Defining a Base of the Pyramid Business
What defines a Base of the Pyramid (BoP) business? Here at NextBillion.net, our goal is to identify and discuss sustainable business models that address the needs of the BoP.
We have had many debates about the size, total income and expenditure of this group. NextBillion is currently hosting some debate about what development means. At the same time, we’ve been thinking about the role and importance of BoP businesses within the development community thanks to Michael Edwards’ criticism of ’philanthrocapitalism’. But what exactly do we mean about when we talk about BoP businesses?
Everything BoP is currently in fashion. The ’BoP business’ term is catchy, but unfortunately it has no easy or clear-cut definition. That BoP business initiatives are currently so popular is, of course, a wonderful thing. All of a sudden, people want to consider alternatives to traditional, top-down development.On the other hand, being fashionable is also dangerous. We–the base of the pyramid movement–risk forgetting the big picture. We’re involved in a debate that more and more people are joining, and in the process, we risk diluting the meaning of what BoP businesses truly are.
It is relatively easy to have a conversation among 10 people, but much harder to do it if the group is 100, 1,000 people or (even!) 100,000 people.
The lack of consistent definition sometimes leads to disagreements about the nature of a BoP business (witness the ongoing Compartamos debate). Sometimes, we might be using the same words but actually be talking about different things. Indeed, we even find businesses trying to use the BoP tag as a marketing trick.
To make matters worse, the definition of “base of the pyramid” has evolved along with the people who developed it (Prahalad, Hart and Hammond–primarily). This should be no surprise. After all, the definition for what constitutes a BoP business is not written in stone–and this is a good thing. We should not be dogmatic about how businesses can help solve poverty. We should allow BoP business models to change and evolve as the needs of the people we seek to serve, the BoP, evolve too. We should be as practical and flexible as possible and seek to adapt to an ever changing world.
I believe, however, that it is useful to agree on some basic characteristics that define a BoP business so that, at least in our conversations about the BoP, we can avoid talking past each other. During many of the ongoing BoP debates, I have often felt like interrupting and saying “But this is not really a BoP business! Are we talking about the same thing?” And I am sure I am not the only one. So here’s a first cut at defining a BoP business.
Firstly, in my opinion, a BoP business entails not only selling to the poor. If that were the case, then cigarette companies would be the biggest legal BoP business in the world. Selling to the poor is a good first step to developing a BoP business, since it requires management to think about the target customer. It is thus a strategic decision about which customers are of interest to the firm.
But it is still just a first step. Step two involves engaging the BoP community in the company’s strategic decision-making process. BoP businesses should approach low income people as individuals and as members of a community taking into account needs and concerns of both arenas.
For example, it is one thing to sell shampoo sachets to the BoP. To educate communities about hygiene in coordination with community chiefs and NGOs and sell antibacterial soap in the process shows a stronger strategic engagement and commitment with the BoP community from the company. Therefore, BoP businesses need to take into account at all levels the BoP consumer and the community it belongs to in its strategic decisions, not just at the product level, in what CK Prahalad and Jeb Brugmann call ’co-creation’.
Additionally, business is as much about good strategy as it is about good execution. Members of BoP communities should be included in the value adding process of the product. Community members can intervene in most parts of the value chain by offering their local knowledge and contacts. To name a few possibilities, they can be employees, retailers, distributors or related businesses to partner with. If a business is part of a community, a community should also be part of a business. In this case, the BoP Protocol 2.0 proposes a methodology to stimulate the community’s inclusiveness in these projects.
Finally, BoP markets by definition lack connections with global markets. This lack of connections results in smaller markets with fewer competitors and higher prices, in what is commonly known as poverty trap or, as “The Next 4 Billion” report suggests, a BoP penalty. The prices for many goods are much more expensive in BoP communities (adjusting for purchasing power and hidden costs) than in western markets.
One of the beauties of BoP businesses is that they help build links between BoP communities and global markets, thus lowering prices and increasing opportunities to pull oneself out of poverty. They build a bridge where there was none and this bridge can be used by BoP members for their benefit. A great example of such connection building is mobile phones.
So my first draft of a definition would be the following: a BoP business is a business that takes into account possible customers at the BoP as individuals and as a community in its strategic decision-making, and then allows them to take part in the firm’s operations thus letting them add value to the final product directly and indirectly. Firms that do not incorporate these factors are, in my humble opinion and strictly speaking, not BoP businesses. They might be developing into a BoP business, might prefer to stay half-way, or might be more interested in profits than the social consequences of their actions. At any rate, to avoid confusion they should not be called BoP businesses.
Of course, as in any definition, there are many grey areas. What exactly constitutes selling to the BoP? How to measure whether BoP communities are consulted in the decision making? How to evaluate the input of BoP employees in the value adding process? I am afraid that at this fine level, what truly constitutes a BoP business lies in the eye of the beholder. I’d hate to end up using the same argument as Potter Stewart, of the US Supreme Court, used when attempting to describe pornography: it’s hard to define but “I know it when I see it“.
If the creation of social value both at the individual and community level (alongside making profits) is not at the very core of the company’s mission, if its employees do not believe in it strongly, then it is not a BoP business.
I would greatly welcome readers’ opinions in this matter so that we can enrich this initial definition. What is a BoP business for you? What other factors would you consider?