Summary of the Fortune at the Bottom of the Pyramid

Summary of the Fortune at the Bottom of the Pyramid

We have all heard of the terms of classification such as the upper class, middle class, and lower class that is used to identify the people of wealth in the world. But just how are we separated into those three groups? The numbers of people in each class and the percent of wealth each control is daunting.
The pyramid of global wealth is separated into three sections. Tier one, the peak of the pyramid, represents 85 percent of the world wealth that is held by 20 percent of the population. These people are the middle and upper class from developed countries that typically earn more than 20,000 dollars a year. Tier two and three, the middle section of the pyramid, represents the 1.5 billion people in the world with incomes between 1,500 and 20,000 dollars per year. The last tier represents the four billion people in the world that survives on an income that is less than 1,500 per year. What is not written in the pyramid is that for one billion people of the last tier, their per capita income is less than 1 dollar a day.
This is an extreme example of inequality of wealth distribution, but in fact, because of how most of companies today focus their products and services to tier one’s needs, this is no longer just an example, it is the reality that is continuing to deteriorate. What makes the matter worse is the fact that the percentage for the rich continues to grow while the percentage for the poor declines. In 1960, Tier one controlled 70 percent of the wealth in the world; in just forty years, it increased to 85 percent. That same year, tier four controlled 2.3 percent, now it lies at 1.1 percent.
The bottom of the pyramid contains four billion of the poorest people in the world. Ironically, these people –two-thirds of the world’s population- also represents the biggest market opportunity in the world. However, these people are not consumers; they can’t gain access to the global market because big companies don’t see them as favorable consumers, so as a result, they don’t produce the products that poorer population would need or afford. Though it is true that most of tier four live in rural areas or urban slums, have no legal properties, and often had no formal education, there are some misconceptions that prevent multinational corporations (MNC) from seeing them as possible customers.
The reality of the tier four populations is that first; there is a huge opportunity for profit due to their large numbers. Tier four is not a market where MNC can achieve high margins, however its profit lies in the amount of unit sales. Second, with new urbanization and widespread migration of poor to the cities, distribution of products has become easier. Third, although this population have little background in education, they are still humans who are curious and eager in nature to not only learn and accept new technologies, but also to get more connected and networked with other parts of the world. MNC has been dealing with tier one consumers and their business plans and values are evolved and shaped around them. Therefore, to them, tier four is unprofitable, they won’t be able to afford or use the same products and services sold for tier one consumers, and lastly, they needed to be guided into new technology and that often might take time.
Now that there’s the motivation to change, the idea is to convert the poor into active consumers through market development. The solution is through inclusive capitalism, which will create mutually beneficial partnership, based on trust and respect. Authors Prahalad and Hart have identified some principles of innovation for the bottom of the pyramid market. One of the most important differences that need to be made is the price change. MNC has to change their view on profit and learn to adjust it so that it is suitable for the BOP market. For example, in India, companies that produce detergent called Nirma and Wheel operate on lower gross margins but profits on mass number of purchases. As a result, they also yield a higher return on capita employed. Another important principle is a

The poor lack capital and therefore can’t access places like banks. This means they often pay huge interest to local moneylenders making it difficult to generate opportunities to create wealth.

The Fortune at the Bottom of the Pyramid hopes to reinvent the definition of social entrepreneurship; it was written to serve as an incentive for multinational corporations to explore the world’s poorest populations in a new light.