ERADICATING POVERTY THROUGH PROFITS C K PRAHALAD

THE FORTUNE AT THE BOTTOM OF THE PYRAMID

Ashutosh Yadav Vineet Dubey Pritam Gayakwad Ashish Kumar Jha Anant Kawale

(04) (28) (34) (41) (48) (MMS-2007-09)

At the bottom of the pyramid

Consists of 4 billion people Living on less than $ 2 per day 400 million people in India constitutes the bottom of the pyramid

Purchasing Power Parity in US dollars > $20,000

$1,500 - $20,000

Population in Millions Tier1 75 - 100

Tiers 2-3
$1,500

1,500 1,750

Tier 4
4,000 <$1,500

Tier 5

Exploitation of poor people by Private sector. Rural population was primarily poor & urban population was relatively rich. Private sector businesses , especially MNCs logic about BOP.

Aid Agencies

Politicians, public policy establishments

BOP latent 4-5 billion consumer opportunity

NGOs, civil society organizations

Private sector, including MNCs

PRIVATE ENTERPRISE

Civil society organizations and local government

Economic development and social transformation

Development and aid agencies

BOP entrepreneurs

BOP consumers

There is money at BOP. Access to BOP markets. The BOP markets are Brand Conscious. The BOP market is connected BOP consumers accept advanced technology readily

Create the capacity to consume The need for new goods and services Dignity and choice Trust is a Prerequisite

Huge market potential 4 to 5 billion underserved people Economy of more than $ 13 trillion PPP The needs of the poor are many

Thus, the case for growth opportunity in the BOP markets is easy to make.

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

Price Performance Innovation : Hybrids Scale of Operations Sustainable Development : Eco-Friendly Identifying Functionality : Is the BOP different from Developed Markets? Process Innovation Deskilling Of Work Education Of Customers Designing for Hostile Infrastructure Interfaces Distribution : Accessing the Customer BOP markets essentially allow us to challenge the Conventional Wisdom in Delivery of Products and Services

Some BOP markets are very large and attractive Local innovations can be leveraged across other BOP markets Some innovations from the BOP markets will find applications in developed markets Lessons from the BOP markets can influence the management practices of global firms

Developing a unique approach to BOP markets and learning from the experience

Fine-tuning the traditional approach

Micro encapsulation of iodine in salt in India has found market in other BOP markets in Africa especially in Ivory coast, Kenya & Tanzania. Launch of Wheel detergent by HLL. Micro-financing by Grameen Bank in Bangladesh. Jaipur foot Aravinda Eye Care

The Voxiva Story of Peru.

Capital Intensity Sustainable Development Innovations

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

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

poor do pay for the services rendered to them and they ought to be viewed as consumers rather than passive beneficiaries

The Direct Access, Bank-led Model

- Catalyzed by the merger with Bank of Madura. - Utilizes its power to promote and grow SHGs.

Indirect Channels Partnership Model

-Looks to leverage current infrastructure and relationships of MFIs and NGOs.

Project Manager
Approve loan applications Helps with the development of SHGs

6 Coordinators
Formation of new SHGs Monitors the action of promoters

6 Promoters
Formation of new SHGs

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. Helps ICICIs bargaining power with the RBI and other government institutions.

Information centers linked to the internet. Connects subsistence farmers with large farms,current agricultural research and global markets. Operated by local farmer called sanchalak. Information provided by samyojaks.

Virtual integration of supply chain. Results in better yield through better practices. Farmers benefit by realizing better prices

Inbound Logistics

Display and Inspection

Auction

Bagging and weighing

Payment

Outbound Logistics

Pricing

Inbound Logistics

Inspection and Grading

Weighing and Payment

Hub Logistics

Better information content. Better information timing Transportation cost Transaction duration Weighing accuracy Professionalism and dignity

Disintermediation savings Freight costs Quality control Risk management

Largest retail chain in Brazil. - 330 stores - 10 million customers - 20,000 employees Sells electronics, appliances and furniture.

Individuals stratified into five basic economic classes: A,B,C,D and E. C,E and D considered to be the BOP 84% of the total population of Brazil. Represents significant purchasing power in Brazils economy at 41% total spending capacity. 70% of Casas Bahias customers have no consistent income.

Carne or passbook system allows customers to make small installment payments for merchandise. Payment schedules ranges from 1 to 15 months. Financed sales are responsible for 90% of all sales volume. Credit score system for customers.

Largest cement manufacturer in Mexico, second largest in USA, and the third largest in the world. Manufactures and sells raw cement, readymix concrete, aggregates and clinker. High level of commitment to customer service and satisfaction.

Means savings/property today Launched in 1998 Enables very poor to pay for services and building materials to make and upgrade their homes.

Provide poor families looking for better quality of life through households by offering good quality cement and raw materials at reasonable prices. Offer access to credit. Position Cemex as a responsible corporate citizen.

Is it as easy as he makes it sound?