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Real Needs at the Base of the Economic Pyramid

Synopsis

Read or download the full Thematic Research Highlights Report [pdf].

The complete version of the white paper looks at opportunities for business to address markets at the Base of the Economic Pyramid by focusing on the real needs of low-income consumers and co-creation of value. The paper describes best practice approaches, and discusses the potential disruptions of existing business models in emerging markets.

chart showing economic pyramid broken into three per capita income groups in the UK: over $20,000, $1,500 to $20,000, and under $20,000 Footnote 1

Background

C.K. Prahalad and Stuart Hart define the Base of the Pyramid (BoP) as the 4 billion people with annual per capita income based on purchasing power parity in U.S. dollars less than $1,500 (what is considered the minimum to sustain a decent life).2

According to some experts, the Base of the Pyramid is an untapped market opportunity of $13 trillion in annual sales as well as significant invisible assets.3 In The Mystery of Capital, Hernando de Soto estimates that there are well over $9 trillion such unregistered assets (houses, equipment, and so on) in the rural villages and urban slums of the world."3 These are assets that could be used to collateralize loans/credit to allow people to become part of the economic system or market. Other evidence of BoP potential includes market demand for microfinance is close to $300 billion, as compared to the $4 billion of current supply. Today there are over 3,100 microfinance institutions that served close to 100 million clients. And remittances are somewhere between two and three times the level of development aid from rich to poor countries. For example, a total of $167 billion in remittances flowed to developing countries last year.5

Conclusions

Only in the past 5-10 years have certain multinational companies begun to experiment with new business models, products, and services aimed at the Base of the Pyramid (BoP) market. Understanding how a company thinks about markets at the base of the economic pyramid can provide insight into new growth opportunities (business quality indicator) and a company's leadership and ability to innovate (management quality indicator).

Sample Investment Ideas

  • Industrial sector: distributed and renewable energy to address energy poverty, provision of clean water (desalination), ecosystem services, sustainable agriculture technology, urbanization, sustainable transport infrastructure, climate change mitigation, clean air technologies, mass habitats.
  • Financials sector: access to finance (microcredit lending, insurance products, securitization), remittances, affordable mortgages/housing, lending facilities for infrastructure development, pro-poor lending policies for developed markets, sustainable finance products.
  • Consumer sector: access to nutrition, food, hygiene products, clean water products/services, sustainable agriculture.
  • Healthcare sector: access to healthcare and medicine (generics), new models for healthcare delivery, distributed healthcare research and diagnosis, healthcare infrastructure (hospitals, treatment centers).
  • Telecom, Technology and Software sector: digital divide, open source, digital commons, intellectual property, wireless connectivity, mobile and networked solutions, job creation and human capital management dimensions of outsourcing, low-cost and universal delivery of education, medical assistance.
  1. C.K.Prahalad and S. Hart, “The Fortune at the Bottom of the Pyramid”, Strategy+Business Magazine, issue 26, first quarter 2002
  2. C.K. Prahalad uses the term "Bottom of the Pyramid" while Stuart Hart uses the term "Base of the Pyramid"—for this paper we have chosen to use Base of the Pyramid (BoP) throughout.
  3. 13D Research. "Transforming the World Economy with a Stroke of Pen," March 2002.
  4. Hart, Stuart. "Capitalism at a Crossroads," Wharton School Publishing, with Pearson Education, 2005, p.112.
  5. Lamont, Crabbe.