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Strategies:
Exploitation or a Win-Win
Solution?
March 14, 2007
Matt Evans
Wiam Hasanain
Lorin May
Melissa Ong
Overview
Opportunities
Conclusion
Appendix
Defining the ‘Bottom of the
Pyramid’: A Visual
Representation
Source: Prahalad, C.K. and Stuart L. Hart, “The Fortune at the Bottom of the Pyramid,” strategy+business, Issue 26, first quarter 2002
Defining the ‘Bottom of the
Pyramid’: Changing Attitudes
Modern View Incorporates Both
}
Historic
View
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Source: Bonsall, Amy, et al., “Turning Poverty Into Opportunity As A Means for Prosperity”, DLN White Paper, November 2005
Overview
Opportunities
Conclusion
Appendix
The Great Debate:
Win-Win or Misguided
Strategy?
Win-Win Misguide
Latent market for Poor d
lack income and
goods and services jobs; should produce
before consume
Large growth
opportunity, due to Vulnerable to poor
size of BOP purchasing decisions;
income should be spent
Catalyst for on shelter not ice cream.
economic
development Sale of MNC products
through providing does not clearly improve
affordable products social indicators
and services
MNC profits flow abroad,
do not help local
Case Study: BOP Strategy
Gone Wrong at Nestle
Project: In 1970’s, Nestle began marketing infant
formula to mothers in the developing world, with the
argument that bottled milk is “better” for infant
children.
Assumptions: Sterile water and bottles, no dilution.
Impact: Babies using Nestle’s product in developing
countries were 25X more likely to die of diarrhea,
and mothers developed an addiction to the product
after prolonged use stopped lactation.
Case Study: BOP Strategy
Gone Wrong at Nestle
In addition to the incorrect assumption about
sterile water, Nestle used questionable marketing
tactics with BOP consumers:
Health agencies condemned Nestle for
marketing instant infant formula in developing
countries.
Nestle’s marketing implied that Western women
substituted mothers’ milk with formula.
Promoting infants’ milk as a product that was
more beneficial to both mother and child than
natural breast milk.
Clearly violated the WHO/UNICEF’s International
Code of Marketing Breast-Milk Substitutes.
The Great Debate:
Conclusion
Merely selling to the BOP does not solve poverty, it
depends what you sell, how you sell it, and where it
was produced.
BOP strategies have the potential to bring positive
benefits to companies and communities, but
improper application can have devastating
consequences.
Understanding the local situation is crucial.
The key to resolving the debate is a better
understanding of both the risks/challenges and
opportunities presented by the BOP market…
Overview
Opportunities
Conclusion
Appendix
Risks & Challenges:
Operating Economics
Environment
Exposure to new Market size unclear:
political and economic
risks estimates range from
Resources, capabilities $0.3 trillion to $13
and knowledge of the trillion.
complexities and Prahalad uses purchasing power parity
and assumes 4 billion BOP spending
subtleties of sustainable $4/day to estimate $13 trillion.
development are Aneel uses financial exchange rates
(that MNCs would use to expatriate
required. profits) and assumes 2.7 billion BOP
spending $1.25/day¹ to estimate $0.3
Consumers can’t afford trillion.
differentiated products
Competing with local
Low margin; high fixed
business can threaten costs
the existing power Distribution challenges
structure.
High price sensitivity
and per unit
transaction costs
Overview
Opportunities
Conclusion
Appendix
Opportunities
BOP consumers suffer At the same time,
a poverty penalty: BOP consumers:
Opportunities
Conclusion
Appendix
4 Keys to Unlocking BOP
Markets to Corporate
Products
Source: Prahalad, C.K. and Stuart L. Hart, “The Fortune at the Bottom of the Pyramid,”
strategy+business, Issue 26, first quarter 2002
Shape Aspirations:
Engage the BOP as Joint Problem
Solvers
Focus on the poor as producers,
not just consumers.
Upgrade skills and productivity to
improve lives and increase
purchasing power.
Channel resources back into local
communities to improve
standards of living.
Case Study: ITC
Enables Market Pricing
Encourage investment in
productive assets (tools,
agricultural materials, preventative
health).
Opportunities
Conclusion
Appendix
Conclusion:
For those combating
poverty
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,