Around the world, four billion people live in poverty. And Western companies are struggling to turn them into customers.
For the past decade, business visionaries have argued that these people, dubbed the Base of the Pyramid, make up an enormous, untapped market. Some of the world’s bigges, savviest corporations have aimed to address their basic needs—by selling them everything from clean water to electricity.
But, time and again, the initiatives have quietly fizzled out. Why? Because these companies were looking at it all wrong.
Put most simply: The Base of the Pyramid is not actually a market. True, those billions of low-income people have a lot in common. But they don’t have two of the vital characteristics you need to have a consumer market. They haven’t been conditioned to think that the products being offered are something one would even buy. And they haven’t adapted their behaviors and budgets to fit the products into their lives. A consumer market is nothing less than a lifestyle built around a product.
Think of an example close to home. In the 1970s, bottled water was a foreign idea to most Americans—it wasn’t part of American consumers’ lifestyle. It took decades for large numbers of consumers to accept the notion of buying something you could get free out of a faucet—and turn bottled water into a big business. For many poor consumers, paying for clean water or sanitation products seems just as outlandish.
Starting From Scratch
- The Situation: Around the world, billions of people live in poverty, but Western companies haven’t figured out how to turn them into customers.
- The Problem: These low-income people aren’t actually a market. They haven’t been conditioned to think that the products being offered are something you’d even buy. And they haven’t adapted their behaviors and budgets to fit the products into their lives.
- The Solution: Companies must create markets among poor consumers. They must make the idea of paying money for the products seem natural, and they must induce consumers to fit those goods into their long-held routines.
The answer? Companies must create markets—new lifestyles—among poor consumers. They must make the idea of paying money for the products seem natural, and they must induce consumers to fit those goods into their long-held routines.
That means working closely with local communities in developing products and
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This is a great case study by Dr. Simanis. The principles and arguments used here can apply not only to the base of the pyramid but also to the middle and top. I enjoy reading it, thank you.
You make some good points at the end about encouraging and enlisting community support when developing a market.
Ultimately you must start by answering the question of which products the consumer(s) will value.
Unfortunately much of the remainder of the article obscures those good points with suggestions to “condition” consumers to buy products of questionable value. Sounds too Orwellian.
http://pivotpointsolutions.net
In the Philippines, the ‘base of the pyramid’ is called the ‘grass roots’ of society. The success of every endeavour whether business or politics hinges on how well it appeals to the grass roots consumer. As many Filipinos are poor, they are also very discriminating in what they would buy and who’d they vote for.
Great Article. I am sure I have some benefit from this article. Thanks.
Dr. Simanis has presented in the above article a typically Urban Ivory tower view of consumers at the bottom of pyramid. Now I know the source of a similar view point often voiced in Developing world urban elite drawing rooms in altogether different context though.
There are some gross stereotype misunrstnings about consumer behavior at the bottom of pyramid. For examples , I quote the following
“They haven’t been conditioned to think that the products being offered are something one would even buy”
A number of agricultural inputs like fertilizers, HYV seeds ( and now GM seeds), pesticides, farm machinery, Colour TV are some product, I inivte the author to have a look at.
“And they haven’t adapted their behaviors and budgets to fit the products into their lives”
Look at sale of mobile phones. The consumers at the bottom of pyramid are not only buying in hordes in India and PR China but this segment alone will make the mobile usage over 15 Billion by 2013 as one estimate goes.
The real answer lies elsewhere and if space permits, we would like to share our research and understanding of the problem sometimes
Great article Dr. Simanis. Thank you so much for this substantial and interesting case.
In Colombia, we have many people living in the “Base of Pyramid” so our companies are continuously performing new approaches and ideas to make their products more competitive.
Nevertheless an important aspect wich must be considered consist in the “cultural” marks of people. For example, in Colombia, some companies have took some traditional products home-made from generation to generation, and have decided to produce and sell them within the traditional commercial channels. In this way, people is replacing their traditions by cultural-based products made by those companies.
Undoubtfully, this is a complex problem which involves ethics, growing, culture and some other modern problems.
Thanks a lot for your article Dr. Simanis.
Before we jump to exploring poor as market scope, it is important to establish the answer as to why people are poor? Is it because there is no scope for them to earn more? Or is it because they have compromised with their plight and do not want to improve and thus earn more?
If bottom of the pyramid has to be seen as increased market potential, it needs to shift up to the middle. Creating desire before capacity to purchae is the name of the game !
AK Handa