On April 16, 2010, we lost one of the most influential thinkers of our time, Prof. Coimbatore Krishnarao Prahalad . He will always be remembered for his endless list of contributions in the field of management and social science. Though he was known for his writings on strategy and innovation, one of his most remarkable contributions has been the idea of creating wealth at the lower strata of the society. He was the first man to coin the acronym BOP i.e Bottom Of the Pyramid. According to him, poverty is an evil that must be eradicated but it cannot be eradicated by mere political rhetoric or by just doing some philanthropy. It can be scuttled only when proper business initiatives are taken, initiatives that have a clear cut vision, clear cut plan to generate money, clear cut revenue generation model. He proposed that rather than thinking of them as a burden, business must consider them as a resource and devise such plans that are mutually beneficial, plans that consider the BOP as potential consumers who can be catered to by the modern business thereby generating profits for the business. At the same time this would also provide enough entrepreneurial cum development opportunities to the people from BOP so that such people can avail better livelihood.
According to Prof. C. K Prahalad, very often, companies that are willing to cater to the BOP customers suffer from some misconceptions. These misconceptions are not only untrue but they also demotivate big enterprises from realising the huge potential available in the BOP segment. Some of them are:-
BOP customers don’t have buying potential: This is the biggest misconception that private enterprises have.BOP customers have huge potential, albeit they do not have buying power like their well off counter parts. These people who form about 4-5 billions of the world population with their own latent needs and demand, should not be ignored at any cost .These people might look poor at the surface but they do have capacity to spend and they are doing it. It’s estimated that 85% of the population living in Dharavi (a slum in Mumbai) have TV sets, more than half of them have mobile phones and so on.
One other important fact that is often ignored is that these people often pay much more than their well-off counterparts to make purchases. In economics, there is a special term for this – known as POVERTY PREMIUM, often this premium amount is paid on account of poor distributions, lot of intermediaries, lack of accessibility, vested interests etc. For e.g., a relatively well-off person can go to a bank and can get loan at a decent rate of 10-12%, but if a poor person has to do the same, due to lack of accessibility he will be forced to go to a local money lender who might charge interest as high as 600-1000%. Similarly due to water mafias, generally, poor people are forced to pay a much higher price for water than their fortunate counterparts living in middle-class areas. Thus this poverty premium provides a real time challenge as well as opportunity for the firms to cater to the BOP customers.
BOP customers don’t have collective strength: This again is a very short sighted vision which firms have of BOP customers. As said earlier, most of the BOP customers have access to television, radio and mobile phones, as a result they are also well connected with each other, and they have their own minimum requirements and expectations from various external agencies such as the Government, NGOs and private players.
BOP customers cannot be catered to because of poor distribution facility: The genesis of this view lies in the misconception that BOP consumers reside only in rural areas and since in most of the developing nations rural infrastructure is not well developed it is often tough to reach to them .Now, it’s true that rural infrastructure is not well developed but a very large chunk(around 35-40%) of BOP customers reside in cities not in villages. Companies ought to think of innovative and cost effective methods to cater to them. There are companies like Avon and HUL, who have catered to such markets by appointing distributors from their own local population who can understand their needs and demands in a much better way.
-Paritosh Kashyap (Batch 2009-11)
On behalf of the students of TAPMI, the author wishes to pay tribute to Prof.C.K.Prahalad, through this short article on the views of such a great personality, who had enlightened the world of management in the past two decades.