Viewed from afar, it is easy to gloss over differences within general group. Imagine someone ignorant of and inexperienced with any sort of physical sport, who wants to open a “sports store” and sell “sports equipment.” “Which sports?” you might ask them. A business hoping to serve a group of customers needs to segment–to make relevant and useful divisions within–a large market to break it into specific enough chunks so that they each have a relevant commonality. This commonality allows a business to approach that chunk together, as a unit. You do not approach golfers and basketball players as a single group.
In Out of Poverty, Paul Polak makes a similar criticism of CK Prahalad’s approach in his influential book “The Fortune at the Bottom of the Pyramid”:
Unfortunately, Prahalad places the 4 billion people in the world who earn one, two, three, and four dollars per day all in the same boat at the bottom of the pyramid. Then he cites exemplary business–such as Casas Bahia in Brazil and Cemex in Mexico, which serve middle-class customers–as models for the role big business can play in ending poverty. This is a bit like lumping together homeless people, people on welfare, social workers, schoolteachers, and nurses int he United State into one group at the bottom of the pyramid and citing a successful chain of Hyundai car dealers as an exemplary model for serving people at the bottom of the United States pyramid.
“The 4 billion people at the base of the pyramid—whose output represents one-third of the world’s economy—are not a monolith.”
The article distinguishes the following three groups within the poorest 4 billion people (what follows is almost a continuous quote from the article, but converted to bullet point format):
- Roughly 1.4 billion with income of $3-5 per day
- Couple years secondary education
- Enjoy semi-regular incomes as construction workers, petty traders, drivers, or low-level staff in public and commercial establishments
- Conduct their transactions in both formal and informal markets,
- Live near or among the people who occupy the next layer up in the pyramid (above $5 per day)
- Own such consumer goods as bicycles, televisions, and cell phones
- Have a reasonable hope that they or their children will achieve a modestly higher living standard.
- The bulk of the roughly 1.6 billion people who live on $1 to $3
- Poorly educated and low skilled
- Typically have some income as day laborers or temporary workers, earnings are not steady
- Can typically afford one square meal a day, but the nutritional content is often substandard
- If in slums or shantytowns, they might work as helpers or assistants in petty trade
- If in rural areas, they are likely to be temporary, migratory farmhands during sowing or harvesting seasons
- As both consumers and producers, they conduct transactions in informal markets
- Turn to moneylenders for loans
- Unlikely to reach a $5-a-day standard of living
- The bottom 1 billion lack basic necessities: sufficient food, clean water, and adequate shelter.
- War, civil strife, and natural disasters have displaced many from their homes.
- They are forced into transactions that are irregular even by the standards of informal markets.
- Some live in barter economies; others are bonded laborers.
- Women often have to walk long distances along nonsecure pathways to fetch water.
- Poor health, lack of nutrition, financial vulnerability, limited education, and a dearth of marketable skills
- The precariousness of their daily existence precludes participation in the market as consumers or producers