Designing the Supply Chain for Success at the Bottom of the Pyramid

• DOI: http://doi.org/10.1111/jbl.12096
• Date: 01 September 2015
• Published date: 01 September 2015

Editorial

Designing the Supply Chain for Success at the Bottom of

the Pyramid

Stanley E. Fawcett

1

and Matthew A. Waller

2

1

Weber State University

2

University of Arkansas

The bottom of the pyramid—that is, the world’s four billion consumers who live on $5 or less per day—is one of the last untapped markets

for multinational companies (MNCs) to drive revenue and profit growth. However, most MNCs have found it difficult to make money

“solving the pressing needs of low-income communities.”We explore why the bottom of the pyramid has become a strategic focal point. We

also identify and discuss fundamental differences and trade-offs MNCs encounter in meeting the demands of the world’s lowest-income con-

sumers. Drawing on the experience of exemplar case studies, we describe how MNCs can leverage resources to build the infrastructures needed

to think differently about how to measure financial performance, design products differently to leverage both customization and standardization,

and deliver differently to compensate for infrastructural deficiencies. Finally, given much of the product acceptance-and-profitability challenge

falls under the purview of supply chain decision makers, we call for research in specific operational and relational domains to help companies

design supply chain networks and processes for success at the bottom of the pyramid.

Keywords: supply chain design; bottom of the pyramid

INTRODUCTION

Growth—both revenue and profit—is the key to corporate survival.

Growth drives stock price. Growth spins off cash to invest in innova-

tive new product development (NPD). Without growth, a company

risks irrelevance (Fawcett and Waller 2014a). These realities raise the

question, “Where does a multinational company (MNC) go to grow

when it has saturated developed and emerging markets?”For many

MNCs, the only remaining market is found at the bottom of the eco-

nomic pyramid—that is, the four billion people who live on $5 or

less per day (Prahalad and Hart 2002; Rangan et al. 2011). Unfortu-

nately, most MNCs have found it difficult, if not impossible, to make

money “by solving the pressing needs of low-income communities”

(Simanis and Duke 2014, 87). The result: most MNCs consign once

for-profit business ventures to break even corporate social initiatives,

which are destined to be resource-starved niche endeavors (Rangan

et al. 2011). The bottom of the pyramid remains the purview of gov-

ernment and nonprofit nongovernmental organizations (NGOs).

Prahalad’s (2004) book, The Fortune at the Bottom of the Pyra-

mid: Eradicating Poverty Through Profits, popularizes the idea of

targeting the bottom of the pyramid. Prahalad’s story is com-

pelling. MNCs could profitAND improve their public image by

improving the lives of billions of people. Two factors—market size

and changing assumptions about the viability of low-income con-

sumers—spurred interest in bottom-of-the-pyramid investments.

Market size

The United States represents only about 4% of the world’s

population. Add in the European Union (EU) and the market

grows to almost 10%. By including Japan, Ohmae’s (1989)

triad of wealthy economies accounts for a mere 13% of the

world’s population. By, contrast the bottom of the pyramid

comprises over 50% of the world’s potential consumers.

Rangan et al. (2011) segment the bottom of the pyramid as

follows:

•Low income: The 1.4 billion people who earn $3–$5 a day.

•Subsistence: The 1.6 billion people who live on $1–$3 per

day.

•Extreme poverty: The one billion people who survive on less

than $1 per day.

Prahalad (2004) argued that as MNCs had increasingly satu-

rated competitive wealthy markets and emerging economies, the

time had come to pay attention to the world’s poorest con-

sumers.

Changing assumptions

Prahalad and Hart (2002, 4) identify “widely shared orthodoxies”

that limited investments in impoverished countries (see Table 1).

However, they advocated that economic reality has changed in

the past 25 years—from both corporate and consumer perspec-

tives.

•From the corporate side, developed-market growth has slowed.

Fierce competition from global rivals means that profits will

remain challenged. Simply put, MNCs need to look beyond tradi

tional markets for revenue and profit growth.

•From the consumer side, TV and the Internet have changed

the aspirations of the world’s poor. Consider the fact that by

1995 Baywatch had been translated into 15 languages and was

televised in 144 countries—including Iran. As large segments of

four billion impoverished people have become acquainted with

how the “rich world”lives, they are no longer content to accept

“old”technologies and second-class status. Indeed, Prahalad and

Corresponding author:

Stanley E. Fawcett, Business Administration, Weber State University,

WB 267, Ogden, UT 84408, USA;

E-mail: stan.e.fawcett@gmail.com

Journal of Business Logistics, 2015, 36(3): 233–239 doi: 10.1111/jbl.12096

© Council of Supply Chain Management Professionals