A new study by the World Resources Institute, published in March, shows that the base of the pyramid (BoP) is a more than $5 trillion market (expressed in dollars at purchasing power parity, or PPP).
Four billion people have annual incomes below the line we draw to define the BoP—$3,000 PPP per capita. The BoP, with its four billion people, makes up 72% of the 5.58 billion people recorded by available national household surveys worldwide, and an overwhelming majority of the population in the developing countries of Africa, Asia, Eastern Europe, and Latin America and the Caribbean—home to nearly all the those at the BoP.
It’s not just income that defines the BoP. The billions living at the base face significant unmet needs, must carry on economic lives largely in the informal sector, and suffer a “BoP penalty”—higher costs than their richer co-citizens, lower quality, and poorer (and often no) access to goods and services. Importantly, the story is not just one of BoP consumption. A better understanding of the BoP will eventually show up as growth in jobs, income and wealth, and also more equitable access to quality goods and services.
In country after country, we show, with real numbers, that the BoP is a very significant part of the economy.
To do business in most of the world, you must deal with the people at the BoP; to be a truly “sustainable” enterprise means serving the BoP—and serving it well. To serve the BoP well, you need to know the customer, and ‘The Next 4 Billion’ analysis is the first quantitative toolset to provide a meaningful economic profile of the BoP.
National household surveys are not designed as market research tools, but rather as policy and poverty analysis tools. They ask the sort of questions that bureaucrats ask when they try to understand the objects of their policies, not the kind businesses ask when seeking to understand paying customers. We should not be surprised, then, that they are imperfect instruments, and give us only partial answers. But, it is a start, and we trust that others will follow our lead.
Imperfect as household surveys may be for our purposes, we have learnt much about the structure of BoP markets. We have quantified, for example, that while the lowest BoP income segment is poor by any standard of measurement, there is a remarkable amount of spending by segments of the BoP that are not very much wealthier.
Low income is not no income, and given the large numbers of people in the lower BoP income segments, it adds up quickly to create meaningful markets.
Our book contains income data from 110 countries, and standardized data on expenditures from 36 countries. ‘The Next 4 Billion’ is just the first step in changing the nature of the conversation about the BoP. Business will, we hope, want to learn more about discrete markets in particular places; more and better market analyses must be generated. Governments will want, we trust, better to understand how the private sector, by driving innovation in BoP markets, can carry part of the burden of poverty alleviation. Where and how governments can create the conditions for such beneficial business activity ought to be central to policy debates.
Finally, this research reveals, in stark terms, just how uncompetitive low-income community markets are. When the private sector learns more about the BoP—with the assistance of this, and other, market research—it will be better positioned to “do well and do good”. To answer the big question, yes, the numbers are compelling: The BoP is ready for prime time.
The first part of this article was published on Thursday. William J. Kramer is deputy director, Development Through Enterprise Project, World Resources Institute. He spent 30 years as a business entrepreneur before turning to development work. The Next 4 Billion is available for purchase or free download at www.nextbillion.netComments are welcome at firstname.lastname@example.org