Profits Among the Poor: The Base of the Socioeconimic Pyramid is a Richer Market Than Many Businesses Realize

It goes against conventional wisdom: there is no profit to be made at the base of the socioeconomic pyramid where hundreds of millions of people live on less than $2 a day. But the poor are proving to be a savy, and enormous, niche market just as keen as their wealthier neighbors to find quality goods and services at low prices. Businesses are taking note.

The paradigm shift gained modern momentum with Muhammad Yunus, founder of the Grameen Bank and recipient of the 2006 Nobel Peace Prize. Grameen's premise is that the poor are credit worthy. Provided access to small loans the poorest of the poor can develop small businesses, encourage small groups of fellow borrowers, repay their initial loans and qualify for additional loans, thus begining a cycle of business growth and income generation that can change the course of an individual, a family, and a community forever.

Yunus tested his hypothesis by taking his economic and social theories from the classrooms of Chittagong University in Bangladesh and into neigboring villages where extreme poverty was rampant. Those early loans were little more than coins from his pocket, but the return on the investment began to have profound effects on how financial institutions, governments, charitable organizations, and businesses viewed the poor. Not only could the poor produce profits when given the opportunity, they were also the source of those profits. And many of the fundamental market dynamics--like name-brand goods at discounted prices--remained intact. The poor are, by necessity, bargain shoppers, but they pay attention to the quality and affordability of retail goods.

Yunus brought to popular attention the ability of the poor to generate income. C. K. Prahalad has expanded the premise through his influential book "The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits" (http://www.12management.com). Prahalad is another growing influence in changing the way the world--and businesses in particular--view the poor. Named third on Suntop Media's "Thinkers 50" list in 2005 (behind influential Harvard University economics and management professor Michael Porter and Microsoft founder Bill Gates; http://www.thinkers50.com), Prahalad explores the complexities of the world's poor as an emerging and potentially powerful market. "If we stop thinking of the poor as victims or as a burden," Prahalad writes in the introduction, "and start recognizing them as resilient and creative entrepreneurs and value-conscious customers, a whole new world of opportunity will open up" (http://www.amazon.com/Fortune-Bottom-Pyramid-Eradicating-Poverty)

The fortune at the bottom of the pyramid may be spread thinly across the millions who live on pennies a day, but those same people are willing to spend those pennies on the right kinds of goods and services, packaged in the right way (i.e., in very small quantities), and available from nearby retailers.

That can be good news for businesses and the poor alike. Prahalad has popularized the term "bottom of the pyramid" (http://www.amazon.com/Fortune-Bottom-Pyramid-Eradicating-Poverty) and is rebranding the world's image of the poor into a more vibrant niche market. Businesses are paying attention and, more importantly, turning profits. But profits are not the only incentive. Businesses increasingly recognize their potential role not only in serving the poor (for a price) but joining in the efforts to eradicate poverty.

Today Yunus and Prahalad share a world stage with other champions of the developing world like Bono, Jeffrey Sachs, Bill Clinton, and Hernando de Soto. To paraphrase George Eliot, Yunus and Prahalad are showing the world that the poverty of imagination is no way to measure the world's resources).