Market Segmentation at The Bottom of the Pyramid

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 Globe: Segmenting the Base of the 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):

Low income:

  • 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.

Subsistence

  • 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

Extreme poverty

  • 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

“Ending Poverty” Is A Bad Idea

“Ending poverty” is a bad idea.

Should the goal of the poet be to “end blank pages,” or of a chef to “end empty stomachs”, a builder to “end vacant lots”?

While the meaning of such goals can be dimly understood, they are not clear. They implicitly give positive reality to what is actually a lack or an absence and cast a very strange vision about what is to be done to accomplish such “endings”:

Shall the poet gather all blank pages and burn them in a fire so that poetry emerges?

Shall the chef surgically remove all empty stomachs and delicious feasts emerge?

Shall the builder take a magical wrecking ball and crash down the vacancy, revealing a building in its wake?

The point is to be clear in our language to help us be clear in our thinking to help us be effective in our action.

These various lacks or absences need not to be ended, but to be filled.

The poet should fill blank pages with poetry, the chef fill empty stomachs with food, the builder fill vacant lots with buildings.

Poverty shouldn’t be ended, it should be filled.

Poverty is like an empty page waiting for poetry, an empty stomach waiting for good food, and a vacant lot desiring a building.

The task of filling up poverty with wealth falls to the producers, the wealth-makers, the entrepreneurs of the world whose role it is to transform the raw stuff of world for the good of mankind.

While the phrase “ending poverty” or “fighting poverty” has sadly become a common and therefore easy and necessary way to indicate something of the general intention of improving the lives of the very poor of the world, such ill-conceived phrasings are not as true and useful as “filling poverty” or “making wealth” or “creating prosperity.”

So let’s start creating, and stop trying to do something as silly as ‘ending poverty’.

problem with pralahad

Somewhat the idea of CK Pralahad in “The Fortune at The Bottom of the Pyramid”–recognizing that even though the poor have little money with which to purchase things, they are an undeserved market that possesses significant buying power that is worth serving through appropriate product development.

This has the potential to free up income or potentially increase income through freed up time that can be used in paid labor.