Aneel Karnani

The Mirage of Marketing to the Bottom of the Pyramid: How the Private Sector Can Help Alleviate Poverty

The popular ‘bottom of the pyramid’ (BOP) proposition argues that large companies can make a fortune by selling to poor people and simultaneously help eradicate poverty. While a few market opportunities do exist, the market at the BOP is generally too small monetarily to be very profitable for most multinationals. At the same time, the private sector can play a key role in poverty alleviation by viewing the poor as producers, and emphasize buying from them, rather than selling to them.

Romanticizing the Poor

Even as the economic gap between the rich and the poor is growing steadily larger, the physical gap between the rich and the poor is narrowing.1 Slums are often just a short walk from upscale beaches or border posh neighborhoods, and shantytowns can be found near luxury resorts. The media brings images of the poor into the living rooms of the advantaged everyday. It is not possible, nor politically correct, to just ignore poverty. The affluent can actually visit poor neighbourhoods and photograph or film the poor in their “natural habitat,” either sanitizing or romanticizing their lives. Indeed, entertainment and poverty have come together: poortainment.

Help, Don't Romanticize, the Poor

Aneel Karnani suggests that current thinking about reducing poverty is based on an unrealistic view of the poor and inadequate expectations about how governments can best address the problem.

Employment, Not Microcredit, is the Solution

Most studies suggest that microcredit is beneficial but only to a limited extent. The problem lies not with microcredit but rather with microenterprises. With low skills, little capital and no scale economies, these businesses have low productivity and lead to meager earnings that cannot lift their owners out of poverty. Creating opportunities for steady employment at reasonable wages is the best way to take people out of poverty. The government is responsible for providing public services that are critical for increasing the productivity and the employability of the poor.

CSR Stuck in a Logical Trap a Response to Pietra Rivoli and Sandra Waddock's “‘First They Ignore You…’: The Time-Context Dynamic and Corporate Responsibility”:

Corporate social responsibility (CSR) discussions often fall prey to a logical trap. If some socially desirable activity is profitable, then it is best described as “intelligent operation of the business” and thus CSR is irrelevant. If the socially desirable activity is not profitable, then companies will not voluntarily undertake it unless required to do so by law or regulation, and thus CSR will be ineffective. The concept of CSR is “intensely confused” because in both the above cases it is not a useful construct. Rivoli and Waddock propose to get out of this logical trap by analyzing CSR “in a more dynamic, time- and context-dependent manner.” Unfortunately, the presumed escape route turns out to be a dead end. CSR is best defined as: a company has a corporate social responsibility to voluntarily undertake socially desirable behavior that decreases the firms profits. Laws and regulation are much more effective than CSR at inducing firms to implement socially desirable behavior that reduces firm profits.

Mirage at the Bottom of the Pyramid

Poor people ??? at the bottom of the pyramid (BOP) ??? represent a very attractive market opportunity. The ???BOP proposition??? argues that selling to the poor can simultaneously be profitable and help eradicate poverty. This is at best a harmless illusion and potentially a dangerous delusion. This paper shows that the BOP argument is riddled with fallacies, and proposes an alternative perspective on how the private sector can help alleviate poverty. Rather than focusing on the poor as consumers, we need to view the poor as producers. The only way to alleviate poverty is to raise the real income of the poor.

Markets of the Poor: Opportunities and Limits

Markets of the poor have attracted much attention in recent years. Unfortunately, there are very few examples of profitable businesses that market socially useful goods in low-income markets and operate at a large scale. However, there are many examples of businesses that profit by exploiting the poor, such as tobacco. Some constraints on free markets are needed to protect the vulnerable consumers—these are the limits to markets of the poor. The poor have many basic needs that continue to be unsatisfied—these are the opportunities offered by the markets of the poor. But, these are not easy opportunities. The challenge is to design profitable business models that sell products and services that benefit the poor and genuinely improve the quality of their lives, at prices they can truly afford. It is necessary to reduce quality in order to reduce costs significantly in most cases, but in such a way that the cost–quality trade-off is acceptable to poor consumers.

An Integrated Approach to Poverty Alleviation: Roles of the Private Sector, Government and Civil Society

In this chapter we offer an integrated framework for poverty alleviation that maps the roles of private sector, government and civil society organizations. For private sector enterprises and social entrepreneurs, strategies to engage the poor go well beyond selling to consumers and include working with the poor as valuable sources of information, as producers and suppliers, as employees and as distributors. We argue that the greatest impact that companies or social enterprises can have in reducing poverty is to create productive jobs for low-income individuals. We also emphasize the important role for local small and medium-sized enterprises (SMEs) to generate employment. Our integrated model also seeks to bring the essential role of government into the conversation on business and poverty alleviation. We outline government’s role in providing public services, infrastructure, regulation and facilitating job creation as essential for market-based approaches to poverty alleviation. Civil society can play an important role as a catalyst and watchdog to ensure that both the private sector and governments live up to societal regulations and expectations. With an understanding of the various roles and approaches of societal actors, social entrepreneurs and their partners can make realistic progress towards the complex tasks of social and environmental innovation while genuinely addressing poverty alleviation and bring us closer to a globally inclusive market system that creates value for all.

Improving Private Sector Impact on Poverty Alleviation

The past few decades have seen an increasing role for the private sector in poverty alleviation. The variety of names used to describe these initiatives—corporate social responsibility, social enterprise, base of the pyramid, impact investing, not-for-loss business, and corporate philanthropy—obscures the similarity between them: they all sacrifice economic profits in return for social impact. This article uses economic theory to develop a cost-based taxonomy of private sector initiatives in poverty alleviation by taking into consideration which costs are being subsidized. This highlights the incentive effects, allowing the donor to increase the efficiency and impact of the initiative.

Social Entrepreneurship: Beyond the Hype

While social entrepreneurship has been attracting increasing attention, it is not clear what it really is. I argue that the term ‘social entrepreneurship’ is too ambiguous to be useful. It is more appropriate to characterize a particular organization, be it public, for-profit or not-for-profit, by how entrepreneurial it is and how much social value it creates. This article discusses the distinct characteristics of the three types of organizations. I then argue that the boundaries between these three sectors are not getting blurred; more importantly, it is better to sustain these boundaries.