HBR.
ORG OCTOBER 2014
REPRINT R1410G
Profits at the
Bottom of
the Pyramid
A tool for assessing your opportunities
by Erik Simanis and Duncan Duke
This document is authorized for use only in Prof. Shobha Tewari's Strategies for Emerging Markets-Term-IV-MBA-2024-26 at Indian Institute of Management - Kashipur from Jul 2025 to Jan
2026.
Erik Simanis is a senior
extension associate at
Cornell University’s Johnson
School of Management.
Duncan Duke is an
assistant professor of
management at Ithaca
College’s School of Business.
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PROFITS AT THE BOTTOM OF THE PYRAMID
A TOOL FOR ASSESSING YOUR OPPORTUNITIES BY ERIK SIMANIS AND DUNCAN DUKE
During the past decade, many multinationals have come up short trying to make a
profit by solving the pressing needs of low-income communities. Preoccupied with
their social missions, companies have optimistically taken on challenging projects,
only to be surprised when weak consumer demand and obstacles such as bad roads
October 2014 Harvard Business Review 3
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PROFITS AT THE BOTTOM OF THE PYRAMID
keep revenues low and costs high. Overstretched Consumer behaviors that have to change.
and disillusioned, many switch gears and People resist new products for a variety of reasons,
reconstitute their ventures as break-even social but the biggest is a reluctance to alter deeply in-
investments that are destined to remain small. grained mind-sets and routines. The greater the
Profits are critically important for ventures tar- novelty, the greater the disruption, and people with
geting the bottom of the economic pyramid—the limited means and limited product experience see
more than 4 billion people who individually earn extreme novelty in many products.
less than $1,500 per year. Compared with a social For example, consumers in sub-Saharan Africa
responsibility project, a profitable business stands a have responded poorly to insecticide-treated bed
better chance of being able to increase its scale and nets, despite the technology’s simplicity and effec-
impact. It can command resources and be sure of tiveness in preventing malaria. Companies such as
continued support from both the corporate head- Sumitomo Chemical have had a tough time changing
quarters and the country office. misconceptions about how malaria is transmitted
Profitably selling to the bottom of the pyramid is and persuading consumers to hang and take down
difficult, but it can be done. It requires companies to nets every day (apart from the inconvenience, the
focus on business fundamentals and start their ven- nets are hot to sleep under).
tures with a rigorous understanding of two key chal- Even if a product is familiar, delivery through
lenges in low-income markets: changing consumers’ a new business model might pose an obstacle.
behavior and changing the way products are made Many villagers are used to taking loans from tradi-
and delivered. Companies that underestimate these tional moneylenders, for example, but switching
hurdles miscalculate the resources, innovation capa- to microfinance represents a big change. In most
bilities, and time involved, and project teams end up microfinance models, people must participate in
poorly equipped to accomplish the task. borrowing groups, an activity that takes time and
To help companies ensure that their ventures are cooperation, and the entire group is responsible for
built for success, we have developed an “opportu- loan repayments.
nity map”: a framework, drawn from our experi- To successfully educate consumers about new
ence and research in Africa, Asia, and Latin America, or untried products, companies often have to work
that uses these two key challenges to organize bot- with them over sustained periods. Sometimes it’s
tom-of-the-pyramid opportunities by their cost and necessary to create consumer groups in order to
complexity. With the map, companies can design harness peer pressure and build support for new
and undertake ventures that match their resources behaviors. Generating widespread demand can be
and financial expectations—and make profits, too. complex and time-consuming, driving up market-
Some companies may find that the map warns ing and sales costs and increasing working-capital
them away from launching headline-grabbing requirements.
ventures. That’s no reason for disappointment. It’s Company routines that have to change.
smarter to aim first for smaller-scale, incremental Value chains may need to be reconfigured to reach
sales opportunities that stand a better chance of low-income buyers. Customers may require lower
success. A steady flow of profits, however modest, price points than the company can meet. They may
will then allow companies to tackle riskier growth not have access to the retail outlets where the com-
opportunities with greater social impact. Putting pany sells its products. They may not respond to
profits first is the most effective and sustainable way traditional marketing strategies. Or they may live
for companies to make a positive impact on the lives in rural areas or slums, where business units may
of the poor. be unable to operate at large scale because of poor
infrastructure. The more far-reaching the needed
The Hurdles in Poor Markets changes are, the more complex, time-consuming,
Let’s start by delving into the two main challenges: and costly they are to manage.
