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Next Up at Wharton School Publishingwww.whartonsp.comSeeking Fortune at the Bottom of the PyramidIn a new book from Wharton School Publishing, author CK Prahalad argues for a moreinclusive capitalism.R E P R I N T E D F RO M K N O W LE D G E @ W H A RTO N < H T T P : / / K N O W LE D G E . W H A RTO N . U P E N N . E D U>To experienced marketingmanagers in the world’slargest multinational companies,it is perfectly obviouswho their target marketaudiences are: The developed worldand upper and middle class residentsof the developing world. The rationaleis simple: these are the customers whodemand and can afford costly productsand services, who appreciate advancesin technology and who provide intellectualexcitement to managers trying tocapture their business. The world’s poor?They are better served by governmentsand non-profit organizations. Selling tothem just isn’t worth the effort.Or is it?C. K. Prahalad, professor of corporatestrategy at the University ofMichigan Business School, has anentirely different perspective. In hisbook, The Fortune at the Bottom of thePyramid: Eradicating Poverty throughProfits, Prahalad argues that multinationalcompanies not only can makemoney selling to the world’s poorest,but also that they must undertake suchefforts as a way to close the growinggap between rich and poor countries.The book, scheduled for publicationthis summer, is one of the first volumesto be offered by Wharton SchoolPublishing, a new imprint resultingfrom the collaboration of the WhartonSchool with Pearson Education.At the core of Prahalad’s argumentfor targeting the world’s poorest as apotential market is the sheer size of thatmarket – an estimated 4 billion peopleconstituting two-thirds of the world’spopulation. More importantly, the marketwill grow to an estimated 6 billionpeople within 40 years because the bulkof the world’s population growth is occurringamong the poor.Despite the fact that these peoplesubsist on annual per capita incomesof less than $1,500, this “bottom ofthe pyramid” represents a multi-trillion-dollarmarket. Taken together,nine developing nations – China, India,Brazil, Mexico, Russia, Indonesia,Turkey, South Africa and Thailand– have a combined GDP that is larger,in purchasing power parity, than thecombined GDPs of Japan, Germany,France, the UK and Italy. The bottomof the pyramid, Prahalad says, is “thebiggest potential market opportunity inthe history of commerce.”Prahalad first became interested inthis issue in 1995. He wondered, forexample, how business can be so goodat developing technological resourcesat the same time that the world hasso many people who are so poor. Hisown experience traveling around theTake advantage ofWharton School Publishingalumni discounts - visitglobe and consulting with multinationalsprompted him to begin lookingfor evidence that large companiescan make a significant impact ondeveloping nations.A central point in The Fortune atthe Bottom of the Pyramid is that theeffort to help the poorest people canbe successful across different countriesand different industries ranging fromhealth care and finance to fast-movingconsumer goods and energy. The exceptions,Prahalad notes, are countriesthat are essentially lawless, like Somaliaand the Congo, and industries thatare among the most basic, particularlysome of the purely extractive industriesthat employ many people but have littleincentive or ability to empower them.Otherwise, Prahalad says, his approach“can work 90% of the time.”He expects this book to resonatewith a wide audience, including executivesat large companies, business schoolprofessors, students, and governmentand development agencies. “This is thefirst time that someone has put togethera coherent point of view on why theprivate sector can be an integral partof development and social transformation,”he says. He notes, too, thathe has served on a United NationsCommission under U.N. Secretary-General Kofi Annan to examineprivate sector developing. The commissionis scheduled to issue its reportsoon. Already, he says, “this kind ofthinking is having an impact.”30 . S U M M E R 2 0 0 4 . N E X T U P A T W H A R T O N S C H O O L P U B L I S H I N G
Profits are not the only reasonPrahalad urges multinational companiesto devise strategies, products andservices for the bottom of the pyramid.Citing U.N. figures, Prahalad pointsout that the richest 20% of the worldaccounted for about 70% of totalincome in 1960. In 2000, the richesthad 85% of total income whilethe fraction of income flowing to thepoorest 20% of the world fell from2.3% to 1.1%. Strategies aimed atthe bottom of the pyramid will, bynecessity, create jobs and improveincomes among those people, helpingslow and possibly even reversethe widening income gap. Certainlysuch strategies can help avert socialdecay, political chaos, terrorism andenvironmental degradation.One of the biggest reasons that multinationalshave avoided the bottom ofthe pyramid is