Is the Bottom of the Pyramid Really For You?
Tuesday, March 1, 2011
By Ashish Karamchandani, Mike Kubzansky and Nishant Lalwani
Monitor’s Inclusive Markets Practice
The market for products and services aimed at the bottom of the pyramid-people living in poverty in developing economies-is vast, with 4 billion people representing $5 trillion in purchasing power. However, succeeding in this market is far from easy, write Ashish Karamchandani, Mike Kubzansky and Nishant Lalwani-who lead Monitor’s Inclusive Markets practice-in this article for the March issue of Harvard Business Review.
The article discusses the challenges typically encountered when entering this market, including managing sales and distribution to customers who largely live in scattered and rural areas, the purchasing limitations of customers with uncertain cash flow, disaggregated and often unreliable local providers, underdeveloped business ecosystems, brand image risks, and entrenched local competition.
However, the authors explain, there are ways to address these challenges, such as specialization and standardization, partnering with organizations that have established distribution channels, and repackaging products into smaller and cheaper units.
Companies considering entering markets at the bottom of the pyramid should not only discuss how they will handle these common barriers to success, but they must also consider questions such as whether they can manage a large amount of low-margin and low-value transactions, whether they can keep their legacy and overhead costs low enough to be profitable, and whether they can tolerate the long-range investment horizon.