Infosys’ N.R. Narayana Murthy on C.K. Prahalad’s latest book
Posted : January 27, 2005 at 4:55 am [IST]
I am a huge fan of C.K. Prahalad. I have written about some on his ideas previously here on my blog . Here you find what a successful Indian entrepreneur thinks about the Great Guru’s latest book. The review appeared in Business Today:
C.K. Prahalad’s book, The Fortune at the Bottom of the Pyramid, talks about marketing and selling products to the world’s four billion poorest people: the largest untapped consumer market today.
In the introduction to the book, Prahalad describes how, in 1997, his initial paper on the topic was rejected by major business journals. However, the paper was made available on the internet, where it was picked up by managers, discussed, analysed and implemented. People recognised it for what it was-a big, powerful idea.
The principle behind the book challenges many of our pre-conceived notions. The dominant assumption in markets is that the poor have little purchasing power, and are not a viable consumer base. In the process, corporations ignore the immense purchasing capacity of the ‘bottom of the pyramid’ (bop) population. In India alone, there are 178 million poor households, with a combined $378 billion (Rs 16,63,200 crore) in income. Too often, the poor are seen as victims, as people who are completely under the purview of the government and the ngos. While corporations have undertaken several initiatives as part of their corporate social responsibility, the private sector can also target the poor as consumers, and, thereby, become a key player in their development.
The private sector rarely targets the lower income segment. Consequently, the poor often become victims to the dynamics of the slums and villages. They frequently pay a ‘poverty penalty’ for goods and services. The author presents the telling example of the slum-dwellers in Dharavi, Mumbai. Residents of these slums pay a premium of 10 times what a Mumbai city resident would have had to pay, merely because they are captive to the medication seller within the slum. This same ‘poverty penalty’ results in extremely high interest rates on loans from moneylenders, a premium on phone calls, on water, and even on rice. Companies can offer such consumers with more choice (and hence, lower prices). Firms can also provide the poor with jobs that can turn them into entrepreneurs in villages and lift their income levels.
The author is well aware of the challenges that corporations face while treating the poor as consumers. He offers companies a useful framework within which they can target the bop segment. For instance, they have to be prepared to educate their bop consumers about the product. Limited access to villages demands a shift in thinking on distribution. Companies selling to the bop can consider turning villagers into entrepreneurs to sell the product. For example, HLL has introduced Project Shakti, which recruits village women, Shakti Ammas, to sell HLL products. The concept has introduced dignity and self-sufficiency for the women and benefits the company as well. ICICI launched a similar initiative where women became involved in the bank’s micro-financing initiative. Product and process innovations are also key requirements. These can compensate for the lack of infrastructure.
If companies are willing to reengineer their businesses and products appropriately, targeting this market can reap rich dividends and can be mutually beneficial. The book abounds with powerful examples of corporations from India, Brazil, Mexico and Peru tailoring innovative and successful solutions to bop problems. Companies across sectors are offering customised solutions to the poor, and turning them into profitable consumers. For instance, shampoos, soaps, biscuits and even creams are being sold in India in single-serve sachets. Such sachets now account for 60 per cent of value sales in India’s shampoo market. In Brazil, Casas Bahia, a consumer electronics firm has developed an original credit rating and counselling system. This enables the firm to provide quality appliances to consumers with low or unpredictable incomes. The firm has one of the lowest default rates in the Brazilian market.
Prahalad writes with great understanding on the problems of doing business in developing countries. Businesses cannot succeed in societies that fail, and Prahalad presents a winning idea, which combines corporate interest with social development. In the words of Henry Ford, “It is easy to give alms; it is better to work to make the giving of alms unnecessary.”
The poor need not be excluded from the benefits of globalisation. An inclusive market ecosystem can be created, which can bring the poor dignity and choice. Surely, this is an idea to fight poverty that is insightful, intelligent, and extremely relevant.
- Indra
Category: Rural development |
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