Magazine Fall 2007 Research Feature

Strategic Innovation at the Base of the Pyramid

Innovation in developing markets has less to do with finding new customers than addressing issues of product acceptability, affordability, availability and awareness.

Jamie Anderson and Costas Markides Reading Time: 16 min 

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Companies that develop new strategies to attack competitors and enter new markets often accomplish this by introducing architectural or business-model breakthroughs. They identify gaps in how an industry is organized, go after those gaps and then find ways to turn them into profitable markets. They find new customers (“new whos”), new products or services (“new whats”) or new ways of promoting, producing or distributing them (“new hows”). Although there has been a burst of interest in recent years in how economic growth is unfolding in the developing world, most of the research on strategic innovation is focused on developed markets. However, based on our research, that understand the dynamics of growth at the base of the economic pyramid in emerging markets have significant opportunities to unlock value.

We have studied strategic innovators in developing markets from a variety of industries to understand the reasons behind their success, and to explore how the success factors differed from what we have observed about innovators in the developed world. (See “About the Research,.”) We found that strategic innovation in developing markets differs in three important ways. First, the issue is not finding “new whos”— indeed, assuming products are affordable, there are plenty of under- and nonconsuming customers to tap. Second, it is not about creating new product features but adapting existing products to customers who have fewer resources or a different cultural background. And third, it is less about creating new business models or differentiating how you compete than establishing basic market ingredients such as distribution channels and customer demand from the ground up. Companies that are able to confront theses issues have often been able to achieve strong market share and profit growth.

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About the Authors

Jamie Anderson is a senior lecturer and member of the founding faculty at the European School of Management and Technology, in Berlin. Costas Markides is the Robert P. Bauman Professor of Strategic Leadership at London Business School.

References (11)

1. C.K. Prahalad and S.L. Hart, “The Fortune at the Bottom of the Pyramid,” Strategy+Business 26, no. 1 (2002): 2–14.

2. C.K. Prahalad and A. Hammond, “Selling to the Poor,” Foreign Policy (May–June 2004): 30–37.

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Comment (1)
Dinesh Kumar
As rural marketing models of many companies do not succeed, companies have to implement innovative models. The first step would be finding talent to work in BOP markets, as city-educated youths do not want to work in such markets. Much of the research  is also done without leaving cities. That is why this is valuable research indeed.