On Business Innovation for the “Bottom of the Pyramid”
An article in the Red Herring on business opportunities in poor/developing/rural economies with some specific examples of “locally appropriate” products and services. C.K. Prahalad is heavily quoted, as usual.
“There are five billion people in developing countries that are currently underserved, but can’t wait to join the global economy,” says Coimbatore Krishnarao Prahalad, a University of Michigan professor and author of best-selling business books, including The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits.
Consumers “at the bottom of the pyramid”—as Mr. Prahalad refers to the poor—can’t afford the same products as Western consumers. On average, they earn less than $2 per day. Mr. Prahalad, considered one of the world’s most influential business thinkers, believes companies can make a profit targeting this market, if they make their advanced technology affordable.
First, price/performance ratios need to improve by a factor of 30 to 100, he says. “But contrary to popular belief, there is more to it than just taking existing technology and removing some functionality,” he says. “Products for developing countries often have to be more advanced than those for the developed world.”
How can one sell more advanced products at lower prices and still make money? “Through innovation,” says Mr. Prahalad. The $39 you pay for a DVD player that was made in China isn’t all about low labor costs, he says. It is about doing things differently.
“In India, car manufacturers such as Tata and Hyundai sell cars for $7,000—for $9,000 you have a car with a video screen in the back seat and the quality is high,” says Mr. Prahalad. “Why do we sell cars in the U.S. and Europe for $20,000?”
Well, actually, there are a lot of reasons why the US/Western European automobiles are more expensive (starting with distribution costs, safety features, quality, and support). But this illustrates another aspect of bringing products and services to the developing markets, which is that simply bringing an existing product or service usually won’t work.
Other examples cited in the article include a Gillette razor intended for use without running water, a Visa experiment with microfinance, the AMD PIC internet appliance, the HP village photographer program, and Celtel’s prepaid mobile phone operation.
Making technology inexpensive generally requires huge upfront investment and years before seeing a return. Making innovative use of existing technology to suit local needs can be a better fit for markets that demand both advanced capabilities and lower selling prices. This can result in an interesting combination of high and low technology, such as the wireless data and voice-over-IP network we’re building in Kuppam, which uses open source (Linux + Asterisk) running on generic x86 servers, and a range of wireless network equipment, including locally-built cantennas made from recycled bean cans.
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