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The Bottom of the Pyramid November 11, 2009

Posted by jorgevega in Uncategorized.
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(originally published on The House of Naked website )

Back in the 90’s few people thought that in Bangladesh, a country where almost half the population lives on a dollar or less a day, there could’ve been a profitable cell phone industry: when Iqbal Quadir was looking for investors in the U.S., one cell phone company executive reportedly said that they were “not the Red Cross.”

Finally, in 1997, Grameenphone started operations as a joint venture between Mr. Quadir, the Norwegian Telenor and Grameen Bank, the pioneering micro-finance entity. It achieved profitability in 2000, and by 2005 the company had 250,000 retailers, 22 million subscribers, and 50 million cell phones. More importantly, it brought connectivity to remote villages, as well as a source of income for women operating ‘village pay phones.’ By 2012 it is expected that close to half the population will have a cell phone, a notable feat in a country that had one of the lowest telephone penetration rates in the world (before cell phones, it was not uncommon to wait 15 years to get a land line).

Bangladesh is not the only example of the rapid expansion of the cell phone. In Africa, mobile penetration was about 30% by the end of 2007 and is estimated to reach beyond 50% by 2010. Countries around the world are experiencing similar growth. Lack of infrastructure – particularly electricity, widespread illiteracy and the fact that these people live on $2,000 or less per year were some of the objections to this kind of venture. Yet, they have all proven baseless, and many companies are now eager to enter the inmense untapped market of those in the ‘Bottom of the Pyramid.’

C.K. Prahalad popularized the term 5 years ago in his book The Fortune at the Bottom of the Pyramid, in which he outlined how multinational corporations could operate profitably in these markets, stimulating development through commerce, and without engaging in charity. The cell phone is perhaps the best case study because of its immediate effects. For starters, it is accepted that, on average, a 10 percent increase in cell phone penetration helps increase a country’s GDP by .8 percent. Also, the cell phone has come to replace entire institutions: for example, while here in the U.S. we are just starting to pay or make financial transactions using cell phones, this has been a common practice in developing countries for years, cell phone credits sometimes being more valuable than actual currency.

What’s really interesting is how MNCs have moved to cater to these markets: instead of just transferring their products or services from developed countries, they have worked to understand the complexities of these new customers, building products for them. For example, Nokia has a team of anthropologists and designers that visit low income communities around the world to study consumer behavior, and have even opened centers called ‘Nokia Open Studios’ in some of these places, where residents describe, sketch, even test cell phones that are tailored to their needs.

Apart from Nokia, there have been more companies actively courting these consumers. In India, BP engineered a smokeless stove called Oorja that runs on biofuels, looking to replace traditional stoves that run on wood or dung, which are more expensive to maintain and also pose serious health issues. Also in India, the Tata Group has unveiled the Nano, a $2,500 car that offers millions a chance at secure and efficient transportation for the first time.

But innovation runs both ways. Netbooks, fulfilling a demand for inexpensive yet durable and functional laptops here in the U.S., were born as part of the One Laptop Per Child (OLPC) project seeking to provide affordable and effective computing to children around the world.

The market at the bottom of the pyramid is huge: most of the world’s population, around 4 billion people, lives on $2 or less a day. Yet, even with all of the opportunities for companies, it is challenging to enter these markets without clear guidance and a deep commitment to understand the local consumer and work with local partners. Here at Naked we are happy of our past and current work with major brands on projects around the world, actively engaging these markets. We are also proud of their determination to build lasting relationships with these consumers.

Mr. Prahalad said: “If we stop thinking of the poor as victims or as a burden and start recognizing them as resilient and creative entrepreneurs and value-conscious consumers, a whole new world of opportunity will open up.”

We say: people are your partners, wherever they are.

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