Wednesday, June 11, 2008

$9 = Base of Pyramid?

Most of what I've heard and read lately about markets serving the base of the pyramid (BoP) deals with people living on more than $2-a-day. I sense an increasingly common sentiment that helping the "poorest of the poor" is great and all, but the market has a harder time reaching those people than anticipated. As a result, organizations and companies that originally targeted the poorest of the poor are pleased when they help someone who makes $3- or $4-a-day. Their argument is that such people are still very poor when compared with Americans. Others say that those living on greater than $2-a-day are the early adopters, and the under $2 demographic are slow followers. I see truth in both arguments. But an article I read today about Companies that Engage in BoP Markets praised companies that target people who live on less than $9-a-day. No, seriously, $9-a-day and BoP were mentioned as part of the same idea. I mean no disrespect to the author of that article, but the term BoP loses its meaning when used so loosely.

Fortunately, not everyone has lost faith in their ability to serve the under $2-a-day demographic. SKS Microfinance founder Vikram Akula wrote an article in the June 2008 Harvard Business Review that shows how his organization has successfully -- and profitably -- served the poorest of the poor in India. The full text is only available by paid subscription, but I was able to read a free version at my local library the other day.


Rob Katz said...

Defining the size of the base of the pyramid is incredibly difficult. I should know - I spent about 18 months poring over official data sets in an attempt to get some clarity on what really constitutes the BoP. This culminated in the publication of The Next 4 Billion report from the World Resources Institute and the International Finance Corporation.

What did we find? The full explanation is available in the book's methodology section, but the long and short of it is this: those making less than $3000 a year(in purchasing power parity terms) are generally un- or under-served by the market. That's what the BoP concept is all about - whether or not you can access basic goods and services through the market in an efficient way.

Yes, $3000 (again, purchasing power parity - this does not mean hard USD terms) comes out to $8.21 per day. And that's not $2/day. But do a little more looking into the whole $2/day line, and you'll see that it's essentially a house of cards. These lines are helpful benchmarks, but at their core, they are arbitrary. I am confident that $3000/year is the right BoP cutoff, because it represents those who are left behind by the market, and therefore the opportunity for companies to serve unmet needs.

This is already an absurdly long comment, but contact me directly if a longer conversation would be useful.

Ryan Gunderson said...

Thanks for the clarification, Rob. As a numbers guy, I'd love to take the discussion offline to better understand the numbers.

As an idealist, I'm interested in helping the poorest of the poor, or as Dr. Paul Farmer would say, the shafted of the shafted. The reality is that I may have to help millions of people who are richer than my target demographic in order to help 1 million people out of $1-a-day poverty. I can think of worse things than helping too many people.

Robert Katz said...

Well said, Ryan. Looking forward to our conversation next week.