Essay Reality Check at the Bottom of the Pyramid

3419 WordsNov 19, 201214 Pages
The Globe Erik Simanis is the managing director of Market Creation Strategies at the Center for Sustainable Enterprise at Cornell University’s Johnson School of Management. To succeed in the world’s poorest markets, aim for much higher margins and prices than you thought were necessary—or possible. by Erik Simanis ABOVE MightyLight customers in Barmer, Rajasthan, India 120 Harvard Business Review June 2012 M ost companies trying to do business with the 4 billion people who make up the world’s poor follow a formula long touted by bottom-of-thepyramid experts: Offer products at extremely low prices and margins, and hope to generate decent profits by selling enormous quantities of them. This “low price, low…show more content…
They also need to raise the price point for a single transaction. This combination of higher margins and higher price points increases the contribution—the amount of money that goes to covering fixed and operating costs— generated from every transaction. That’s a tall order. But my experience leading businesses in Africa, India, and other emerging economies shows that it can be done. In this article, I will show how to build a margin-boosting platform that can help companies solve the cost problems inherent in bringing needed products and services to very poor markets. A few companies are already using aspects of a platform to improve their profitability prospects, and S.C. Johnson, the householdproducts maker, has launched an integrated margin-boosting platform for selling insecticide in rural Ghana as part of an effort to reduce malaria infection there. Initial results for that venture show the financials moving in the right direction. Why Low Prices and Margins Don’t Work C.K. Prahalad was a leader in focusing corporate attention on business opportunities among consumers at the bottom of the economic pyramid. His view that very-lowincome markets are best reached through the low-price, low-margin, high-volume model has cast a long shadow on corporate strategy in

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