Why the World's Poorest People Are Its Strongest Market

Last Updated Oct 18, 2010 4:24 PM EDT

CK Prahalad and Stuart Hart published their famous article "The Fortune at the Bottom of the Pyramid" in January 2002. Its now familiar but still radical thesis: The biggest opportunity globalization creates for multinational corporations is not to sell to the world's new millionaires or middle classes, but to approach its poorest people, those who earn at most a few dollars a day.

Nearly nine years later, what have we learned? Was CK right? Is a fortune there? Can multinationals reach it? The short answers: Yes all around. Well-conceived and well-executed, the strategy can really work, and in the process can throw off tremendous social benefits. It works for three reasons:

1. Success feeds on success. The very act of bringing poor people into a market tends to make them producers as well as consumers. Their incomes rise; the bottom of the pyramid becomes richer and more attractive -- a growth market generating its own momentum. In 2002, GDP per capita in India was about $1,600; in China $2,900; in Brazil $7,600; and in Indonesia $2,700. The respective figures today are $3,100, $6,600, $10,200, and $4,000. Those four countries have a combined population of about 3 billion -- not quite half the world's population of 6.7 billion. While their economies are growing rapidly, their bottom-of-the-pyramid market remains huge: half the population of India and China earns between $2.50 and $7.50 a day.

2. Managers now can draw on a lot of collective experience. These days, there are plenty of stories of success and failure, tried and proven business models, and the like. Some of these examples are social-entrepreneuring startups like D.Light Design, funded by the Acumen Fund among others. D.Light makes solar-powered lamps and phone chargers that sell for under $10, and it's on track to have sales of more than half a billion dollars annually within five years. Others, though, are Western companies like Danone (as in Dannon yogurt), where 42% of sales now come from emerging markets, seven times the figure a decade ago. A side benefit of selling to the poorest, as CEO Franck Riboud told the Wall Street Journal this summer: "Learning to make a nutritious product that can be sold for 8 cents without a loss helps us when we put in place a volume strategy even in mature markets."

All in all, we now understand the forgotten billions well enough, according to colleagues of mine, to segment consumers and implement value-chain frameworks that have been tested and are known to work.

3. Technology has dramatically lowered the cost of reaching the poorest of the poor. More than a decade ago, I wrote that Moore's law is the poor's friend. The unceasing decline in the cost of processing power must inevitably bring computers within the reach of everyone, I argued. Today, there are a billion PCs in the world, but the real story is mobile phones, of which there are 4.6 billion -- enough for two out of every three human beings. Many of them are very poor. In Bangladesh, cell phone penetration is 31%; the fastest-growing mobile phone markets are in Africa. Using text messages in what's called "frontline SMS", NGOs are delivering legal, banking, medical, and educational services in places that could not be reached at all -- let alone reached economically -- even a couple of years ago. Bottom line: Add a zero to the number of people you can reach; remove a zero from the cost of reaching them.

Now, just because a fortune lies at the bottom of the pyramid doesn't mean your company has what it takes to compete there -- let alone win. But it's increasingly clear that companies that establish a right to win in these markets will be tough to beat anywhere.

Image courtesy Flickr user Dipanker Dutta, CC 2.0