The Base of the Pyramid: Room to Grow

by Tom Haslett

One of the most important questions facing multinational corporations today is whether they can make a profit with products and services marketed to the poor in developing countries. Many companies are actively exploring this approach with a variety of goods meant to reach consumers with limited expendable income: this is called a “bottom of the pyramid” strategy. As firms search for new opportunities, Africa represents a particularly large and attractive market to tap. Equally importantly, new innovations that earn a profit for their creators can also serve the continent’s people as a powerful tool for development.   

 Given the exploding use of cell phones in Africa and the rest of the developing world over the past several years, it is perhaps unsurprising that the telecommunications industry is leading the way in bringing low-cost products to base of the pyramid consumers. Rising mobile phone usage in Africa has brought important benefits; however, for many Africans the impact has been reduced by a lack of regular access to electricity. This may become a thing of the past with the launch of solar-powered mobile phones: the first model to arrive in Africa went on sale in Kenya this summer. These handsets may soon benefit from expanded network coverage thanks to products like a recently wheeled-out mobile base station that runs on solar power and can be installed and maintained by almost anyone.

 New innovations are helping to increase productivity as well. African companies will be happy to note that IBM is working to make it easier to do business on the continent by producing affordable notebook computers and software packages that can reduce costs by 50 percent. Schoolchildren who currently have to stop studying when the sun sets will benefit from the efforts of Phillips to bring light to areas without electricity with innovative lamps powered by hand-cranks and solar technology. A similar approach is being taken by ToughStuff International, which has introduced a line of LED lights and durable solar panels to replace dirty and expensive light sources such as kerosene lamps and candles, allowing craftsmen to ply their trade even in the evening.  Rwanda has set a goal of providing every child with an internet-connected laptop by 2012.

 The benefits that innovative products such as these bring to consumers are clear.  For example, the wider availability of mobile phone service will allow more people to access banking services and ensure they receive a good price for their goods at market. The arrival of rechargeable lights leapfrogs the problem of insufficient infrastructure to improve quality of life in non-electrified areas. But are the new products worth it for the companies who develop them?

It would seem the answer is yes. Estimates indicate that the base of the pyramid represents a market worth $5 trillion annually. A Ugandan doctor who created a lab in a box to increase the availability of medical diagnostic services sees 30% annual growth for his innovative products in developing markets, compared with just 5% in developed countries. And it’s not just the products on offer that are useful: Creating distribution networks to reach the targeted consumers will facilitate future marketing initiatives as well. This is not to say that challenges won’t confront firms looking to tap this new market: obstacles exist in any new venture. However, companies who look to serve consumers in the world’s developing regions may find the effort rewarding as they establish important ties in growing markets with a large pool of dedicated customers.