Business Model: "BoP: Bottom of the Pyramid" (aka Target the Poor)

?? PRICING MODEL pattern ??

Prologue

The Target the Poor (or Bottom of the Pyramid) business model is an innovative approach that focuses on serving the world's poorest populations, typically those earning less than $2,000 annually. This strategy recognizes the vast market potential in addressing the needs of over half the world's population, often overlooked by traditional business models.

Prahalad and Hart (2002) coined the term “Bottom of the Pyramid” (BoP) in 1998 to represent a low-income, underserved segment. There are a number of existing BoP approaches, but in essence, they all acknowledge the large economic potential of poor countries. A company that implements a BoP strategy can benefit from volume effects because their products are designed to meet these consumer needs, allowing them to compensate for the very low margins that they earn in these markets through the development of products to meet these needs (Angot & Plé, 2015).

?? Key Takeaways

1. Vast Market Potential: The model targets a large, underserved population at the base of the economic pyramid, offering significant growth opportunities. Addresses needs of billions of low-income consumers. Taps into an often-overlooked market segment.
2. Product Adaptation: Success requires substantial modification or redesign of products and services to meet specific needs and affordability constraints. Simplified, cost-effective product designs. Focus on essential features and functionality.
3. Innovative Distribution: Reaching target customers often necessitates new distribution and logistics strategies due to infrastructure challenges in emerging markets. Decentralized distribution networks. Leveraging local entrepreneurs and communities.
4. Social Impact: This model often combines profit-making with positive social impact, addressing critical needs in underserved communities. Potential for improving living standards. Aligns business goals with social development.
5. Technology Leverage: Increasing mobile and internet penetration in low-income markets creates new opportunities for digital solutions. Mobile-first strategies. Digital financial services and e-commerce.

?? Implementation

To successfully implement the Target the Poor business model:

1. Conduct thorough market research to understand specific needs and constraints of the target population.
2. Develop products or services that are affordable, durable, and tailored to local conditions.
3. Create innovative distribution channels that can reach remote or underserved areas.
4. Leverage local partnerships and community engagement for better market penetration.
5. Utilize technology, especially mobile solutions, to overcome infrastructure limitations.

?? Questions to guide you

1. How can you make existing services attractive to customers who can’t afford them at this moment?
2. Which services or products could we offer to lower-income customers in addition to our established clientele? Can we adjust our services to make them attractive to people who cannot afford them at the present time?
3. What other services or products might we be able to offer to lower-income customers in addition to our current clientele?
4. How can you bundle your products to be more accessible and understood by lower income customers?
5. Can we reach new customers by porting our solutions to mobile devices?
6. Is it possible to expand our customer base by adapting our solutions for use on mobile devices?

?? Real-world examples of successful implementation include:

• Hindustan Unilever's Wheel: A low-cost detergent specifically designed for hand-washing clothes in rivers, with decentralized production and distribution.
• Grameen Bank: Pioneered microfinance, providing small loans to impoverished individuals, particularly women, without collateral.
• Tata Nano: Developed an ultra-low-cost car priced at $2,500, making car ownership accessible to a broader segment of the Indian population.
• M-Pesa: A mobile phone-based money transfer and microfinancing service, widely adopted in Kenya and other African countries.
• Aravind Eye Care System: Provides low-cost eye care services in India, using a cross-subsidization model to serve both paying and non-paying patients.

?? Challenges to Implementation

• Developing profitable business models while maintaining affordability.
• Overcoming infrastructure and distribution challenges in target markets.
• Adapting products and services to meet local needs and preferences.
• Managing potential reputational risks associated with serving low-income markets.
• Balancing social impact with financial sustainability.

?? Bottom Line

The Target the Poor business model offers a unique opportunity for companies to tap into a vast, underserved market while potentially creating significant social impact. By innovating in product design, distribution, and pricing strategies, businesses can address the needs of low-income consumers and contribute to economic development in emerging markets.

While challenging to implement, this model can lead to sustainable growth, brand differentiation, and the creation of new markets. For entrepreneurs and established companies alike, targeting the bottom of the pyramid presents an opportunity to drive innovation, expand market reach, and build a foundation for long-term success in rapidly evolving global markets. However, the huge economic potential at the BoP has not led to the entry of the large number of for-profit enterprises (Goyal, et al. 2014).

PROFESSIONAL: I conduct academic research by interviewing CEOs of small and medium-sized businesses (SMEs) in Japan, known as Japanese Global Niche Top (aka "Hidden Champion").

• I am also conducting a holistic four-year study that examines the growing entrepreneurial ecosystem in Japan, which includes interviews with startups, incubators, accelerators, studios, living labs, venture capitalists, and government officials (to date, individuals have been interviewed in Tokyo, Osaka, Kyoto, and Hiroshima).

PERSONAL: I am a polymath and love all types of topics typically reading 2-3 books each week. Now, I have a chance to share my insights with readers!

References

Angot, J., & Plé, L. (2015). Serving poor people in rich countries: the bottom-of-the-pyramid business model solution. Journal of Business Strategy, 36(2), 3-15.

Gassmann, Oliver, Frankenberger, Karolin, & Csik, Michaela. (2020). The business model navigator?: the strategies behind the most successful companies (2nd ed.). Pearson Education, Limited.

Goyal, S., Sergi, B. S., & Kapoor, A. (2014). Understanding the key characteristics of an embedded business model for the base of the pyramid markets. Economics & Sociology, 7(4), 26.

Jun, S., Lee, D., & Park, J. (2013). Determining business models in bottom‐of‐the‐pyramid markets. Industrial Management & Data Systems, 113(7), 1064-1082.

Prahalad, C. K., & Hart, S. L. (2002). The Fortune at the Bottom of the Pyramid. strategy+ business,(26). Wharton University. Philadelphia.

Sinkovics, N., Sinkovics, R. R., & Yamin, M. (2014). The role of social value creation in business model formulation at the bottom of the pyramid–implications for MNEs?. International Business Review, 23(4), 692-707.

Ver Loren van Themaat, T., Schutte, C. S., Lutters, D., & Kennon, D. (2013). Designing a framework to design a business model for the'bottom of the pyramid'population: case study. South African Journal of Industrial Engineering, 24(3), 190-204.

Weinhardt, C., Anandasivam, A., Blau, B., Borissov, N., Meinl, T., Michalk, W., & St??er, J. Target the Poor. The Business Model Navigator Testimonials, 23(5), 375.

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