changing consumers’ behavior and rethinking the The French eyeglasses company Essilor Inter
way products are made and delivered to custom- national provides an example of the challenges
ers. These are not only the most common hurdles posed by the need to significantly alter value chains.
companies face in bottom-of-the-pyramid markets, The company initiated a pilot program to serve some
they’re also the most widely underestimated. of India’s 6,000 rural villages, using vans set up as
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Idea in Brief
THE PROBLEM THE SOLUTION THE DETAILS
Multinational firms’ socially beneficial Companies can use the authors’ The map sorts ventures according to cost
ventures in low-income markets need “opportunity map” to design and undertake and complexity by analyzing two key
to earn profits if they’re to command ventures at the bottom of the pyramid challenges in selling to the poor: changing
corporate resources, but operating in that match their capabilities and financial consumers’ behavior and changing the
the black is harder than it looks. expectations. way products are made and delivered.
The map can encourage companies to
forgo overly ambitious, unsustainable
projects and start with smaller ones
that generate steady profits.
eye clinics. However, despite efforts to streamline a franchise agreement with the local business unit.
sales operations and outsource production, the Moreover, the company was in the process of con-
company has struggled to generate enough rev- verting its Kenya office into a lean sales outpost,
enue to cover the costs of the vans ($50,000 each) which didn’t match the venture’s long investment
and offset expenses such as optometrist training. time line and resource needs.
Consequently, Essilor’s plans for expanding the pro- Although the cleaning business acquired a num-
gram have stalled. ber of customers and delivered on its service prom-
SC Johnson, the household-products company ise, it did not meet its financial objectives and could
behind such brands as Glade, Windex, Raid, and not be considered a viable
Ziploc, was among the first corporations to take
seriously the long-term strategic potential of sell-
business investment for
the company. SC Johnson
Changing consumers’
ing to the world’s poorest people. Having operated ended its financial support behavior and
in Kenya since the 1960s, it sought to establish
a sustainable business that would improve the
of the effort and helped it
transition into an indepen-
rethinking the way
health and lives of residents in the slums of Nairobi. dent nonprofit. products are made
Working with researchers at Cornell University and
elsewhere, the company embraced an exploratory,
The lessons learned in
Nairobi proved valuable
and delivered are
co-creation approach in order to ensure that its of- when SC Johnson went on the most common
ferings would match consumer needs. (Disclosure:
We were involved in the project during its first three
to another bottom-of-the-
pyramid venture: promot-
hurdles companies
years, starting in 2005.) ing the use of insect-control face in bottom-of-
Research revealed that consumers wanted to rid
their homes of insects and sanitize pit latrines. This
products in rural Ghana,
with the goal of helping
the-pyramid markets.
led SC Johnson to form a home-cleaning service that prevent malaria. The com-
used several company products, including clean- pany recognized two main challenges: Consumers
ers, insecticides, and air fresheners. Sales and labor didn’t understand malaria’s cause, and the villages
were performed by youth groups that were already lacked distribution channels.
providing trash collection services. However, con- In response, SC Johnson created a direct-sales
sumers were so accustomed to their surroundings model with coaches providing hands-on product
that the offer of a “clean and healthy home” didn’t demonstrations in homes and at gathering places in
resonate, and local norms were a deterrent to invit- the community, thus building social support. Insect-
ing strangers inside. control products were bundled with other items that
Undaunted, the team switched to providing consumers valued, such as air fresheners, which
a service cleaning toilets in schools, housing de- made sales more likely. In addition, buyers were
velopments, and other facilities. But recruiting given refillable containers, which reduced packaging
workers from the slums and training them to con- costs. And subscription pricing, together with loy-
sistently do a high-quality job proved costly and alty rewards, ensured that customers used products
time-consuming. There were complications import- multiple times, thereby becoming more comfortable
ing SC Johnson’s products in bulk and establishing with the new product routines.
