If a company embarks on an initiative that focuses solely on commercial gain, civil society and governments are likely to oppose it intensely, as the international water utility company Aguas del Tunari discovered in Bolivia.
If a company tries to stay under the radar by keeping its base-of-the-pyramid operations small, profits are likely to be meager, as Procter & Gamble found out with its water-purification product in Latin America and Asia.
Even if you focus mainly on social impact and consider profits secondary, the base of the pyramid is a risky place: Projects that fail to make money will eventually be relegated to companies’ corporate social responsibility departments, as Microsoft discovered.
The bottom of the economic pyramid is a risky place for business, but decent profits can be made there if companies link their financial success with their constituencies’ well-being.
To do that effectively, you must understand the nuances of people’s daily lives, say Rangan and Chu, of Harvard Business School, and Petkoski, of the World Bank.
Start by dividing the base of the pyramid into three segments according to people’s earnings and related personal needs: Next, consider the roles of various groups in the value-creation relationship: consumers, coproducers, and clients.
Specific strategies work best with people in certain roles and at particular income levels.
Indeed, decent profits can be made at the base of the pyramid if companies link their own financial success with that of their constituencies.
In other words, as companies make money, the communities in which they operate must benefit by, for example, acquiring basic services or growing more affluent.This leads to more income and consumption—and triggers more demand within the communities, which in turn allows the companies’ businesses to keep growing.Success requires appreciating the diversity at the base of the pyramid and the importance of scale in undertaking ventures there.Witness Manila Water’s success in the Philippines and Hindustan Unilever’s in South Asia.Failure to appreciate those elements can foil base-of-the-pyramid ventures, as Microsoft and Procter & Gamble each discovered.Cross the invisible line into the base of the economic pyramid in emerging markets and you enter a world of pitfalls.