that marketing to thepoorest isn’t easy. They usually lackregular cash flow, have little access tocredit and live in rural villages or urbanslums that make traditional methods ofadvertising and distribution difficult, ifnot impossible. Most of the people atthe bottom of the pyramid are part ofan informal economy in which they donot hold legal title or deed to their assets.Thus, effective strategies for reachingthese people will require remarkablydifferent approaches, several of whichare described in case studies in the bookand summarized below.Salt, Soap and HindustanLever Ltd.Hindustan Lever Ltd., one of Unilever’slargest subsidiaries, has been amongthe most effective consumer brandcompanies in reaching the poorest ofthe poor in India and other developingcountries. It is India’s largest exporter ofbranded consumer products and ForbesGlobal has named it the “best consumerhouseholds company worldwide.” Thecompany’s experience marketing two ofthe most basic consumer staples – saltand soap – illustrates some of the innovativeapproaches necessary to sell successfullyto the bottom of the pyramid.In the mid-1990s, HLL’s PopularFoods division recognized the growingpotential for branded staples in Indiaand launched its Annapurna Salt brandin a test market in Andhra Pradesh.Positioned as “pure salt,” Annapurna ’stest had only limited success since consumersconsidered most salt to be pure.Additionally, Annapurna was up againsta strong competitor, Tata Salt, whichhad already established the purity claim.Two years later, however, theIndian government began a concertedeffort to combat an insidious healthproblem called Iodine DeficiencyDisorder, one of the world’s leadingcauses of mental disorders, includingretardation and lowered IQ. In Indiaan estimated 70 million people wereafflicted while another 200 millionwere at risk. Since virtually everyone,even the poor, eat salt regularly, iodizedsalt was widely recognized asthe best means of providing sufficientiodine. In 1997, the Indian governmentbanned the sale of non-iodizedsalt. The problem, however, was thatstandard methods of iodizing salttended to be ineffective because theiodine leached out over time, especiallyin India’s primitive storage andtransportation conditions.Hindustan Lever Research Center,one of Unilever’s five major globalresearch facilities, began investigatingways to keep the iodine content of saltintact in India ’s difficult conditions.Rather than chemically encapsulatingiodine with a protective coating aroundboth it and the salt particle, researchersdeveloped a method of protecting theiodine at the molecular level which keptit intact until released in the very acidicenvironment of the human stomach.With the technological problemsolved, HLL turned its attention tothe marketing of the reformulatedAnnapurna. The target audience amongthe poor included mothers between 25and 40 years of age who are responsiblefor household cooking and making purchasedecisions. The message was thatthe “stable iodine” in Annapurna salt“doesn’t get lost” and would help keeptheir families healthy.Although Tata Salt remains the dominantbrand with 19% of the market,HLL is now a close second with 14% ofthe market and is the dominant brandin South India.HLL used a somewhat similar strategyof finding and marketing a healthbenefit to increase its sales of soap inIndia. While AIDS and SARS havegotten much of the press ink in recentyears, diarrhea, which ranks thirdamong global killers, has gotten littleattention. Ironically, while it is exceedinglydifficult to prevent and cure respiratoryinfections and AIDS, most casesof diarrhea can be prevented simplyby washing hands with soap. In India,which contributes 30% of all diarrheadeaths in the world, surveys indicate thateven though 95% of Indian householdsown soap, only 30% use soap daily.HLL had long advanced healthclaims for the century-old Lifebuoybrand soap in India. The soap as originallyformulated had a strong carbolicsmell associated with cleanliness. Butthe health advantage waned over timeas competitors came up with their ownhealth claims while adding a beautifyingelement to their sales pitch, mostnotably through more floral fragrances.To maintain its dominance of the soapmarket, HLL reformulated Lifebuoy, givingit a floral scent and switching frommanufacturing a “hard” bar to milledsoap. The change made a bar last longerand produce more lather. The companyalso added the antibacterial Triclosan tothe formula, and found a price point thatpoor consumers could afford by adoptinga different approach to pricing than theroutine “cost plus” formula.With its new formulation in hand,HLL had to figure out how to sell theproduct to its mostly rural customers.The company faced two hurdles. First, ithad to change the behavior of its potentialcustomers, who associated soap withN E X T U P A T W H A R T O N S C H O O L P U B L I S H I N G . W H A R T O N A L U M N I M A G A Z I N E . 31
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