Sol DeLeon The Market at the Bottom of the Pyramid
Is There a Market at the Bottom of the Pyramid? <ul><li>Author, Distinguished University of Michigan Business Professor, C...
Economics 100 <ul><li>More goods = increased utility (benefit) </li></ul><ul><li>Capitalism is the best system we have fou...
What is the Bottom of the Pyramid? <ul><li>> $20,000 </li></ul><ul><li>$1,500 - $20,000 </li></ul><ul><li>$1,500 </li></ul...
Do the poor have money? /  The Poverty Penalty <ul><li>Comparison of prices in Mumbai shanty town (Dharavi) vs. wealthier ...
Changing Nature of BoP <ul><li>Increasingly urban </li></ul><ul><li>Increased connectivity </li></ul><ul><li>Increased acc...
Global Distribution of Poverty <ul><li>© Copyright SASI Group (University of Sheffield) and Mark Newman (University of Mic...
Capacity to Consume
<ul><li>•   Affordability –  a change in size or method of payment to reach BoP customers without loss of quality </li></u...
<ul><li>•  Affordability  </li></ul><ul><li>•  Access  – a distribution pattern that reaches the poor where they work and ...
<ul><li>•  Affordability  </li></ul><ul><li>•  Access </li></ul><ul><li>•  Availability  - “Often the decision to buy is b...
Twelve Principles of Innovation for the BoP Market <ul><li>•  Innovation: Hybrids </li></ul><ul><li>•  Identifying Functio...
Twelve Principles of Innovation for the BoP Market <ul><li>•  Scale of Operation </li></ul><ul><li>•  Deskilling of Work <...
Twelve Principles of Innovation for the BoP Market <ul><li>•  Designing for Hostile Infrastructure </li></ul><ul><li>•  Di...
Conclusions of  “The Fortune at the Bottom of the Pyramid” <ul><li>•  Greater consumer choice = greater dignity </li></ul>...
Criticism 1: The Size of the BoP PPP = Purchasing Power Parity  FX = Foreign Exchange Size of BoP Daily Consumption Annual...
Criticism 1: The Size of the BoP http://www.oxfamblogs.org/fp2p/?tag=growth
Criticism 2: The Issue of Quality <ul><li>There are only three principle ways to lower real prices for the BoP (or anyone)...
Criticism 3: Should we even sell to the BoP? <ul><li>- “Getting the poor to consume more will not solve their problems, co...
Criticism 3: Should we even sell to the BoP? <ul><li>Nobel-prize Economist Amartya Sen: </li></ul><ul><ul><li>“ The depriv...
My Thoughts / Are you still awake? / Questions <ul><li>Thank you for listening! </li></ul>
Sol DeLeon Thank You!
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Is There a Market at the Bottom of the Pyramid?

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Is There a Market at the Bottom of the Pyramid?

  1. 1. Sol DeLeon The Market at the Bottom of the Pyramid
  2. 2. Is There a Market at the Bottom of the Pyramid? <ul><li>Author, Distinguished University of Michigan Business Professor, C.K. Prahalad (1941 – 2010) </li></ul><ul><li>Wharton School Publishing, 2004 </li></ul>
  3. 3. Economics 100 <ul><li>More goods = increased utility (benefit) </li></ul><ul><li>Capitalism is the best system we have found for delivering goods to consumers </li></ul>More More More
  4. 4. What is the Bottom of the Pyramid? <ul><li>> $20,000 </li></ul><ul><li>$1,500 - $20,000 </li></ul><ul><li>$1,500 </li></ul><ul><li>< $1,500 </li></ul>4 Billion People 75-100 Million People 1.5 – 1.8 Billion People
  5. 5. Do the poor have money? / The Poverty Penalty <ul><li>Comparison of prices in Mumbai shanty town (Dharavi) vs. wealthier neighborhood (Warden Rd.) </li></ul>Item Dharavi Warden Rd. Poverty Premium Credit per annum 600-1000% 12-18% 53.0 Diarrhea meds $20.00 $2.00 10.0 Phone call per min. $0.04 - $0.05 $0.025 1.8
  6. 6. Changing Nature of BoP <ul><li>Increasingly urban </li></ul><ul><li>Increased connectivity </li></ul><ul><li>Increased acceptance to use advance technology </li></ul>
  7. 7. Global Distribution of Poverty <ul><li>© Copyright SASI Group (University of Sheffield) and Mark Newman (University of Michigan). </li></ul>
  8. 8. Capacity to Consume
