Economic & Business Focus: The Bottom of the Economic Pyramid

The next business revolution will come from companies that serve the low-income markets of the developing world.

The most vibrant global companies are pursuing strategies to tap the 4 billion consumers at the bottom of the economic pyramid who live on less than $2 a day in developing countries around the world. Bottom-of-the-pyramid (BOP) markets are the most promising source of revenue growth for these organizations going forward. More importantly, the search for creative ways to enter these markets will generate innovations that will drive business success in the coming decades. Already, industry leaders such as Microsoft, Vodafone, Hewlett-Packard, Intel, Procter & Gamble, DuPont, Unilever, ABN AMRO and Citigroup are moving into this new frontier with major BOP initiatives that include new product and packaging designs, microfinancing, and unique marketing techniques. What might have been considered an exercise in corporate responsibility only a decade ago is the new business imperative for the next 50 years.

It is no longer a question of whether the world's most successful companies will enter bottom-of-the-pyramid markets, but of how fast they can move to reach the developing world's underserved and unbanked consumers and entrepreneurs and make them part of the organization's core business. A report by McKinsey & Co. warns that "only by serving the mass market of the emerging world -- and not just its affluent segments -- can Western companies be forced to innovate in the ways required for future success at home." Capturing low-income markets not only requires companies to improve upon products and processes, but it also forces them to emphasize price performance as never before and focus unequivocally on all elements of cost. The innovations and efficiencies developed to serve these markets can be transferred back to the home base to improve processes there.

Within the BOP regions marked by extremely low per capita incomes, people typically pool their resources and dedicate an exceptionally large portion of their income to household purchases. "The poor represent a huge, untapped market," says C.K. Prahalad, Harvey C. Fruehauf Professor of Business Administration in the Stephen M. Ross School of Business at the University of Michigan in Ann Arbor. Prahalad is also author of "The Fortune at the Bottom of the Pyramid" (Wharton School Publishing, 2005), one of this year's most important business books. When companies look for new profit streams, they may find this invisible market far more lucrative than the luxury marketplace, he says. Prahalad estimates that bottom-of-the-pyramid markets represent $13 trillion a year in U.S. purchasing power parity -- a sum greater than the current annual U.S. GDP.