Business Horizons (2013) 56, 591599

Available online at www.sciencedirect.com

www.elsevier.com/locate/bushor

Doing good and doing business at the bottom

of the pyramid
Arpita Agnihotri
ICFAI Business School, ICFAI University, Hyderabad, Andhra Pradesh 180015, India

KEYWORDS
India;
Poverty premium;
Affordability trap;
Microfinance;
Business ethics

Abstract There is an ongoing debate among scholars regarding the existence of a

fortune at the bottom of the income pyramid. While some scholars argue that there is
a profitable market at the pyramid base, others refute this proposition, arguing that
targeting poor people as customers could lead to unethical business practices and
further their exploitation. With the aid of mini cases, this article explains that there is
indeed a fortune to be made at the base of the pyramid but that good fortune can be
created for both corporations and poor people if the population at the bottom of the
pyramid is treated as suppliers, producers, co-owners, and/or employees rather than
as mere consumers. However, in terms of consumers, there is a market for firms at the
base of the pyramid through which they can earn profits and simultaneously help
eradicate poverty, mainly by lowering the cost structure for poor people. In other
words, firms that can reduce poverty and provide cost-effective utilitarian goods and
services to poor people have more to gain from such individuals than those firms that
provide more luxurious goods and services or offer goods with mere aesthetic or
emotional value. With the help of mini cases, this article explains four measures firms
can use to create fortunes for themselves as well as for poor customers by avoiding
affordability and adaptability traps.
# 2013 Kelley School of Business, Indiana University. Published by Elsevier Inc. All
rights reserved.

1. Introduction
The concept of fortune at the bottom of the pyramid has been extensively discussed in academic
theory and practice in the corporate world. According to this proposition, there is a potential market at

E-mail address: arpitaagnihotri@yahoo.com

the bottom of the pyramid that firms can serve

profitably while simultaneously helping to eradicate
poverty. Thus, there is a win-win situation in which
firms can make profits and poor people can benefit
from products and services that enhance their living
standards (Prahalad & Hammond, 2002). However,
some scholars have a contrary viewpoint, suggesting
that providing high-quality products leads less to the
eradication of poverty and more to the exploitation

0007-6813/$ see front matter # 2013 Kelley School of Business, Indiana University. Published by Elsevier Inc. All rights reserved.
http://dx.doi.org/10.1016/j.bushor.2013.05.009

592
of poor people (Karnani, 2007). For example, Fair and
Lovely (skin-whitening cream provide by Hindustan
Unilever [HLL]) and Casa Bahia (electronic goods
retailer) have been cited frequently for their unethical practices (Davidson, 2009). It has been argued
that although Shakti Ammas (saleswomen of HLL
products in India) earn commission by selling these
products and services and Casa Bahia provides products on credit (monthly installments), by purchasing
such products, poor people substitute the purchase of
one or more important utilitarian goods with less
important goods provided by HLL or Casa Bahia.
For example, poor women may substitute the purchase of vegetables for the entire family with HLL
skin-whitening cream (Karnani, 2007). A poor person
might also end up paying monthly installments for a
television from Casa Bahia rather than saving that
money for future investments in education or health
care.
Overall, the idea of selling products to customers
at the bottom of the pyramid has triggered a debate
regarding both firms and poor people being better
off by making the latter an important constituent of
the firms ecosystem.
With the help of mini cases, this article explains
that a win-win situation can be created by treating
poor people not only as customers but more importantly as suppliers, producers, and/or employees.
The benefit for both firms and poor people is comparatively higher in this scenario than when firms
treat such individuals only as consumers. However,
the pyramid base is not an equally important market
for all firm types. For example, companies that
provide clean drinking water encounter a more
lucrative market at the bottom than firms providing
tourism or entertainment services. The article also
proposes four methods companies can use to earn
profits from consumers at the base of the pyramid
while simultaneously helping to eradicate poverty
(indirectly) by lowering cost structure. In addition,
affordability and adaptability traps are discussed,
which firms should avoid when catering to the bottom of the pyramid. Finally, ethical and social concerns are also considered, which should be taken
into account when firms treat poor people only as
customers.

