FORTUNE AT THE BOTTOM OF THE PYRAMID

By Payal Karwa Shreya Kothari Yamini Mahadik

The bottom of the pyramid is the largest, but poorest socio-economic group. The phrase bottom of the pyramid is used in particular by people developing new models of doing business that deliberately target that demographic, often using new technology. This field is also often referred to as the "Base of the Pyramid" or just the "BoP".

Consists of 4 billion people Living on less than Rs. 150 ($ 2.50) Per Day 400 million people in India constitutes the bottom of the pyramid Low-income markets present a prodigious opportunity for the worlds wealthiest companies to seek their fortunes and bring prosperity to the aspiring poor.

Purchasing Power Parity in Rs. ~ > 10,87,000

~ Rs 81,500 10,87,000

Population in Millions Tier1 75 - 100

Tiers 2-3
~ Rs. 81,500

1,500 1,750

Tier 4
4,000 ~ < Rs. 81,500

Tier 5

Modern View Incorporates Both

Historic View

The phrase bottom of the pyramid was first used by U.S. president Franklin D. Roosevelt on April 7, 1932 first defined in 1998 by Professors C.K. Prahalad and Stuart L. Hart. Exploitation of poor people by Private sector. Rural population was primarily poor & urban population was relatively rich.

A philosophy for developing products & services for the BOP - small unit packages - low margin per unit - high volume - high return on capital employed

Some BOP markets are very large and attractive Are always trying to upgrade from their existing condition Some innovations from the BOP markets will find applications in developed markets There is money at BOP. Access to BOP markets. The BOP market is connected BOP consumers accept advanced technology readily

I think we have to recognize that a whole lot of potential is going to come out of the bottom of the pyramid
Chanda Kochhar, Executive Director Retail Banking, ICICI Bank

Mission Statement: to identify and support initiatives designed to improve the capacities of the poorest of the poor to participate in the larger economy

Self Help Groups - 15 to 20 members - from same village - married - between the ages of 20 and 50 - existing below poverty line

Each member contributes Rs 50 to a joint savings account Leader responsible for collection and opening up of savings account in the bank. The savings are converted into fund. Used for emergency lending to an individual within the group. Eligible for loan after one year of formation.

Number of SHGs increased from 1500 in 2001 to 8000 in 2003. ICICI has utilized its financial expertise to fashion a model that is economically viable. ICICI has positioned itself as socially conscious corporate citizen.

Geography: Rural India Industry: Agricultural trading Product: E-Choupals; internet-connected computers Operated by local farmer called sanchalak. Information provided by samyojaks. Background: Farmers sold grain to middlemen at below market prices. Lack of information led to exploitation of farmers.

Innovation:
ITC developed E-choupals; network of computers

which provided web access in rural farming villages, each manned by a literate host farmer to support illiterate farmers. Farmers also order raw material at an aggregate level, thereby saving money (economies of scale) Connects subsistence farmers with large farms,current agricultural research and global markets.

Better information content. Better information timing Transportation cost Transaction duration Weighing accuracy Professionalism and dignity Results in better yield through better practices. Realizing better prices

Income generation among the poor Examples Amul- collects 6.5 million litres of milk from about 2.6 million farmers Shri Mahila Griha Udyog Lijjat Papad-

Coca-Cola Setup a plant in Palachimada village in Kerala groundwater was rapidly being depleted in surrounding areas accused of distributing waste sludge containing unacceptably high levels of cadmium to villagers as free fertilizer Plant had to stop its operations

IF corporations can without causing the very poor to divert income from pressing needs, sell products that make people more productive, that are produced in a way that create local jobs and increase local human capital, without driving out local industries, and reinvest locally instead of repatriating profits, THEN, they can be an important part of the solution to poverty, which is excellent CSR.

IF corporations can create low price, quality products, that can be scaled across many BOP markets and achieve high volume, while creating means for the capital constrained poor to buy, and building relationships and infrastructure that allow them to reach poor consumers, and finally, follow the directives on the previous slide (at least enough to avoid becoming a publicized bad example) THEN, they can serve BOP markets profitably.