Bottom of the Pyramid

In Focus of Research at TIM/TUHH

[ Rajnish Tiwari ]

The term "Bottom of the Pyramid" (BOP) - two other largely synonymous terms being "Base of the Pyramid" and "Bottom of the Economic Pyramid" - has in the meantime secured its place in the management literature. Scholars like the late C.K. Prahalad and Stuart Hart have contributed tremendously to establish this field of research and showed firms that serving poorer sections of the society can be a profitable proposition and might help raise the living standard of people below the poverty line in that it allows them affordable access to quality products. Firms have traditionally targeted their innovations and product development processes on customers with sufficient purchasing power. Prahalad, however, advocates a sea shift in the mindset and in the organization of business processes to cater to poor customers in volume-driven markets by doling out incentives of what he calls is a "fortune at the bottom of the pyramid".

Nevertheless, there have been some issues, which need further scholarly attention:

• True extent and a widely acceptable definition of what constitutes the "Bottom of the Pyramid" has remained elusive so far. Most publications (including some by same authors) work with very differing figures and numbers.

• Academic and theoretically founded base for BOP has so far not stood in the focus for most scholars dealing with this theme since they have been busy breaking new ground and dealing with the practical aspects.

• Social impacts of BOP products, which has been characterized by critics as "Misfortune at the Bottom of the Pyramid" (Aneel Karnani) remain controversial;

• Environmental hazards of small packaging units (pouches) and of consuming patterns of large-scale industrial products; and

Many firms, partially owing to reasons cited above, have still not been able to figure out ways to identify and best serve BOP markets. Many business managers still think in terms of per-capita income when deciding about the target groups for their product portfolio. In the globalized world of today, however, a large potential resides in developing economies with traditionally large families, so that not the per-capita income but rather the disposable income for an average family seems to be a more appropriate instrument to measure the demand potential. At the same time, there have been also instances of lack of instant success for BOP products such as the Tata Nano, the world's cheapest car developed by India's Tata Motors in a sort of open innovation project together with the world's leading auto-component suppliers. This raises the question, whether and under which conditions can products targeted at the lower-end of purchasing power can be successful.

India has emerged as a hotbed for frugal innovations targeted at the "Bottom of the Pyramid". First indications of India's growing role as an innovation hub for this category of innovations were first reported in a study by us (see: Herstatt et al., 2008). Since then, India has been slowly advancing to the position of a "Lead Market" for such innovative products, be it the world's cheapest car the "Tata Nano", or Chotu Kool, a small, portable, solar-enabled refrigerator. Under the aegis of Research Project Global Innovation we are taking a closer look at the phenomenon of BOP and conducting extensive research related to topics mentioned above. At the same time we are interested in finding a connecting point to "Grassroot Innovations", a paradigm developed and popularized by untiring efforts of Prof. Anil Gupta (Honey Bee Network). In our approach to BOP we seek to examine the possibilities of uniting it with Grassroot Innovations so as to broaden the base of inventive ideas by sourcing solutions created by rural inventors and by incorporating traditional knowledge.

There are three studies currently underway within this stream of research at our institute:

• Academic Antecedents of the Bottom of the Pyramid: A Meta-Analysis of Management Literature
  
  
• User Innovation at the Bottom of the Pyramid
  
  
• Disruptive innovation at the Bottom of the Pyramid

So far we have already conducted the following preliminary research projects on the BOP theme:

• What constitutes the Bottom of the Pyramid? What are the distinctive features of the various subgroups? (BRIC + Next 11)
  
  
• Case Study Unilever – Global activities in BOP segments
  
  
• Case Study Bajaj Allianz – Offering micro insurance at the BOP
  
  
• B2B Market Opportunities at the BOP: Using Tata Nano and one more (self-selected) example
  
  
• The role of innovation in BOP markets: How “new” should the products/services ideally be?
  
  
• Chances and Challenges for Small and medium-sized enterprises (SMEs) at the BOP

Our publications with a direct relevance to this theme are listed below. Further publications are in the pipeline.

• Tiwari, R. and Herstatt, C. (2011): Role of Lead Market Factors in Globalization of Innovation: Emerging Evidence from India & its Implications, in: Proceedings of IEEE International Technology Management Conference (IEEE-ITMC), pp. 475-483 June 27-30, 2011, San José (USA).
• Tiwari, R. and Herstatt, C. (2011): Lead Market Factors for Global Innovation: Emerging Evidence from India, Working Paper No. 61, Institute of Technology and Innovation Management, Hamburg University of Technology, Germany.
• Herstatt, C., Tiwari, R., Ernst, D. and Buse, S. (2008): India's National Innovation System: Key Elements and Corporate Perspective, Working Paper No. 96, Economic Series, East-West Center, Honolulu, Hawaii (USA).

[ Project Coordinator: Prof. Cornelius Herstatt / Project Leaders: Dr. Stephan Buse and Rajnish Tiwari ]