2. Firm ecosystems and the various

population roles at the pyramid base
Poor people can act as producers, suppliers, employees, and/or customers of firms. The relationships with the greatest likelihood to generate
maximum value for both populations at the bottom
of pyramid and firms are explained.

A. Agnihotri

2.1. The poor as producers, suppliers, and

co-owners
Shree Renuka Sugars is Indias largest sugarmanufacturing and refining firm, founded by Indian
entrepreneur Narender Murkumbi. To fund his first
sugar mill, Murkumbi borrowed some money from a
bank and persuaded farmers (who were ultimately
also his sugarcane suppliers) to invest around
1,000 rupees each (approximately $20) in his firm.
This cooperative culture is quite famous in some
states of India, where farmers pool money to raise
capital for producing goods and services. At that
time, farmers had to travel long distances to sell
their sugarcane produce. There was often overproduction, and the crop prices fluctuated wildly, creating uncertainty with respect to the farmers
income. When Shree Renuka Sugars promised farmers regular sugarcane purchases at the market price,
the company convinced the farmers to buy at least
500 shares of the firm at 10 rupees ($0.20) each.
Seven years later, when the initial public offering
(IPO) of Shree Renuka Sugars was announced, the
net worth of the shares increased to 5 lakh rupees
($100). Consequently, farmers earned huge returns
on their investment. With this money, some farmers
sold their shares to buy more land for agriculture,
and some continued to hold the shares.
Furthermore, farmers then had more disposable
income, which also increased their purchasing power. Some farmers invested in their childrens education, some purchased more land for cultivation, and
others purchased cars. Shree Renuka Sugars benefited by saving high interest on debt, and more importantly, they gained through efficient and easy
procurement of the primary raw material they needednamely, sugarcane. This was possible because
the middlemen in the supply chain were removed.
Shree Renuka Sugars could thus enhance the efficiency of its operations and reduce cost by eliminating
supply uncertainty, ensuring an uninterrupted supply
of raw and refined sugar, which helped them expand
aggressively and raise revenue (Sharma & Mathur,
2010). Therefore, both partiesShree Renuka Sugars
and the farmersbenefited from the deal.

2.2. Bottom of the pyramid people as

owners/entrepreneurs: Corporate tie-ups
Shri Mahila Griha Udyog is a cooperative organization that manufactures papad, an Indian food
item. The company was started in 1959 by seven
entrepreneurial women with a modest loan of
80 rupees and now employs 42,000 female workers.
Its annual turnover is 300 crore rupees ($600,000),
with approximately 10 crore rupees ($20,000) from

Doing good and doing business at the bottom of the pyramid

exports. The entire papad-making process is manual, with no technology involvement anywhere in the
entire manufacturing process. The women earn a
daily wage of 60 rupees ($1.20) and an annual bonus
of 4,000 rupees ($80). The company provides employment to many women without any form of
exploitation, and the cooperative earns sufficient
profits to sustain itself (Ensuring Rural, n.d.).
Other firms could do good by creating new
or better cooperatives. Lijjat Papad is a wellestablished and high-quality food brand in India.
Certain Indian players like Bikaner (a well-known
sweets brand) and MDH (a spice manufacturer) are
attempting to come up with their own papads,
which are not part of their core competency. Instead
of launching their own papads, they could distribute
Lijjat papads and earn commission. Similarly, Mahila
Udyog could reduce costs by establishing distribution channels with Bikaner and MDH.
Amul (an Indian farmers cooperative) allied with
Tata Coffee (a major tea brand in India) to exploit
the advantages of its extensive distribution network,
especially in rural areas, to distribute Tata Coffee
products. However, a greater revenue-earning
opportunity would be provided if Amul could scale
up the distribution of its own products through alliances. For example, to expand in the Delhi-NCR
region of India, Amul could partner with Mother Dairy
and Kwality Dairy to enhance its distribution and
production network. This way, Amul could rapidly
make its product accessible to the mass of consumers
and thus raise its revenue. In turn, Mother Dairy and
Kwality Dairy could also benefit by earning commissions (Amul Scouts, 2003).
By undertaking fair business deals and offering
fair opportunities to cooperatives of poor people,
not only can corporate entities generate profits for
themselves, but they can also enhance cooperatives revenues.