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PROFITS AT THE BOTTOM OF THE PYRAMID
Creating this high-touch channel, and selling prod- Product redesign. Although bottom-of-the-
ucts in a refillable format, required new capabilities. pyramid consumers are buying a version of the
Designers and R&D personnel worked closely with product through the same channels as mainstream
the business unit on the ground to ensure that product customers, the company could enhance the product
formulations and formats met margin requirements. to meet additional needs and boost the overall value
The team also considered such matters as how sales- proposition. The goal is to capture greater market
people would dispense products. The project had a share with a category-leading product.
strict time line for assessing proof of concept, and In 2011, after market research revealed that poor
the field team was given a clear payback schedule adolescent girls in India often suffer from iron de-
in order to track the business’s performance. (See ficiency, PepsiCo worked closely with consumers
“Reality Check at the Bottom of the Pyramid,” HBR in two districts in Andhra Pradesh to create a line
June 2012.) Because of all this groundwork, the of iron-fortified cookies and snack puffs under the
Ghanaian project has so far been largely free of the brand Lehar Iron Chusti (Lehar Iron Health). To ap-
tribulations that plagued the Kenyan initiative, and peal to the wide variety of palates across the country,
the pilot has made promising strides. Pepsi began releasing a new flavor every month.
Distribution extension. Bottom-of-the-
The Opportunity Map pyramid urban consumers with access to a com-
Lessons learned by SC Johnson and other compa- pany’s sales channels are buying its product in an
nies helped us create our opportunity map. We’ve existing format, but those who live beyond the com-
parsed business prospects at the bottom of the pyra- pany’s reach in peri-urban areas and larger market
mid into nine types (see the exhibit “Nine Kinds of towns might also value the product. There is some
Opportunities”). Below we outline a typical scenario modern infrastructure in the targeted areas, and a
and present an example for each, starting with the few businesses and government organizations are
least complex and re- operating at scale. The objective is to harness exist-
The objective of new source-consuming and ing nontraditional channels that can quickly and
channel creation is ending with the most.
Targeted market
easily reach consumers.
In parts of rural India, Bajaj Allianz General
to establish a parallel i n g o p p o r t u n i t y. Insurance has partnered with SKS, India’s larg-
means of distribution, Because of a knowledge
gap, consumers are
est microfinance institution, to approach the
husbands of SKS’s female customers and sell them a
such as Fan Milk’s underutilizing a prod- life insurance policy that also functions as a savings
bike-riding vendors in uct that can be bought
through traditional re-
instrument. In the first 10 months of 2009, Bajaj sold
1.8 million policies, generating premium income
West Africa. tail channels. The goal is
to boost short-term con-
of $33 million.
New channel creation. A large rural population
sumption of that prod- living beyond the reach of a company’s sales outlets
uct while strengthening the company’s brand in an may be using products that provide the same core
up-and-coming mass-market demographic. functionality as the company’s offering. The objec-
Dialog, Sri Lanka’s largest provider of telecom- tive is to build, from the ground up, a parallel distri-
munications services, had low sales among the ru- bution and sales channel that can penetrate hard-to-
ral poor, despite the fact that its mobile phones and reach rural areas.
telephone cards were readily accessible through The Danish-owned West African dairy company
a network of 40,000 small-scale retailers. Village Fan Milk established a street-vendor model to make
dwellers couldn’t relate to the always-connected its frozen dairy and juice products available in ru-
lifestyle these products made possible, and they ral areas where there are no cold-storage facilities.
were unaware of the full range of mobile services the Vendors purchase Fan Milk bicycles and pay for
company offered. To increase penetration, Dialog products before they sell them. The company pro-
created a network of trained women “infomediaries” vides product training and free bike repair services.
who coach villagers in the use of mobile phones and Fan Milk supports approximately 25,000 vendors in
help them gain the confidence and capacity to take West African countries, including Ghana, Ivory Coast,
advantage of Dialog’s services. Nigeria, and Burkina Faso.
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New product development. A company When BRAC, a world leader in social and eco-
sees an unmet need that dovetails with its product- nomic development, expanded from its home base
development capabilities. Consumers are using in Bangladesh to East Africa, it replicated some sig-
low-quality substitutes that lack key functional- nature innovations, such as creating large-scale mi-
ity or don’t stand up to challenging environmental crofinance programs and training promising women
conditions. The goal is to establish a competitive ad- participants as community health entrepreneurs. In
vantage in a mass-market category by designing and Uganda and Tanzania, BRAC’s Essential Health Care
engineering a product to be affordable and robust. program has been adapted to address the health pri-
In 2009 Godrej Appliances launched the orities of the region, including malaria and HIV/AIDS.
