Poverty Meets Prosperity: the Fortune at the Bottom of the Pyramid
The end of the Cold War saw the re-birth of the capitalist world, and the opening of previously closed economies in places such as China, India and Latin America to foreign investment. Thrilled by the opportunity to capture the emerging middle classes, transnational corporations saturated these nations with countless goods and services in the hope that standardised marketing strategies could be transformed into a global success overnight, without the need to adapt corporate strategies. The subsequent flooding of emerging markets with goods has led investors to reassess the benefits of applying this traditional risk-reward structure to foreign market economies.
In fact, the late C.K. Prahalad, a corporate strategy professor at the University of Michigan, revealed that the future of wealth and commercial profitability lies with the 4 billion ‘aspiring poor’. Instead of targeting the finite ‘wealthy few’ whose population size and purchasing power once demanded attention, this new shift in thinking focuses on the emerging poor who need goods and services to help them climb out of poverty independently. This new approach to globalisation aims to increase profits by using the economies of scale. In recent times, this strategy has taken flight in emerging economies, giving the poor the chance to get rich on their own terms.
The strategy of targeting emerging economies has a triple effect: it enhances the quality of life for billions, is a profitable capital venture and, most importantly, it leverages the corporate social responsibility of companies in incomparable ways. The ‘bottom of the pyramid’ strategy can be seen in practice in poverty-stricken South India. CavinKare has used this strategic tool to dominate the rural shampoo market and to empower consumers to ritualise hygiene practices. This was achieved by replacing the standard packaging of shampoo in large bottles with individual sized sachets, which decreased the price point from $U.S.5 ($A4.70) to $U.S.0.20 ($A0.19).
CavinKare also combined their smaller products with successive hygiene education classes in slum dwellings and local communities, where people were unfamiliar with the concept of shampoo. The company showed locals how to use their products by conducting live demonstrations on young boys, and then encouraging people to smell and touch their ‘fresh’ hair. This strategy was combined with the use of more traditional advertising tactics, such as sponsoring film star Rajinikanth and distributing free sachets after screenings of his films, which quadrupled sales after every showing. CavinKare has since been approached by major multinationals such as Unilever in the hope of acquiring the brand. These corporations see the potential of rural areas in outpacing the growth of wealthier sectors of the economy.
While local markets have traditionally been ignored due to the informality of their transactions (such as bartering), and the inapplicability of the rules of advanced monetary economies, CavinKare exemplifies how these markets are now being targeted by transnational corporations. Most citizens do not privately hold legal rights to either the products themselves or the property on which they are grown, farmed and produced, and instead work together on a communal basis. As such, people are unfamiliar with the individualistic drivers on which a capitalist economy runs. Products and services must therefore be tailored to suit marginalised rural areas on a co-operative basis. This growing opportunity is being under-capitalised by technological sectors such as the mobile phone industry, where a significant gap appears in the market. If poor infrastructure can be overcome, these underdeveloped village groups could be the next growth wave in the telecommunications industry.
To work effectively, the ‘bottom of the pyramid’ strategy requires true innovation, an alternative perspective on financial success, and a willingness to bring technology to the people rather than waiting for demand to come. This approach requires companies to give up the ‘bigger-is-better’ approach, and accept the managerial mindset that ‘smaller’ at a lower price point is both more sustainable and more profitable in the long run.
Instead of targeting the top tier of earners above $U.S.60,000 ($A56,940), managers would compete to capture a small share of the vast profits available by tapping into the market of a 4-billion-strong population that earns, at best, $U.S.1,500 ($A1,423) per annum, which in turn averages approximately $U.S.1 ($A0.95) per day. This inequity in terms of wealth distribution has seen the gap between the rich and the poor widen dramatically over time. The UN Millennium Development Goals estimate that by 2015, there will still be 920 million people living in poverty.
However, the ‘bottom of the pyramid’ strategy sheds new light on this situation. According to World Bank estimations, this ‘bottom’ sector is equivalent to trillions in untapped commercial value. In the shadow of a post-GFC world, now is the time more than ever to stimulate real social change and genuine profitability across diverse sectors.
Nadia Surtees is in her third year of a Bachelor of Economic and Social Sciences majoring in Marketing and Political Economy.
