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BOTTOM OF THE PYRAMID THINKING*

In economic terms, the “bottom of the pyramid” refers to the poorest socioeconomic group. If the economy is viewed as a pyramid, the wealthy comprise only the very top of the pyramid, while poor make up the much larger bottom. This is considered significant because businesses around the world typically target only the top of the pyramid. This means that that a large portion of the world’s population is virtually ignored.

According to C. K. Prahalad, there are both moral and strategic consequences to this type of thinking. First, targeting the very wealthy for business opportunities serves to exacerbate the disadvantages of the poor. More to the point, however, it blinds businesses to lucrative opportunities. While businesses tend to focus on obtaining profits by serving a few with large margins, Prahalad challenges businesses to consider the alternative: obtaining profits by serving a great many with small margins.

Prahalad therefore argues that we—businesses, governments and NGOs—stop thinking of the poor as “victims,” but see them instead as resilient, creative and value-demanding consumers. This is the foundation of “bottom of the pyramid”—also known as BoP—thinking.

While Prahalad is often credited with BoP thinking, it was Franklin D. Roosevelet who arguably first referred to the bottom of the pyramid, in his radio address on April 7, 1932, called “The Forgotton Man.” He suggested that we “build from the bottom up and not from the top down [and] … put … faith once more in the forgotten man at the bottom of the economic pyramid.”

The success of Grameen Bank is but one manifestation of successful BoP thinking. Muhammad Yunus looked around in Bangladesh, one of the poorest countries in the world, and saw people with ideas and creativity, but without means—and without access to means. According to typical bank standards, these people were bad risks. They had no credit history, and no visible way to guarantee that they could pay back loans. But Yunus knew these people, and recognized embedded cultural ties that

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would ensure repayment. Still, no bank would be interested because each individual only needed a small loan.

Yunus thus set up Grameen Bank, and started what today is called “microfinance.” Grameen Bank emerged as an alternative to larger banks that rely on traditional standards for offering loan: credit history, income and so on. Grameen relies on different standards—i.e., connectedness to community. In Bangladesh, community members are so loyal to their community that they would not consider defaulting on a loan. Grameen therefore offered a way to assist the rural poor in combatting their own poverty by providing them access to capital in the form of small loans to individuals. Yunus was awarded the Nobel Peace Prize in 2006.

The impact of BoP thinking and successful ventures like Grameen Bank have spearheaded a movement within business and among management scholars (i.e., Patricia Werhane, Laura Hartman, Dennis Moberg and so on) emphasizing the positive role businesses can play in alleviating poverty. Businesses—because of their size and strategic positioning—are often better situated than governments and NGOs to achieve concrete results. And such endeavors are not purely altruistic—many carry with them the opportunity for great profits. Prahalad, and others engaged in BoP efforts, ask not that businesses give away their products and services for free—just that they consider creating BoP products and services as part of their value creation endeavors through which they profit.