2.3. Poor people as employees: Raising

their status
Firms can almost always create a win-win situation
by treating blue collar employees as owners. Employee stock ownership plans (ESOPs) are generally
reserved for white collar workers in industries, but
the same privileges can be extended to blue collar
workers. Gucci was the first Italian firm to sign an
agreement with trade unions to make them part of
the organization by granting them ESOPs. In this
case, however, there was controversy as many believe Gucci offered these ESOPs to prevent hostile
takeovers from corporate raiders like Moe
t
Hennessy-Louis Vuitton rather than to benefit poor
workers (Italys First, 2000).

593

Despite such controversies, a handful of cases

have emerged in which lower- to middle-level workers have retired as millionaires. Firms like Carris
Reels, a tool manufacturer, has been giving ESOPs to
blue collar workers since the late 1990s (Williamson,
Imbroscio, & Alperovitz, 2003). ESOPs are known to
enhance worker productivity, resulting in increases
in sales per employee and overall efficiency. Moreover, the competitive dynamics of a firm also improve, which can avoid hostile takeovers by
competitors. After employees receive ESOPs and
their productivity improves, the results are often
reflected in the firms stock market performance.
Therefore, after selling the firms stock, a worker
can improve his/her overall earnings. Apart from
this, firms also secure tax advantages. Consequently, companies can generate positive value for both
themselves as well as for low-level employees.

2.4. Poor people as customers

There are four ways to simultaneously enable firms
to generate profit and reduce the cost structure for
poor people. When poor individuals are targeted as
customers, perceived cost/quality tradeoffs and
ethical marketing issues become important as poor
peoples disposable income does not rise, and the
purchase of an extra product must generally be
substituted for a more regular purchase. Hence, if
a cosmetic company is selling skin-whitening cream
in sachets (thus making it affordable), it may actually be persuading poor customers to substitute the
purchase of some other important utility goods,
such as fruits or vegetables, with a beauty product.
Accordingly, firms have to be cautious because on
ethical grounds, the bottom of the pyramid is not a
suitable market for all types of companies. That is,
certain players can make more and fairer profits
from this market compared to others depending on
the kind of products and services they provide to
poor people. For example, for a pharmaceutical
firm, the bottom of the pyramid would be a more
important market than for a firm selling tourism
services. Below, we consider which types of firms
can make respectable profits at the pyramid base
and simultaneously eradicate poverty.
2.4.1. Reducing the poverty premium
The poverty premium refers to the higher prices
poor families pay for basic necessities like gas,
electricity, and banking compared to average customers. The poverty premium in the United Kingdom
was estimated at 1,170 in 2011, an increase well
above the rate of inflation. This premium exists
because people who do not have bank accounts
do not obtain the advantages of discounts that

