In The Fortune at the Bottom of the Pyramid, University of Michigan strategy guru C.K. Prahalad argues that companies can make millions selling to a vast but largely ignored market: the world’s poor.
PROFIT: How big is this opportunity?
Prahalad: The four billion people who live on less than US$3,000 a year in local purchasing power constitute a US$5-trillion market. People ask if it’s profitable. Look at the cellphone industry — three billion people will be connected worldwide by 2008. They’re not rich; many are rickshaw pullers or local fisherman on the coast of [the Indian state of] Kerala.
PROFIT: Is selling to the poor exploitative in any way?
Prahalad: There is a lot of elitist thinking — “We have to take care of the poor because they’re not smart enough to take care of themselves.” I say, “Give them the freedom and choice to make decisions for themselves.” Those who argue that consumerism is not good for the poor wouldn’t want to live without, say, shampoo themselves.
PROFIT: Aren’t poor people too poor to be a good target market?
Prahalad: The real question is, how do you make world-class products at affordable prices? Affordability can come from various factors: 1) fundamentally change your business model and innovate; 2) make small packages so people can buy more frequently, like shampoo in 1¢ sachets that you buy only when you can afford to; 3) offer pay-per-use, such as selling Internet access for 10¢ an hour at a kiosk instead of selling a PC; or, 4) make it easy by offering monthly payments. The amazing thing is, all of this is known in the West. Think of pay-per-use laundromats; why can’t we have pay-per-use PCs or cellphones? If we can remove a core assumption — that access requires ownership — a whole new world of opportunity opens up. This is the largest growth opportunity in the past 50 years.