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Segmenting the Base of the Pyramid

by Michael Chu
Harvard Business Review ()
  • ISSN: 00178012

Abstract

The bottom of the economic pyramid is a risky place for business, but decent profits s 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: Low income: 1.4 billion people,$3 to $5 a day Subsistence: 1.6 billion people,$1 to $3 a day Extreme poverty: 1 billion people,less than $1 a day 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.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. INSETS: Where Private and Public Value Intersect;Which Value-Creation Strategies Work Best at the Base of the Pyra. ABSTRACT FROM AUTHOR; Harvard Business Review Notice of Use Restrictions, May 2009Harvard Business Review and Harvard Business Publishing Newsletter content on EBSCOhost is licensed for the private individual use of authorized EBSCOhost users. It is not intended for use as assigned course material in academic institutions nor as corporate learning or training materials in businesses. Academic licensees may not use this content in electronic reserves, electronic course packs, persistent linking from syllabi or by any other means of incorporating the content into course resources. Business licensees may not host this content on learning management systems or use persistent linking or other means to incorporate the content into learning management systems. Harvard Business Publishing will be pleased to grant permission to make this content available through such means. For rates and permission, contact (Copyright applies to all Abstracts.)

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