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A five trillion dollar market

A five trillion dollar market
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First Published: Thu, May 17 2007. 12 11 AM IST
Updated: Thu, May 17 2007. 12 11 AM IST
Five years ago, the first articles and books to summon up the vision of a “fortune at the base of the pyramid” (BoP) began to appear. Armed with some compelling examples of companies such as HLL, ITC and ICICI Bank, and their forays into low-income community markets with products such as Annapurna salt, e-Choupal and rural banking services, C.K. Prahalad (University of Michigan) and Stuart Hart (Cornell University) and my World Resources Institute (WRI) colleague, Allen Hammond, painted a vivid picture of a new frontier for business — understanding and serving the needs of the world’s poor.
These early pioneers had powerful insights on business models, policy and business-condition constraints, and the psychological, cultural and organizational barriers facing even those enterprises that wanted to enter the BoP market. What they lacked was hard data.
While stories speak to our human need for narrative, it is the numbers that make the sale at the business unit level. Without real and compelling data, very few companies will take the plunge into the BoP.
A year ago, WRI set out to fill the data gap. With the support of the International Finance Corporation and Inter-American Development Bank, we were given access to national household surveys to re-examine data that had been, until then, the exclusive domain of economists and statisticians. More importantly, we approached the data in a completely different spirit from those in the development community.
Broadly speaking, the poor have been seen as the domain and responsibility of economic development professionals and philanthropists. In this world view, it was assumed that business takes care of those who take care of themselves.
We wanted to begin to understand low-income communities as rational economic actors, not as dependencies on government largesse or charity.
And, we sought answers to such questions as, How big are BoP markets? How do the poor actually spend their money, sector by sector? How do consumption behaviours and choices change as income increases? Are there differences in spending between urban and rural areas? In other words, we wanted to find out whether BoP markets are ready for prime time.
These questions are the basis of a new analysis of BoP markets, ‘The Next Four Billion: Market Size and Business Strategy at the Base of the Pyramid’. It was published in late March, as a co-publication of WRI and the International Finance Corporation.
What have we learnt from this unique research which makes this data available for the first time publicly?
First, it’s a large market—$5 trillion (expressed in PPP, or purchasing power parity, terms). It is a market that cannot be ignored; indeed, the BoP market is most of the market in many parts of the world. They are already consumers, and they express their needs and desires through the economy—by showing choices and preferences in their spending. The South Asia market is, of course, one of the largest and most important.
Second, we have been able to define only a baseline number. The market is bigger than we have captured.
Third, the BoP markets share in common the fact that they are underserved by the private sector. BoP consumers suffer from uncompetitive markets and, as a result, show striking evidence of a “BoP penalty”, which expresses itself in three ways: Higher prices, lower quality, and poor (or no) access to goods and services. The BoP penalty often shows up as a difference in access between urban and rural area, and urban/rural spending differences for similar goods between BoP consumers with the same income.
Fourth, the BoP is not monolithic; it is highly differentiated—at income segments, urban and rural patterns, among economic sectors, between nations and regions. To serve the BoP markets, you must understand the differences between them.
Fifth, even markets made up of very low income individuals are, in the aggregate, very large, given the size of the total population in the segment. Sixth, the data helps to reveal the “tipping points” between what business can do, and what government funding must do.
Additionally, successful business models that cut across sectors of the economy are beginning to emerge to provide real guidance to the business community—and show policymakers the way towards more targeted and effective application of public funds.
Tomorrow, I’ll discuss some of the specific numbers and patterns that our research into the BoP market has revealed.
Bill Kramer is deputy director, Development Through Enterprise Project, World Resources Institute. He spent 30 years as a business entrepreneur before turning to development work. Comments are welcome at theirview@livemint
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First Published: Thu, May 17 2007. 12 11 AM IST
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