594
average consumers secure when they pay utility
bills with debit or credit cards. Since there is no
real exploitation but rather a lack of certain additional features average consumers have, poor people can end up paying 10%15% more for the same
services. The poverty premium exists in emerging
economies as well. For example, in the Dharavi
region of Mumbai (a slum area of Mumbai in India),
a poor person pays 150 times more credit interest
than the average borrower. Similarly, the premium
for diarrhea medication is 10% more expensive
and water is 15% more expensive per cubic centimeter for the poor (Prahalad, 2005). Thus, the first
thing firms could do is reduce the poverty premium
by providing poorer individuals with services
and products from socially important sectors
(e.g., health, nutrition, and credit) at the market
rate instead of the premium rate. This way, they
can reduce the cost structure confronting poor
people and also generate profit for themselves.
In other words, firms that belong to socially important industries have a more important role to play
in eradicating poverty and greater opportunities to
earn profits.
However, socially important businesses have always been part of the academic debate on whether
or not everything should be seen from a purely
commercial point of view. Below, we consider the
private sectors role in reducing the poverty premium and making services affordable while simultaneously earning profits.
2.4.2. The emergence of microfinance:
Avoiding the exploitation trap
The term microfinance can be defined as the
provision of thrift, credit and other financial services and products of very small amounts to the poor
in rural, semi urban or urban areas, for enabling
them to raise their income levels and improve living
standards (NABARD, 2007). Microfinance is not a
new concept. Savings and credit groups existed
earlier in the form of chit funds in India, susus in
Ghana, cheetu in Sri Lanka, and pasanakuin in Bolivia. The concept first emerged in the 1700s through
the Irish loan fund system introduced by Jonathan
Swift. By the 1840s, 20% of Irish households had
access to short-term loans from the Irish fund on
an annual basis (Lindsay, 2010).
The theme of microfinance is business that is not
for loss and not for profit. According to Muhammad
YunusNobel Prize winner and founder of the
Grameen Bank in Bangladeshmicrofinance institutions should be social businesses driven by social
missions (Yunus, Moingeon, & Lehmann-Ortega,
2010). Such institutions rely on money deposited
by poor people to fund their loans. However, not all

A. Agnihotri
countries permit such funding, so capital for funding
loans has to come from somewhere else.
Fortunately, the trend has recently changed. As
Prahalad (2005) pointed out, doing business with
people at the bottom of the pyramid does not need
to be purely a matter of corporate social responsibility. Certain microfinance institutions like SKS in
India and Compartamos in Mexico have gone public,
indicating the commercial viability of running microfinance institutions. Interest rates charged by
microfinance institutions are indeed much lower
than those charged by local lenders. Still, poor
customers borrow smaller amounts, so microfinance institutions have to maintain many small
accounts. Thus, they charge interest charges generally above the market rate. Broadly speaking, the
interest rate lies somewhere between the market
rate and that charged by local lenders, but compared to informal lenders, the premium is reduced
substantially.
According to Vikram Akula, owner of SKS Microfinance, to reach the 3 billion people who are
currently below the poverty line, equity is the only
viable way to raise funds, so shareholder returns
cannot be ignored. Therefore, a commercial angle
for microfinance is unavoidable if its range is to be
extended. Currently, only 12% of individuals at the
base of the pyramid are being served by microfinance. Vikram Akula has reached 7.5 million customers, with the majority coming after his
companys IPO in 2005. The reach of the social
Grameen Bankwhose traditional social motive
has driven microfinance firmsis 8 million clients.
However, Grameen took 35 years to reach this many
customers, while SKS Microfinance took only 6.
Among other controversies surrounding microfinance are high interest rates and aggressive loanrecovery practices (Willner, 2010). Henceforth, microfinance institutes need to ensure they earn profits without exploitation and dubious loan-recovery
practices.
2.4.3. Procter & Gamble PUR water purifier:
Avoiding the affordability trap
A lack of clean drinking water has major health
repercussions for human beings. Approximately
1.6 million people in India die every year from
diarrhea. Hence, if clean drinking water can be
provided to poor people at affordable prices,
at least health-related poverty could be reduced
substantially. Firms often make flawed exchange
rate calculations because they misinterpret the true
purchasing power of poor people. One such mistake
was committed by Procter & Gamble (P&G) when it
launched its water purifier sachet, which was made
especially for poor people (Garrette & Karnani,