  9. 9. <ul><li>• Affordability – a change in size or method of payment to reach BoP customers without loss of quality </li></ul><ul><li>• Access </li></ul><ul><li>• Availability </li></ul>Three As to Capacity to Consume
  10. 10. <ul><li>• Affordability </li></ul><ul><li>• Access – a distribution pattern that reaches the poor where they work and live, at convenient times </li></ul><ul><li>This requires Geographic Intensity of Distribution </li></ul><ul><li>• Availability </li></ul>Three As to Capacity to Consume
  11. 11. <ul><li>• Affordability </li></ul><ul><li>• Access </li></ul><ul><li>• Availability - “Often the decision to buy is based on the cash [the poor] have on hand at a given point … They cannot defer buying decisions.” </li></ul><ul><li>This requires Distribution Efficiency </li></ul>Three As to Capacity to Consume
  12. 12. Twelve Principles of Innovation for the BoP Market <ul><li>• Innovation: Hybrids </li></ul><ul><li>• Identifying Functionality </li></ul><ul><li>• Process Innovation </li></ul><ul><li>• Interfaces </li></ul><ul><li>• Education of Customers </li></ul>
  13. 13. Twelve Principles of Innovation for the BoP Market <ul><li>• Scale of Operation </li></ul><ul><li>• Deskilling of Work </li></ul><ul><li>• Price performance </li></ul><ul><li>• Sustainable (Environment-conscious) Development </li></ul>
  14. 14. Twelve Principles of Innovation for the BoP Market <ul><li>• Designing for Hostile Infrastructure </li></ul><ul><li>• Distribution: Accessing the Customer </li></ul><ul><li>• Challenging Conventional Wisdom in Delivering Products and Services </li></ul>
  15. 15. Conclusions of “The Fortune at the Bottom of the Pyramid” <ul><li>• Greater consumer choice = greater dignity </li></ul><ul><li>• The presences of multinational corporations and e-governance will oppose corruption and encourage better systems </li></ul><ul><li>• The above two conclusions will lead toward an elimination of poverty </li></ul>Effect of BoP
  16. 16. Criticism 1: The Size of the BoP PPP = Purchasing Power Parity FX = Foreign Exchange Size of BoP Daily Consumption Annual Economy Prahalad's Estimate 4 – 5 Billion $2 per day $13 Trillion in PPP Critic's Estimate 2.5 – 3 Billion $1.25 per day $1.2 Trillion in Global FX
  17. 17. Criticism 1: The Size of the BoP http://www.oxfamblogs.org/fp2p/?tag=growth
  18. 18. Criticism 2: The Issue of Quality <ul><li>There are only three principle ways to lower real prices for the BoP (or anyone): </li></ul><ul><li>• Reduce profits </li></ul><ul><li>• Lower the cost of production through innovation/technology </li></ul><ul><li>• Lower the quality of the good </li></ul>
  19. 19. Criticism 3: Should we even sell to the BoP? <ul><li>- “Getting the poor to consume more will not solve their problems, contrary to the BoP argument. Their problem is that they cannot afford to consume more.” -UMBS professor, Annel Kanari </li></ul><ul><li>- “... in their in depth study [they] find that 'over 10% of male respondents report spending as much as (or more than!) their regular income on alcohol.' … The rich also often make choices not in their self-interest, but the consequences are not as severe in their case.” - ibid </li></ul>
  20. 20. Criticism 3: Should we even sell to the BoP? <ul><li>Nobel-prize Economist Amartya Sen: </li></ul><ul><ul><li>“ The deprived people tend to come to terms with their deprivation because of sheer necessity of survival … The mental metric of pleasure or desire is just too malleable to be a firm guide to deprivation and disadvantage. Social and economic factors such as education, elementary health care, and secure employment are not only important in their own right, but also for the role they can play in giving people opportunity to approach the world with courage and freedom. ” </li></ul></ul>
  21. 21. My Thoughts / Are you still awake? / Questions <ul><li>Thank you for listening! </li></ul>
  22. 22. Sol DeLeon Thank You!
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