The Market at the Bottom of the Pyramid

I finally got down to jotting down some notes from C.K. Prahalad's recent book The Fortune at the Bottom of the Pyramid, I thought I will put them here.

The book starts off on a very ambitious note, and he surely doesn't disappoint the reader throughout the book. Here is an excerpt from the first chapter:

Turn on your television and you will see calls for money to help the world's 4 billion poor - people who live on far less than $2 a day. In fact, the cry is so constant and the need so chronic that the tendency for many people is to tune out these images as well as the message. Even those who hear and heed the cry are limited in what they can accomplish. For more than 50 years, the World Bank, donor nations, aid agencies, governments, and civil society organizations have all fought the good fight, but have not eradicated poverty. The adoption of Millenium Development Goals (MDG) by the United Nations only underscores that reality; as we enter the 21st century, poverty - and the disenfranchisement that accompanies it - remains one of the world's most daunting problems.

The purpose of this book is to change that familiar image on TV. What we need is a better approach to help the poor, an approach that involves partnering with them to innovate and achieve sustainable win-win scenarios where the poor are actively engaged and, at the same time, the companies providing products and services to them are profitable.

Now, for some observations that I thought were interesting:

1. There is money at the BOP (Bottom of Pyramid): The dominant assumption has been that the poor have no purchasing power and therefore do not represent a viable market. Prahalad shows that we should take aggregate purchasing power into consideration. To do this, we convert GDP-based purchasing power (for example China with a population of 1.2 billion and $1000 GDP represents a $1.2 trillion economy) into its dollar purchasing power parity (PPP). I think this means that you take into account the local currency and not just the dollar units. Nine countries - India, China, Brazil, Mexico, Russia, Indonesia, Turkey, South Africa & Thailand - collectively home to about 3 billion people, represent about 70% of the developing world population. In PPP terms, this group's GDP/aggregate Purchasing power is $12.5 trillion. This is not a market to be ignored.
2. BOP consumers accept advanced technology readily: This has been clearly shown by the ready acceptables of wireless devices, PC kiosks, etc. in different parts of the world. For example, ITC, the Indian conglomerate, decided to connect Indian farmers with PCs in their villages. This has allowed them to check prices not only in the local aution houses, but also prices of soybean futures at the Chicago Board of Trade! This has helped improved their profit margins, because they now how when to sell, how much to sell, and at what price they have to sell their produce. I thought this was really amazing.

I have to rush out now. I promise a post later in the day covering the other parts of the book.