Starting at the Base: Part one in a series of BoP fundamentals, cases, and debates
Editor’s note: The Erb Institute at the University of Michigan is a partnership between the School of Natural Resources and Environment and the Ross School of Business. The insitute is committed to creating a socially and environmentally sustainable society through the power of business. In coordination with MANAUS Consulting, the institute is publishing a long-term series, which NextBillion is cross-posting with permission.
Welcome to the first of a seven-post blog series entitled Base of the Pyramid – The Underlying Potentials and Pitfalls. Each week will feature a post highlighting Base of the Pyramid (BoP) business models, theories and examples. The series will showcase models that are serving the underserved while generating social impact and profits.
Although this will be review for many NextBillion readers, to ensure we are all at the same starting point, let me offer a brief introduction regarding the BoP. Debate exists regarding who exactly comprises the BoP. There is a range of thoughts including some sources who note that the Base of the Pyramid refers to the nearly 2.5 billion individuals in the world who live in extreme poverty (under $2 a day), while others expand the BoP to simply include the low-income populations within a country or region, whether they live in extreme poverty or relative poverty. What is certain is that the BoP population is not uniform as it varies across regions and countries and that those at the base are not actively engaged or integrated in the formal global economy.
Base of the Pyramid strategies look to harness this market for the private sector while simultaneously alleviating poverty. With this strategy, producers are encouraged to view the BoP as a large base of consumers who are not only willing, but able, to be active customers given that the product they are offered is something they demand, need and can access. Products that have been and can be delivered to the BoP include microfinance loans and market-specific products such as low-cost soap or healthy cooking technology. Strategies and models related to the BoP have focused on these aspects as an effort to merge private sector profit with the eradication of poverty.
As with any innovative and potentially impactful strategy, there is intense debate as to whether or not the private sector’s orientation toward the BoP actually serves both parties. The profitability of engaging the BoP as well as the efficacy of alleviating poverty are questioned. Furthermore, some scholars dispute that the BoP is a viable market for companies, while others suggest that a plan to alleviate poverty must view the BoP as producers and not merely consumers. As the blog series progresses and as we develop a clearer sense of the potential results and pitfalls of BoP strategies, it will be important to keep these two criticisms in mind. In the weeks to come, we’ll take a look at the topics listed below related to BoP business strategies.
We hope you will contribute, as our collective knowledge and discussion will only strengthen the solutions for BoP populations. To close our post this week, we’d like to ask: What is your experience with BoP business models? What additional aspects of BoP market strategies are important to note as together we engage in this topic?
Photo credit: Dr. Richard Feinberg
Still to come
Post 2: The Business Case for BoP Strategies. An introduction to BoP models.
Post 3: Distinguishing Between Demand and Need: Understanding Future Customers. Exploring the preferences and spending patterns of the BoP.
Post 4: Incubating Expertise: Fostering Partnerships within the Community. Utilizing community relationships to maximize a company’s reach within the BoP, in particular in regions with poor infrastructure.
Post 5: Financing the Strategy: The Importance of Early Capital to the Social Enterprise. Highlighting the need for early stage funding to prove business models and scale up, becoming investment ready.
Post 6: Importance of Monitoring and Evaluating BoP Strategies and Models. Addressing the need to evaluate the BoP strategy within an organization to ensure business results and analyze the magnitude and sustainability of social benefits, readjusting as necessary.
Post 7: The Future of BoP Business Models and Strategies. Exploring the future relationship between the BoP and the private sector, addressing the various concerns and potential problems and solutions.