Doing good and doing business at the bottom of the pyramid

2010). According to their calculations based on the
purchasing power parity (PPP) exchange rate, they
charged a very nominal amount for their water
purifier: it cost only 5% of the average poor persons
income. However, when calculations were made at
the foreign exchange rate, the purifier sachet was
found to actually cost 15% of poor peoples daily
wages, and P&G was not able to sell the sachet in the
low-income market. As a result, in the first 4 years
after the launch, the product was a commercial
failure. When market research was conducted, poor
consumers agreed on the need for clean drinking
water, but the $0.10 price was too high. Poor people
have less education and a lower priority for healthy
living, so creating awareness was another problem.
In short, through appropriate awareness and affordability measures, the affordability trap can often be
avoided.
2.4.4. Adaptability trap
Shokti Doi, a nutritionally fortified yogurt from the
Danone and Grameen Bank in Bangladesh, was
manufactured with the aim of eradicating malnutrition in children. Yogurt is not only rich in calcium
(its main nutritional benefit) but also has sufficient
protein and bacteria to combat diarrhea in children. Since almost 2 million children in Bangladesh
die of diarrhea every year, it was regarded as a
vital health product. It was priced at 6 takas for
80 grams (minimum price to continue production
but without economic profits [i.e., no dividends]).
Danone has expertise in capital-intensive largescale manufacturing technologies for dairy food
processing. Nonetheless, making yogurt that meets
30% of childrens nutritional needs and also costs
less than $0.10 was a real challenge for Danone.
Manufacturing costs had to be reduced to one-third
the usual level per ton (Mattack, 2008).
Although the company dealt with all these aspects, some difficulties remained. The distribution
and storage of Shokti Doi required cold storage,
which was not possible given the lack of infrastructure and power in Bangladesh. Products were made
available through Shokti ladies, but they did not find
viable employment opportunities as they were unable to sell enough yogurt. Moreover, the company
did not take unsold products back, so the ladies had
to bear the loss of not selling the product.
The project started in 2007, but did not survive
long in its initial state. To ensure the products
viability, Danone had to turn to the middle and
upper-middle segments of the market. Consequently, 80% of sales for Shokti Doi started coming from
urban and upper-class populations, and just 20%
came from the bottom of the pyramid (Rangan &
Lee, 2010).

595

Although Danone claimed that the Shokti ladies

had been well trained regarding the health benefits
of Shokti Doi, the preference of women to consume
homemade curd clearly indicated that the message
had not been passed on effectively. Secondly, coldstorage problems also made product acceptability
somewhat difficult. In this case, had the product
been adapted to the infrastructural and electricity
constraints of the country, the product might have
been more successful.
2.4.5. Essilor: Evading the affordability and
adaptability trap
Essilor, one of the largest ophthalmic and organic
lens manufacturers, decided to cater to the eyeglass
and lens needs of poor people in 2005, operating its
own mobile vans in rural and other slum areas of
India. Initially, optometrists and technicians conducted eye tests to determine the appropriate eyeglass prescription for each customer and then sold
custom-made glasses to individual customers for $4.
However, the perceived value of money was low, so
Essilor was forced to lower the cost of the glasses
even more by doing away with the technicians and
optometrists. After this change, Essilor conducted
preliminary eyesight tests for customers (e.g., having them look at a needle or television), and then
based on these simpler procedures, the company
was able to determine each persons approximate
prescription and create glasses, all while reducing
price. By doing away with the high-tech jobs associated with conventional eye tests, Essilor adapted its
business processes to consumers at the bottom of
the pyramid and was also able to reduce costs, thus
making the business model both affordable and
adaptable to poor people. Essilor even made profits
from their business at the pyramid base (Cherrier &
Jayant, 2009).

2.5. Making previously unavailable

high-price utilitarian goods both
affordable and available
Besides reducing the premium, firms can make
products and services available to poor people that
are of economic utility but are simply unaffordable
to them. Most electronic goods, automobiles, and
other appliances fit into this category. To make
these products affordable and available, firms can
do two things: invest in product and process innovation such that the cost of such products declines
radically or extend credit to poor people.
In terms of mobile services, thanks to hypercompetition in the telecom sector in India, players
have been forced to tap rural and related markets.
To make this feasible, the only option available to

