sustainable pro ts are all too common in low-income markets. Despite achieving healthy penetration rates of 5% to 10% in four test markets, for instance, Procter & Gamble couldn’t generate a competitive return on its Pur water-purification powder after launching the product on a large scale in
2001. Although the price—equivalent to 10
U.S. cents a sachet—provided a margin of about 50%, on par with that of the company’s products worldwide, P&G gave up on
Pur as a business in 2005 and announced
PHOTOGRAPHY: COURTESY OF MIGHTYLIGHT
Reality Check at the
Bottom of the Pyramid
hbr.org
that the sachets would be sold only to humanitarian organizations at cost.
DuPont ran into similar problems with a venture piloted from 2006 to 2008 in
Andhra Pradesh, India, by its