Reality Check at the Bottom of the Pyramid

3446 words 14 pages
The Globe

Erik Simanis is the managing director of Market Creation
Strategies at the Center for Sustainable Enterprise at Cornell
University’s Johnson School of Management.

To succeed in the world’s poorest markets, aim for much higher margins and prices than you thought were necessary—or possible. by Erik Simanis

ABOVE MightyLight customers in Barmer,
Rajasthan, India
120 Harvard Business Review June 2012

M

ost companies trying to do business with the 4 billion people who make up the world’s poor follow a formula long touted by bottom-of-thepyramid experts: Offer products at extremely low prices and margins, and hope to generate decent profits by selling enormous quantities of them. This “low price,
low
…show more content…
Unilever’s Wheel detergent benefited from those conditions in India. The company’s well-established distribution and retail

channels, which served middle-class consumers in accessible cities and surrounding areas, were used to serve low-income consumers. Because Wheel was sold alongside the company’s other products in the small kirana (grocery) shops frequented by both middle-class and poor consumers, the revenues from the poorest consumers needed to cover only the incremental costs of the new product. Furthermore, detergents weren’t new to customers, so Unilever didn’t have to spend money creating demand from scratch and educating customers about how to use the product. Thanks to the existing distribution network and consumers’ familiarity with the product category, Unilever could afford to sell Wheel for 30% less than its other detergents.
Both conditions also held in the case of Manila Water in the Philippines, a wellknown example of success in a bottom-ofthe-pyramid market. The company’s pipes and central metering points provided water to 6 million mainstream customers in
Metro Manila’s east service zone. In the late
1990s, an additional 2 million low-income people living in and around the city were added to the customer base, with relatively small incremental

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