596
firms is to lower cost. Bharti Mittal, the founder of
Airtel in India, took the bold step of outsourcing
some of the critical functions of the telecom business, such as network management, and made the
communication process more cost effective by lowering costs and prices. The company now caters to
poor people. In fact, today the scenario is such that
a poor person might not have a bank account but will
definitely have a mobile phone.
The ChotuKool refrigerator is yet another example of low-cost product innovation. Godrej Boyce
started with reverse engineering and created a
small refrigerator that looked like a 43 liter box
and had no compressor. Given the electricity problems in rural and village areas of India, it was heavily
insulated so that the cooling effect remained for a
relatively long duration during power cuts, and the
product cost 35% less than a normal refrigerator. To
enhance affordability even further, the company
linked up with microfinance institutes to make credit available to poor families at a low interest rate
(Kumar, 2009). However, when poor people were
interviewed, they denied the need for refrigerators
as they did not have anything to store and purchased
perishables on a daily basis. Nonetheless, Boyce
and Godrej realized that daily purchases of vegetables and other food items increased overall cost
structure as consumers could get discounts from
vegetable vendors if they bought in bulk. Since
food storage problems could be solved with the
ChotuKool refrigerator, the company went ahead
with the idea and manufactured refrigerators in
collaboration with village women who would actually
use the products (London, Hart, & Kacou, 2011).
Although the refrigerator is a promising idea, it is
too early to comment on the products success or
failure as it was only recently launched in the market.
Nevertheless, the firm seems to have avoided affordability and adaptability traps.
Cellular phones and the ChotuKool refrigerator
are two of the rare cases in which cost structure has
been reduced substantially. When costs cannot be
dealt with so effectively, the other possible option is
to give credit to poor people. In the 1800s, Singer
was one of the first multinationals to provide the
option of monthly installment payments to enable
low-income customers to purchase sewing machines. With sewing machines, some customers
were able to become small-scale entrepreneurs
and earn a livelihood as tailors. In such cases,
manufacturing firms are able to earn profits and
also help to reduce poverty. No wonder, then, that
the idea was a success, and within a year of introducing this scheme, sales tripled (Lendol, 2001).
Although Singer did not exactly fulfill consumerism
dreams at the bottom of the pyramid and the

A. Agnihotri
benefits accrued for middle-class consumers,
Singers philosophy can be applied to people at
the base of the pyramid as well.
For instance, Casa Bahia provides the option of
installment payments to poor customers but only
after a thorough credit check. Therefore, a person
could buy a washing machine, television, or any
other branded appliance on credit. However, the
interest rate charged by such retailers is controversial. Although the process makes products available
to poor customers, they pay interest rates above the
market rate, and firms have thus been accused of
exploiting poor people (Davidson, 2009).

2.6. Substituting high-cost goods and

services with low-cost goods
Firms can also treat poor people as normal customers and almost always create a win-win situation if
they provide them with services and products that
only have expensive alternatives (but not through
exploitation, as we have seen in the context of the
poverty premium).
Family members often need to send money home.
Some can afford courier services, and those who
cannot use postal services, which take longer. So
poor people have the expensive option of a courier
or the inconvenient option of postal services. However, if firms can make money-transfer services
more convenient and cheaper, this would definitely
help poor people lower their cost structure (if not
actually removing poverty). M-PESA, a joint effort of
Safaricom and Vodafone in Kenya, is one such service, which charges only $0.40 to transfer money
electronically. The economics of this business lies in
low-margin, high-volume deals. Although the margin is low, over 3 years (i.e., from 2007 to 2010), the
company was able to gain 1 million customers and
earn $400 million in revenue. No conventional courier or transportation company can make this service available at $0.40. Consequently, the cost
structure for the poor has been lowered and is
partially compensated for by higher M-PESA revenues (Mas & Radcliffe, 2009).
Similarly, Hewlett Packard developed the
e-inclusion project, which they claim is a for-profit
business and not part of corporate social responsibility. Through this project, they rent photography
equipment to poor people for $9. These poor people
become entrepreneurial photographers for weddings, festivals, and other photo ID purposes, earning a profit margin per photograph of $0.22. The
alternative available to these poor people is to hire
a photographer from urban areas who would charge
a large fee to come to a slum area. Poor people will
travel to cities and towns, incurring transportation

