Understanding Business Model Innovation in Base of the Pyramid Markets

TOPIC

Understanding Business Model Innovation in Base of the Pyramid Markets

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SUBMITTED BY

 SATYAM CHOUDHARY

20172282

1. SYNOPSIS

1.1 Introduction:

“Bottom of Pyramid” (BoP) concept was introduced by US President Franklin D Roosevelt in 1932 while introducing the forgotten man at the bottom of the economic pyramid. As per data, there are 2.5 billion people who live on less than $2.50 a day. From ‘multinational companies’ (MNC) perspective, BoP market has huge potential as developed markets has become saturated with goods and as population growth there stagnates. Companies have now begin to see potential to achieve revenue growth and improve lives of millions by serving at the BoP.

1.2 Motivation:

BoP market is fresh and emerging market which was less realised before by many companies. The tapping of this market segment require innovation and change in mind-sets of people.

The four misperceptions of poverty are -

1. If income is low, poor people don’t buy brand products.
2. Goods sold in developing markets are cheaper than brand products.
3. Poor people only fulfil basic needs and don’t buy luxury products.
4. Poor people don’t have required skill for the use of advanced technology.

1.3 Research Problem:

We would like to understand business model innovations in BoP markets. The challenge is to define what business model innovation is actually involved . It is difficult for the companies to be systematic about innovative process without a framework. Therefore, many companies are not able to improve their productivity and profitability  on inexpensive ways to serve BoP markets. We would like to explore factors responsible for business model innovation through various real life cases.

1.4 Expected Outcomes:

The 4As and 5Ds dual approach is key to success for any company. It has following implications as outcome –

• Innovation.
• Differentiation Strategy.
• Margin versus Volume.
• Target aggregated customers.

1.5 References:

1. Gebauer, H., Saul, C. J., & Haldimann, M. (2017). Business model innovation in base of the pyramid markets. Journal of Business Strategy,38(4), 38-46. doi:10.1108/jbs-05-2016-0051.
2. Agnihotri, A. (2017). Responsible innovation at the bottom of the pyramid. Journal of Business Strategy,38(3), 40-47. doi:10.1108/jbs-02-2016-0018.
3. Prahalad, C. K. (2011). Bottom of the Pyramid as a Source of Breakthrough Innovations. Journal of Product Innovation Management,29(1), 6-12. doi:10.1111/j.1540-5885.2011.00874.x.

1.6 Keywords: Bottom of Pyramid, 4As, Business Model Innovation, 5Ds.

1. LITERATURE STUDY

2.1 Introduction:

The Base of the pyramid or BoP is a term of new era and often used in recent literatures. It was introduced by CK Prahalad who gave meaning to the BoP concept.

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Figure 1 : Four Tier Economic Pyramid, Source: Fortune at BoP, Prahalad 2002.

In order to understand the BoP, we should know about the Economic Pyramid and the four tier system.

Tier 1 also the Top of Pyramid has about 75 to 100 million consumers who are dominant upper class and middle class from developed countries. Tier 2 and 3 represents poor class from developed countries and rising middle class from developing countries. This segment was targeted mostly by companies. Tier 4 is BoP with approximately 4 billion people with annual per capita income less than 1500 dollars. (Prahalad and Hart, 2002)

Prahalad says in his journal “The Fortune at the Bottom of the Pyramid” that Low income market has potential profitable market for big companies. They are becoming new market entrants by selling product and services to BoP value conscious consumers.  Doing business with the BoP requires innovation in Business Models. (Prahalad and Hart, 2002)

These consumers are in billions and a new What and How can be discovered for effective customers using Four A’s – Acceptability, Affordability, Availability and Awareness. (Anderson and Markides, 2002)

2.2 Literature Review:

Business Model Innovation have existed in around 2010 but its importance has started to increase with the advancement of internet which is very much seen (Zott and Amit, 2011). In recent years, the Business Model Innovation concept have become more influential in macro management research. The recent research on BMI highlights its usefulness in research on strategy, technology management. (Zott and Amit, 2011)

The three characteristics of a good Business Model will meet following criteria – Is it aligned with company goals? Is it robust? Is it self – reinforcing?

According to survey, seven out of ten companies try to innovate business models by modifying existing business models. (Casadesus et all, 2011)

The innovation of BM complements traditional subjects of product, process and organisational innovation. (Zott and Amit, 2011) Four Streams of Research on BMI Field has been concluded which includes conceptualizing BMI, Organisational change process, Outcome and Consequences. Over the last 15 years, business model innovation (BMI) has gained an increasing amount of attention in management research and among practitioners.

2.3 Need for BoP:

The need for business model innovation for BoP has been recently recognised by companies but finding it very challenging as  this segment cannot afford to buy even the cost of products is reduced to lower level. (Agnihotri A, 2017)

Four important themes are forming around Business Model as new unit for analysis offering a systematic approach to how to do business performed by boundary spanning activities focusing on value capture and its creation. (Zott and Amit, 2011)

The strong financial performance by Haier and Hindustan Lever managed to deliver four A’s and produced life enhancing products at lower cost for the BoP consumers. (Anderson and Billou, 2007)