Base of the Pyramid Protocol & How the Solae Company Tested it in India
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Case Code: BSTR292 Case Length: 15 Pages Period: 2006-2008 Pub Date: 2008 Teaching Note: Not Available |
Price: Rs.300 Organization: The Solae Company Industry: Food and Beverage Countries: India, Global Themes: Business Model |
Abstract Case Intro 1 Case Intro 2 Excerpts
Introduction
Base of the Pyramid or Bottom of the Pyramid (BoP) is a concept introduced by C K Prahlad (Prahlad) and Stuart L Hart (Hart). According to Prahlad and Hart, the global population can be divided into three segments depending on their purchasing power parity. At the top are those whose purchasing power parity is greater than US$ 15,000. There are around 800 million such people in the world. In the middle rung are around 1,500 million people whose purchasing power parity is between US$ 1,500-15,000. At the bottom are over 4 billion people with purchasing power parity of less than US$ 1,500, which is the minimum required to sustain a decent life. Over 1 billion consumers have a per capita income of less than one dollar a day.
But the poor have to pay what is called 'poverty penalty'. This refers to the premium that they are required to pay for products for which the rich pay a lower price. For example, the poor pay more for water, food, electricity, etc. as they buy lesser quantities of these. If multinational corporations (MNCs) and domestic companies can identify the gaps in demand and supply of the products among the BoP consumers, they can cater to their demands. At the same time, the poor will also be benefited as they will have more choice and get quality products at a reasonable price. MNCs realized the importance of targeting the BoP consumers when their sales began stagnating in the developed markets. There is a huge potential in the market and to reach these consumers, the MNCs needed to combine their capabilities with the local needs to arrive at business models that were completely different from the existing ones. The propounders of the BoP Protocol say that MNCs could identify sustainable new products and businesses by understanding and partnering with BoP consumers and developing products targeted at them. According to Prahalad, "The aspiring poor present a prodigious opportunity for the world's wealthiest companies. But it requires a radical new approach to business strategy."....
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