Business Case Studies, Executive Interviews, Aneel Karnani on Bottom of the Pyramid

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Executive Interviews: Interview with Aneel Karnani on Bottom of the Pyramid
November 2008 - By Dr. Nagendra V Chowdary


Aneel Karnani
member, Strategy group, Ross School of Business, The University of Michigan.


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  • MNCs have always operated globally leveraging on their scale economies. And those scale economies have largely come from catering to similar kind of customers. But BOP customers are definitely different. What organizational changes are required for MNCs to tap the BOP markets successfully—for instance, in marketing, in innovation, in sales and distribution, in advertising campaigns, etc?

  • More than organizational changes, MNCs need a fundamental change in perspective on price-quality tradeoffs. To tap the BOP market it is essential to reduce prices significantly, by at

    least 50% and maybe even more. The BOP proposition is adamant that we should not reduce quality in this process of lowering price. This is unrealistic. Most often, the only way to reduce price is to lower quality.

    Contrary to the BOP proposition, the Interview 4 poor do like inexpensive, low-quality products! This is not because they cannot appreciate or do not want good quality. They simply cannot afford the same quality products as the rich; so, they have a different price-quality trade-off. Selling inexpensive, low-quality products does not hurt the poor (as long as they understand any tradeoffs related to safety). Insisting on not lowering the quality actually hurts the poor by depriving them of a product they could afford and would like to buy.

    MNCs have a difficult time really understanding how poor are the people at the BOP, and the pricequality trade-off the poor are willing to make.

  • What would be the unintended consequences for MNCs in serving the BOP markets? Is there any empirical evidence that throws light on either positive or negative impact on a company's greater good?

  • The unintended consequence of the BOP proposition is exploitation of the poor. The BOP initiative could result in the poor spending money on products such as televisions, shampoo and skin whitening creams that would have been better spent on higher priority needs such as nutrition and education and health.

    The poor are vulnerable by virtue of lack of education (often they are illiterate), lack of information, and economic, cultural and social deprivations. The data suggest that the poor lack self-control, yield to temptation, and spend to keep up with their neighbors. In this they are no different than people with more money, but the consequences of bad choices are more severe for the poor.

    For example, the poor spend surprisingly a large fraction of their meager income on alcohol and tobacco.

  • What are the risks and challenges of serving the BOP markets, especially for the MNCs? What precautions, if any, should be taken?

  • The MNCs should listen more to the voice of the poor, social activists and the government to better understand the perspective and the needs of the poor, and ensure that the products they sell to the BOP serve the real interests of the poor

  • The critical success factors in serving the BOP markets are, inter alia, Awareness, Availability, Affordability and Acceptability. How should MNCs go about achieving success in each of these four As?

  • The biggest challenge is ‘affordability'. We need to increase the real affordability of products by reducing the price per use. Putting products in small packages does not do that—it does improve convenience and cash flow management, but not the real affordability. By the BOP logic, an easy way to solve the problems of hunger and malnutrition would be to sell food in smaller packages thus making it more affordable to the poor!

  • One of the often quoted criticism against MNCs is that in their urge to reach out to the BOP customers, they end up increasing their poverty by putting them through another spiral (surplus funds/purchasing power, selling them more goods to improve standard of living, desire to buy more goods, increased borrowing inclination)

  • exploiting the poor. The poor could end up consuming too much and saving too little for the future, and even worse getting into a debt spiral. The poor could also end up consuming inappropriate products: low priority products (such as shampoo) instead of higher priority products (such as nutritious food), and harmful products (such as tobacco and excessive alcohol).

  • Is there any dichotomy between Social Entrepreneurship/ Microfinance initiatives and BOP philosophy? While the former's objective is to increase their purchasing power by organizing businesses around their communities, BOP seems to take away that purchasing power?

  • That is right. We should emphasize increasing the income of the poor rather than selling to the poor—that is the best way to alleviate poverty.

1. Bottom of the Pyramid Consumers Case Study
2. ICMR Case Collection
3. Case Study Volumes


The Interview was conducted by Dr. Nagendra V Chowdary, Consulting Editor, Effective Executive and Dean, IBSCDC, Hyderabad.

This Interview was originally published in Effective Executive, IUP, November 2008.

Copyright © November 2008, IBSCDC No part of this publication may be copied, reproduced or distributed, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or medium – electronic, mechanical, photocopying, recording, or otherwise – without the permission of IBSCDC.

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