Doing good and doing business at the bottom of the pyramid

costs, as many villages do not have access to photography services. It is more economical for poor
people to hire the instant photography services of
someone from the local community rather than be
exploited by an urban photographer. Because of
this, their cost structure is lowered considerably.
By renting equipment, Hewlett Packard is able to
generate employment and reduce poverty. It is also
a winning situation for Hewlett Packard because as
the largest global manufacturer of personal computers, earning its bread and butter from printers
and cartridges, the company can apply the same
laser technology in instant photography, thus
leveraging this strong competency. This way, HP is
able to generate profits for itself while simultaneously helping the poor.
Furthermore, firms can increase the number of
choices for products that are already available by
bringing branded products to the poor peoples
market. In this case, few firms have successfully
made profits from customers at the bottom of the
pyramid. Except for Nirma, which was able to substitute low-cost soap with washing powder, no other
firm has been able to successfully substitute lowcost local products with high-cost brands.
Depending on the cost/quality tradeoff, a poor
person decides whether he or she would like to
purchase a low-quality, cheaper product or a
branded product that is better quality but slightly
more expensive. This is especially applicable
to fast-moving consumer goods. It has been said
that the sachet revolution has made branded products affordable for poor people. Yet a recent
study by AC Nielsen shows that except for shampoos and razors, for all other product categories
(e.g., coffee, milk powder, etc.), larger packages
are preferable to and cheaper than small packages,
thus questioning the success of the sachet revolution. Moreover, HLL is generally credited for introducing a unique distribution model for its goods
through Shakti Ammas and hence generating employment for them. However, this does not imply
that HLL is making profits off of poor people. To
prove this point, it has to be determined how many
people buy HLL products compared to local brands.
Shakti Ammas earn a commission of 3000 rupees
($60) if they can achieve a sales turnover of
30,000 rupees. Nonetheless, selling goods worth
10,000 rupees ($200) is often very difficult (Thekkudan & Tandon, 2009). In terms of treating poor
people as viable customers, it is yet to be proven that
companies can make profits because if local vendors
goods are preferred over branded goods, what multinationals are doing creates some employment but
barely earns any profits. Even so, Shakti Ammas have
gained social respect and status, even participating

597

in village elections, and their statements are given

due weight.
2.6.1. The Nirma Revolution: Acceptance of
better-quality substitute by poverty-driven
people
Nirma detergent is a rare product for which quality
won over cost to attract poor people as customers.
Detergents have better cleaning power than soaps.
Prior to the launch of Nirma, village people used
to wash their clothes with soap. When marginally
higher-cost but better-quality detergent was made
available to these poor people, they quickly
switched to Nirma. Some middle-class people also
changed to Nirma from high-end detergents. (Nirma
was priced at 9 rupees per kilogram compared to
23 rupees per kilogram of Surf, a HLL product.) This
reduced the market share of HLL considerably, so
the company decided to launch operation STING, a
strategy to inhibit Nirmas growth (Thompson et al.,
2004). As a part of this operation, HLL came up with
a low-cost detergentWheelthat was of better
quality than Nirma. Women used to get blisters and
rashes on their hands after soaking them in detergent water for an extended period. Wheel was
positioned to do away with this problem and was
hence priced slightly higher than Nirma only to
recover cost. The gross margin for both Nirma and
Wheel remained the same at 18%, but this time,
better quality did not win over lower prices, and
Nirma remained the market leader with its sales
being higher than that of Wheel (Prahalad & Hart,
2002).
Among other product categories like Annapurna
salt, which was rich in iodine but was positioned
mainly for poor people, sales were not up to
expectations, mainly because of its high price.
One kilogram of Annapurna costs $0.17$0.20 per
kilogram compared to $0.05 for the local brand.
Given the fact that poor people are often uneducated and do not give due priority to health and
nutrition, at this price, Annapurna could not attract
the attention of customers at the base of the pyramid. Ultimately, most of its sales came from urban
middle- and upper-middle society.
In 2003, Coca-Cola slashed its prices to 5 rupees
(i.e., $0.57) for a 200 mL package to enhance its
sales among poor people. Though the strategy
worked in terms of sales enhancement, Coca-Cola
could not recover its cost at the given price and
ultimately increased it again by 2005. In terms of
cost structure, the best option is to make the price
of branded products comparable to that of local
products.
Thus, broad acceptance of branded products by
people at the bottom of the pyramid depends on the

598
price-to-value ratio such customers perceive as well
as the cost structure of a firm.