Chotukool, a revolutionary portable refrigerator BRAC has since grown to become the largest devel-
for the rural Indian market, where a third of all opment organization in Uganda, as well as one of its
food is lost to spoilage. By using a solid-state cool- largest microfinance institutions.
ing chip and eliminating the compressor, the com- New business-model development. The
pany reduced power requirements to a mere 62 company believes the core functionality of its cur-
watts and cut the price for an entry-level refrigera- rent product would be valued by a large rural con-
tor in half, to just $69. The product runs on a bat- sumer market; consumers may be using substitutes
tery, weighs less than 10 pounds, and keeps food that are costly and inefficient. The company’s cur-
fresh and cool at temperatures between 40 and rent product, however, is priced beyond their means,
60 degrees Fahrenheit. Today multiple versions even with extensive cost cutting. Furthermore, the
of the Chotukool are produced and sold through company’s business model requires infrastructure
retail channels reaching consumers across socio- that is absent in the targeted area. The strategic goal
economic levels. is to establish first-mover advantage in a large, latent
Conquest of competitors’ market. A growing market by scouting and securing choice assets and
industry made up of small and medium-size enter- limited partnerships.
prises is serving poor consumers in an area where Hindustan Unilever took a decade to incubate its
the company has no operations, and in order to be first consumer durables, the Pureit family of water
competitive, the company’s product requires only purifiers—innovative gravity-fed, tabletop devices
minor modifications. The strategic objective is to guaranteed to kill germs. Targeting both low- and
use the company’s economies of scale to outstrip middle-income Indian customers, HUL developed
local competitors and capture significant market four new routes to market, including an outsourced
share, thereby establishing a platform from which to “demonstration workforce” of 10,000 people to pio-
expand to other markets. neer its direct-to-home distribution and customer-
Grupo Bimbo, the world’s largest baked-goods education channel. After launching the Pureit brand
company, expanded from its home base in Mexico nationally, in 2008, HUL sold more than a million
to China, Brazil, and other South American coun- units in the first year.
tries in the early 2000s, mainly by acquiring local New market creation. The company believes
bakeries. As it adapted its products and brands to there’s an unmet need among a large population of
each market, it sought to make use of its invest- low-income consumers living in hard-to-reach rural
ments in operational and distributional capabili- areas. There are no substitutes in the market, and
ties. While its Mexican plants are among the largest consumers are largely unaware of the need for the
and most flexible in the industry, it has often had product. The strategic objective is to nurture the
to upgrade the facilities acquired abroad in order to creation of a new market intimately tied to the firm,
meet its standards. In China, operational changes placing the company’s brand in a powerful position.
improved productivity on some lines by 300%. SC Johnson’s Ghana venture is a good example of
Greenfield-market expansion. The company this opportunity type.
already serves bottom-of-the-pyramid consumers in
one area, but it could tailor its core offering and busi- A Multipronged Approach
ness model to meet the needs of similar consumers Several of these opportunities often present them-
in a different area. The goal is to use the firm’s opera- selves simultaneously. Smart companies take a port-
tional skills to establish a market-leading position in folio approach, following up on each according to its
a region of long-term interest. manageability and potential for return.
October 2014 Harvard Business Review 7
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PROFITS AT THE BOTTOM OF THE PYRAMID
Nine Kinds of Opportunities
The nine opportunity types fall into three main investment classes: mature
markets, growth markets, and frontier markets, shown in different shades
below. As you move away from the bottom left corner, the opportunities
become increasingly complex and resource-intensive, because they require
more consumer learning and value-chain modification. New market creation
is the most challenging opportunity of all.
