The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits

In his book, The Fortune at the Bottom of the Pyramid, C.K. Prahalad, questions the traditional approaches to eradicating poverty used by governments, aid agencies and the World Bank. The poor he defines as the 4 billion people who live on less than $2 a day. And it is this group which he claims are resilient entrepreneurs and should be respected as value-conscious consumers.

While those at the bottom of the pyramid are indeed extremely poor by virtue of their vast numbers a variety of highly creative win-win situations can be created through partnerships to provide profitable products and services..

Prahalad argues that the dominant logic of multinationals renders them incapable of reaching the purchasing power at the bottom of the pyramid. This includes the assumption that, since the poor can’t afford their products and services, they will never be targeted customers; that the poor have no use for the sorts of products that are sold in developed countries; that new technologies are adopted only in developed counties and that there would be no point in attempting to recruit entrepreneurs amongst the poor.

Prahalad shows that such a logic is clearly false. Take technology, for example. The very rapid spread of cell phones within China, India and Brazil came from the bottom of the pyramid. Fishermen in Kerala, India use their cell phones from their boats to sell their catch to the highest bidder amongst multiple possible landing sites. Indian farmers use PCs to check soybean futures at the Chicago Board of Trade. Women in southern India video conference to explore the cost of loans from different banks. Word of mouth, via cell phones and PCs in village kiosks enables news of good bargains to spread far and wide.

Another issue is distribution, which is a simple matter amongst the densely populated urban areas, but is far more difficult amongst the rural poor. It is here where creative solutions can be found. Hindustan Lever Ltd in India trained entrepreneurial women from villages to become distributors, they are called Shakti Amma (empowered mother). Likewise Avon in Brazil uses 800,000 “Avon ladies” to reach markets even in remote areas of Amazonia.

Yet another area in which creative solutions can be employed is in the premium the poor must pay for being poor. In a shanty town outside Mumbai the poor can pay between 5 to 25 times more for goods and services as compared to a higher income area of Mumbai itself – generally because of poor distribution and local monopolies, something which private-sector businesses could unlock. To take one example, local moneylenders charge between 600 and 1000 percent interest. If banks had access to this market they could offer loans at 25%, which may appear high but is certainly far better than can be obtained from money lenders. What is more those at the bottom of the pyramid do not represent a higher risk.

Thus, with many more examples, Prahalad, challenges us to reexamine our assumptions about the poor. Prahalad’s book can be purchased from Wharton School Publishing (http://www.whartonsp.com). A sample chapter can be downloaded at http://www.whartonsp.com/articles/article.asp?p=389714