Maximizing Your Market Potential: The Benefits of Targeting the Bottom of the Pyramid
The concept of sustainability was originally seen as an operational concern mostly left to companies to handle, but has now evolved into a new focus to reduce costs and increase innovation. Instead of asking either “how can we turn a profit?” or “how can we minimize our impact?” managers are seeing those as two sides of the same coin (Chouinard, 2011). Many of the resources we have considered priceless are now being quantified to be used in economic equations of how sustainable businesses can be created or transformed. A key factor here that was once ignored, is now the biggest market and a key factor in obtaining sustainability to solve our future problems.
Let’s consider the global market as a pyramid, where the small top fraction consists of the wealthy and affluent in developed countries, usually where most corporations reside. Therefore, most of the business knowledge and strategies are conditioned to appeal to these consumers. However, everyone knows the bottom of the pyramid is where the majority is. The market here consists of roughly 4 billion people, including the aspiring poor joining the market for the first time. Educational levels here are very little, most are from slums or rural villages. This market is hard to reach in terms of most developed forms of communication or distribution. This market isn’t “modern” so to say or organized in the least bit. However, it is here that extraordinary leaders can come into play to profit and create sustainable businesses (Adler, 2008).
If this market is so big and known, why has it remained untouched all this time?
This is because of the following assumptions: the poor cannot be target consumers, they cannot afford and have no use for the products in developed markets, only developed markets understand the value of technology, the bottom of the pyramid has no long-term viability, and lastly there are not intellectual skills developed in this market. Why would managers and companies want to spend time creating an infrastructure and training employees here? These assumptions have left this market untouched. However, with the application of a bottom of the pyramid approach, not only are costs reduced but businesses are sustainable as well as socially and ethically responsible.
There is an inevitable reason to push for sustainable development. If the poor cannot meet their aspirations in rural communities, there will be an urban crisis as they migrate to cities. The breakdown of village life will fall into a cycle of poverty, economic degradation as well as population growth. In order to be sustainable, economic development at the bottom must be strong and follow a sound logic. Sustainability demands that new innovative approaches be taken for use and reuse of resources in an environmentally friendly way. Profitability here considers understanding investment and volume as innovation increases. Contrary to usual beliefs of serving the bottom with cheap and low-quality products, bringing the best of global resources and technology can make use of local opportunities. Innovation being the biggest factor here will lead to a betterment of cost, quality, and sustainability (Hahn, 2009).
Simply considering the market size here, it is required that materials be used efficiently, and reusability is a must. Resources such as water and energy in the developing nations are crucial and need to be used in a limited way. Because there is no set infrastructure in place to serve the bottom of the pyramid, there is opportunity here to experiment with sustainable products and methodologies rather than repeating the mistakes made in developed nations. Therefore, this further enforces the bottom of the pyramid as a market perfect for innovation which will pull together sustainable practices as well as profit. In this way, companies will be able to internalize costs previously ignored and cooperation will have the information they need to set priorities and make decisions that reduce their ecological impact. (Chouinard, 2011)
How do multinational firms fit into this mix?
They provide the resources need to develop a complex infrastructure. Few local entrepreneurs have the resources of technology to create this without assistance. Furthermore, these firms have intellectual leverage with their staff and bright minds. Knowledge transfers from one market to another can be customized and adapted according to local needs. Essentially these firms will serve as the bridge of infrastructure and knowledge between the bottom of the pyramid market and businesses. Now that we have seen how this strategy is both potentially profitable and sustainable, we can dive into how it is also an ethical practice.
According to the World Commission on Environment and Development, sustainable development is characterized as development that meets the needs of the present without compromising the ability of future generations to meet their own needs (Hahn, 2009).
This concept is based on intrageneration justice, which focuses mainly on the ecological perspective of life resources for successive generations, and intergenerational justice, which focuses on social and economic adjustments within shorter generational frames. In analyzing these factors, it is evident that sustainable development is a principle of utilizing resources rather than securing them altogether, implying that this is an ethical choice because there is no law of nature justifying this development.
When considering ethical laws, such as Kantian law, there is a principle which states “Act in a way that you treat humanity”. Adhering to this, following sustainable development should be universal because it affects future generations as a whole. Future generations are depending on the choices being made today, meaning that each person has to realize the goal of long-term utilization of resources (Hahn, 2009).
Lastly, tying this strategy into todays developed market, socially responsible investing has also become the latest new principle to follow. There has been a shift from a previously negative orientation to a now positive more sophisticated orientation where inventors are actively monitoring how a company makes use of its resources, as this determines long term versus short term growth. Additionally, this type of information is readily available and transparent making this even easier, further incentivizing sustainability (Chouinard, 2011).
To wrap things up, implementing the bottom of the pyramid strategy is not only a potential for profit in a newly untouched market but also a business scheme to create a long-term sustainable business, which is essentially inevitable. It’s not a matter of “if” this will happen, it’s a matter of when and how.
Adler, N., & Gundersen, A. (2008). How Cultural Differences Affect Organizations. In International dimensions of organizational behavior (pp. 159–174). Australia: South-Western Cengage Learning.
Chouinard, Y., Ellison, J., & Ridgeway, R. (2011). The Sustainable Economy. Harvard Business Review.
Hahn, R. (2009). The Ethical Rational of Business for the Poor — Integrating the Concepts Bottom of the Pyramid, Sustainable Development, and Corporate Citizenship. Journal of Business Ethics, 84(3), 313–324. Retrieved March 6, 2021, from http://www.jstor.org/stable/40294746