Growth Strategies

Why the Bottom of the Consumer Pyramid Should Be Your New Target Market

Why the Bottom of the Consumer Pyramid Should Be Your New Target Market
Image credit: emmam | Foap.com

The following excerpt is from Jason Haber's new book The Business of Good. Buy it now from Amazon | Barnes & Noble | iTunes | IndieBound

In The Business of Good, serial and social entrepreneur Jason Haber intertwines case studies and anecdotes that show how social entrepreneurship is creating jobs, growing the economy, and ultimately changing the world. In this edited excerpt, Haber takes a closer look at the market opportunities available at the Bottom of the Pyramid.

We’ve known for many years about the economic potential of those at the lower end of the economic spectrum -- the Bottom of the Pyramid (BoP) is now fertile ground as the largest consumer market on earth. Instead of looking at the world’s poor as a group to be pitied, social entrepreneurs look at them as market to be coveted. From microlending to scalable businesses, social entrepreneurs have changed the way we see the developing world.

But it wasn’t always like that.

It was 1932. Times were terrible. The U.S. gross domestic product fell by 13.4 percent that year. Industrial stocks were down 80 percent since their peak. Forty percent of all banks in the U.S. had already failed. Unemployment soared to over 23 percent of the population.

It had been a year and a half since the first supermarket opened. An ambitious governor who sat at the top of the economic pyramid would soon become the 32nd president of the United States. While his wealth could have easily blinded him to the plight of those at the bottom of the economic pyramid, his life experiences taught him otherwise. Polio deprived him of the use of his legs, but it strengthened his resolve to make a difference in the world.

Franklin D. Roosevelt knew what it was like to be forgotten. His once promising political career -- he was the Democrats’ nominee for vice president in 1920 -- was largely an afterthought once he received the polio diagnosis. He turned his attention to stamp collecting and reading. When the time came to return to politics, he had a different outlook. During the April 1932 address titled “The Forgotten Man,” he shared his thoughts on capital markets with the nation.

“These unhappy times call for the building of plans that rest upon the forgotten, the unorganized but the indispensable units of economic power,” Roosevelt said. “[Plans] that build from the bottom up and not from the top down, that put their faith once more in the forgotten man at the bottom of the economic pyramid.”

Thus, the concept of BoP entered our lexicon. In Roosevelt’s time, the workers at larger companies couldn’t afford the goods they were producing. It was assumed they were priced out and weren’t a part of the economy. Roosevelt didn’t believe this was true. His focus as president would be to build from the bottom up and to create opportunities for the bottom of the pyramid.

Today we use BoP to reference the 4 billion people in the developing world who earn less than $1,500 a year. This demographic resides in geographies where stable governments, natural resources, and reliable communications networks are circumspect. The work of social entrepreneurs is largely focused on bringing Capitalism 2.0 to this market.

And it isn’t just any market. It’s worth an estimated $5 trillion, making it the largest untapped market on earth. The products that social entrepreneurs bring change the lives of these consumers.

We all benefit when more people participate in the economy. C.K. Prahalad wrote about this in The Fortune at the Bottom of the Pyramid, when he first brought this global market to the forefront. The book was a game changer. Bill Gates referenced it as “an intriguing blueprint for how to fight poverty with profitability.” In the decade since, companies have launched products specifically designed for those earning under $2 per day. It isn’t easy. With costs fixed, it comes down to scale. You need many consumers for the investment to yield any sort of return. It has been a winding road, as it always is with emerging markets, but some are making it.

Marketing to this unique demographic requires an entirely new approach to marketing. Traditional thinking -- like so much else in Capitalism 2.0 -- requires a reboot.

During a meeting of the American Marketing Association in 1953, Harvard Business School professor and marketing guru Neil Borden coined a new term: the “marketing mix.” It’s still used to this day to determine what tactics a company will use to effectively sell its products in the market place. Borden’s four P’s -- promote, price, product, and place -- became the bedrock for the emerging discipline of consumer marketing.

For the BoP, author Prahalad developed a different marketing mix. He took into account the special circumstances, obstacles, challenges, and opportunities of reaching those in this market. His four A’s are awareness, access, affordable, and available.

Underlying his four A’s is the scale that sellers to the BoP need to achieve. When you’re selling product at very low prices, the only way to make a profit is with volume. High market penetration is paramount. In some markets, as much as 30 percent penetration is required for profitability. Such large-scale user adoption means consumers are aware your product exists, they have access to it, the price point works within the budget of the local community, and it’s easily available for purchase.

In the developing world, where roads, infrastructure, and technology can be limited, there are added challenges to awareness, access, affordability, and availability that don’t present themselves in the developed world.

The remarkable work of thousands of social entrepreneurial ventures has altered the course of millions of lives. People can only grow, and communities can only succeed, when their needs are met. Writing about this in 1943, psychologist Abraham Maslow presented “A Theory of Human Motivation” as a paper in Psychological Review. He contended that there are five basic human needs that are best expressed on a pyramid, starting from the bottom and rising to the top: physiological, safety, love/belonging, esteem, and self-actualization.

Physiological needs such as air, water, and food are the fundamental requirements for our survival. Maslow viewed these needs as primary. Once they are attended to, needs higher on the pyramid can be addressed. Social entrepreneurs begin at the bottom with this most elemental of needs. And they don’t stop there. They work to provide people with tools and a framework to achieve the other levels in Maslow’s hierarchy of needs.

Those at the Bottom of the Pyramid are no longer trapped in hopelessness. They’re on the move. Once their basic needs are addressed, they can rise on Maslow’s hierarchy. At its peak is self-actualization. This is when a person reaches his or her potential. Imagine what is possible once millions of people at the BoP reach this milestone. They won’t be in the BoP much longer. That will change everything.