NEW PRODUCT NEW BUSINESS-MODEL NEW MARKET
DEVELOPMENT DEVELOPMENT CREATION
KEY SUCCESS FACTOR KEY SUCCESS FACTOR KEY SUCCESS FACTOR
A brand platform that Business models that High-contribution revenue
allows the offering to include strategies for models (high gross margin
be tailored to each changing consumers’ plus high price point)
socioeconomic segment behavior
PRODUCT NEW CHANNEL GREENFIELD-MARKET
CONSUMER LEARNING
REDESIGN CREATION EXPANSION
KEY SUCCESS FACTOR KEY SUCCESS FACTOR KEY SUCCESS FACTOR
Rapid prototyping with Business models that Flexible capital-asset
consumers who aren’t used involve low working capital models that make it easy
to testing new products and foster the expansion to adapt a business model
of small businesses to a new cultural context
TARGETED DISTRIBUTION CONQUEST OF
MARKETING EXTENSION COMPETITORS’ MARKET
KEY SUCCESS FACTOR KEY SUCCESS FACTOR KEY SUCCESS FACTOR
Messaging strategies Partnerships with Codification of core
for illiterate, skeptical nontraditional partners capabilities and
consumers business processes to
transfer competencies
to new markets
VALUE-CHAIN MODIFICATION
MATURE MARKETS GROWTH MARKETS FRONTIER MARKETS
INVESTMENT <$50K INVESTMENT >$200K INVESTMENT >$500K
BREAKEVEN 1–3 YEARS BREAKEVEN 4–7 YEARS BREAKEVEN 10+ YEARS
These market segments These market segments These market segments
provide opportunities to hit offer long-term provide long-term
near-term sales targets and opportunities to increase positioning opportunities
chip away at competitors’ category sales and capture to drive significant category
market shares. In many cases, market share. Growth- growth or discover new
mature-market opportunities market opportunities categories. These projects
can be pursued by country- require regional leadership need leadership from the
level general managers from from the equivalent of a senior vice president of a
their discretionary budgets. vice president. business platform.
8 Harvard Business Review October 2014
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That’s the case with the French industrial giant hard-to-build-on plots of land that represent the
Lafarge, the world’s largest cement manufacturer. majority of unbuilt space in established city cen-
The company’s long-standing commitment to sus- ters. The company has created a demonstration
tainable economic development and to meeting the project in a municipality in southwestern France:
developing world’s burgeoning housing needs led it a multistory concrete shell in which homes, gardens,
to create a dedicated affordable-housing team based and green spaces are attractively nested on every
at its Paris headquarters. The team works closely level. By tackling a high-profile political issue (af-
with local offices in target countries to pilot-test ven- fordable housing), the venture overcame one of the
tures that complement local strategic priorities and project’s value-chain challenges—namely, spurring
address broader innovation objectives. interest and awareness among municipalities and de-
One of the company’s ventures—a mature- velopers. Given the long time line and uncertain cash
market opportunity—is aimed at strengthening flow, project oversight extends to the company’s CEO.
Lafarge’s competitive position in retail stores, where
it sells most of its bagged cement and competes BOTTOM-OF-THE-PYRAMID OPPORTUNITIES come in a
aggressively for shelf space. In an effort piloted in variety of shapes and sizes, but successes demon-
Indonesia and Nigeria, Lafarge links retailers with strate a recurrent lesson: the value of focusing on
microfinance organizations so that the stores can profits. Blinded by devotion to social missions, too
offer home-improvement loans and construction many companies with grand ambitions overlook
support to low-income consumers. Lafarge’s pri- profitable opportunities that match their resources
mary investment is in a team of home-improvement and skills and jump into ventures that overwhelm
“counselors” who market the service through chan- their capabilities. A more realistic assessment of
nels such as information kiosks set up in stores. The the challenges at the bottom of the pyramid can
counselors also connect customers to architects and help companies generate the profits that will make
other experts, provide advice on building materials, socially beneficial businesses sustainable over the
and ensure that borrowed funds are actually used long term. HBR Reprint R1410G
for building.
In India, Lafarge is pursuing a growth-market
opportunity involving the creation of a new sales
and distribution channel. This venture aims to bring
15-liter bags of high-quality, ready-mixed concrete
to the doorsteps of slum residents seeking to build
homes. To overcome consumers’ resistance to pay-
ing for the transportation and mixing of the concrete,
which they could take care of themselves, Lafarge
focuses on saving consumers time and reducing
wasted concrete, which help them save money. The
company pledges to deliver the product within 50
minutes of the time an order is called in. To meet the
value-chain challenges, Lafarge has designed mini-
plants that can be located near slums. Its product
developers have also redesigned the product formu-
lation and packaging so that the bags of concrete can
withstand transportation in three-wheelers. This
combination of strategic features presents a formi-
CARTOON: TERESA BURNS PARKHURST
dable entry barrier for competitors.
A third project for Lafarge is a greenfield-market
expansion. Although the low-income consumers
this venture targets live in wealthy, industrialized
countries, it is every bit a frontier-market invest-
ment. It aims to drive sales by selling to developers
“I thought it might help.”
an affordable-housing solution designed for the
October 2014 Harvard Business Review 9
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