2.7. Providing goods and services with

more hedonic than utilitarian value: Is it
ethical?
Traditional definitions of hedonic and utilitarian
goods state that hedonic products reflect experiential-, pleasure-, and fun-related products and services, and utilitarian goods represent essential
goods (Dhar & Wertenbroch, 2000). Therefore, luxury goods provide hedonic pleasure to the consumer,
whereas necessity goods meet the utilitarian needs
of the consumer (Dubois & Laurent, 1994). For
example, flowers and chocolates provide more hedonic pleasure, whereas computers and microwave
ovens have more utilitarian functions. However, for
a poor customer whose living status is below the
poverty line, food, basic medical amenities, and a
shelter are more utilitarian than computers or a
microwave. Furthermore, while cosmetic applications, such as sunscreen, have more utilitarian uses
for middle-class women, such products are hedonic
for women who need to replace the purchase of
cosmetic creams with some other necessity, such as
fruits or vegetables, which are more important for
good health.
We know that consumers do not make purchase
decisions on purely a cognitive basis. Emotions play
a vital role and sometimes overpower cognitive
determinants (Kahneman, 1992). Accordingly, a persons emotional desiresirrespective of his or her
living status and income potentialcan dominate
functional motives in purchase decisions (Maslow,
1968). Although the Fair and Lovely cream may
fulfill the dreams of a woman who wishes to look
younger and prettier, the tradeoff price she has to
pay to look good is high and has implications for her
familys health. Furthermore, there is evidence that
even educated middle-income and upper-middleincome women are sometimes driven by hedonic
pleasures (Shiv & Fedorikhin, 1999). What rationality can we then expect in terms of purchase decisions
from uneducated woman living below the poverty
line?
When firms know they can easily entice a woman
through advertisements for hedonic products, it
would be unethical to encourage a poor woman to
make such purchases. If bottom-of-the-pyramid
market needs are to be fulfilled within the boundaries of profitability and social responsibility, the
first thing companies need to do is select appropriate good and services (Karnani, 2007). If companies
like ITC establish centers like e-Chaupal with the
aim of helping poor farmers sell their produce, it is a

A. Agnihotri
winning situation both for farmers and ITC. Farmers
earn reasonable returns without exploitation, and
ITC enhances the efficiency of its food supply chain.
This entails fulfilling market needs profitably without crossing ethical boundaries. However, if ITC uses
the same e-Chaupal center to fulfill the hedonic
needs of farmers by selling bidis (a cheap and more
affordable version of cigarettes), the ethical boundaries may well be crossed.

3. Conclusion
In the above analysis, it has been suggested that in
terms of improving standards of living, companies
can help poor people by treating them as suppliers,
producers, and/or employees, not as customers
alone. Also, it is easier to raise disposable income
than come up with disruptive models and technologies to reduce cost and hence the prices of products
and services. It has also been shown how companies
gain through enhancing their efficiency and profitability (indirectly if not directly) in terms of increased revenues. Furthermore, it has been
explained that firms can make profits from customers at the bottom of the pyramid if they can reduce
poverty premiums for such customers and provide
affordable utilitarian goods and services. This in
turn helps these firms to lower their cost structure,
improve living standards, and eradicate poverty.
Nevertheless, not all firms can play an equally important role and have equal opportunities to extract
profits from poorer consumers. Industries that provide products and services with only aesthetic or
emotional value, such as tourism, movie multiplexes
etc., have little to offer customers at the bottom of
pyramid. This is primarily because it is unethical on
the part of such companies to divert some of these
peoples minimal disposable income from utilitarian
goods and services to purely aesthetic goods and
services. Therefore, industries like tourism and advertising can play a more meaningful role in creating
employment opportunities for poorer individuals
and thus raising their disposable income.

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