Bop Strategy: Advantages and Disadvantages the Expression Essay

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BoP Strategy: Advantages and Disadvantages

The expression 'Bottom of the Pyramid' (BoP) is commonly used to refer to the poor; those people who live on no more than two dollars per day (Rivera-Santos & Rufin, 2012). A pyramid can be used to capture the world's wealth distribution and income-generation capacity, as shown;

Tier

Tier 1 Purchasing power parity (U.S. $) Populations in millions

>$20,000 75-100

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They collectively yield a massive $12.5 trillion in GDP, in PPP terms. This represents massive potential. The only problem is the inefficiencies that are brought about by corruption and the resulting poor distribution of wealth. However, "these problems can be cured if the organized private sector decides to serve the BoP" (Prahalad, 2010, p.36).

The BoP Appreciates Advancement in Technology

Consumers at the BoP would willingly embrace advanced technology, especially if it would lead to an improvement of their living standards; moreover, they lose nothing by doing so (Segal-Hart & Faulkner, 2010). The poor would actually be more willing to embrace advanced technology, than their rich counterparts; after all "moving to wireless from nothing is easier than moving to wireless from a strong tradition of efficient and ubiquitous landlines" (Prahalad, 2010, p.40).

Developing the BoP Market

The potential of the BoP can only be fully realized if stakeholders disregard the common poverty misperceptions and adopt strategies aimed at developing the market. The BoP strategy is one of those. However, for it to be effective, business developers need to create BoP consumption capacity and formulate strategies for product development (London & Hart, 2010).

i) Creation of BoP Consumption Capacity

Traditionally, this has entailed providing goods and services to the poor at no charge (philanthropy). However, this approach does not provide long-term sustainable poverty solutions. More scalable approaches to increasing the BoP consumption capacity would include; single-serve packaging and favorable purchase programs.

Single-serve packaging involves making small but affordable packages. Unlike the rich, the poor's streams of income are relatively unstable and highly uncertain. Theirs is a hand-to-mouth kind of existence and they often buy just what is needed for a single day (Rivera-Santos & Rufin 2012). Single-serve packaging would, therefore, be highly efficient in the BoP. As a matter of fact, this would be one way of appreciating and using diversity to the benefit of all stakeholders.

Secondly, business developers could invent purchase programs that are responsive to the poor consumers' low and unstable streams of income. A good example, in this regard, is the Casas Bahia BoP lending program in Brazil. The program incorporates counseling into its lending system and "provides access to high-quality appliances to consumers who could not otherwise afford them" (Prahalad, 2010, p.42). Businesses could, therefore, incorporate lending into their purchase programs in this way. If effectively conducted, such a program could significantly enhance the BoP consumption capacity.

A BoP management strategy would be effective in increasing consumption capacity if it takes into account the "Four As" principle discussed below.

"The Four As"

Awareness: This principle guides management to ensure that the BoP consumer is aware of the existence of a certain product in the market and its use (The Bottom of Pyramid Strategy, 2010).

Affordability: Whichever approach is chosen, the products supplied should be affordable to the BoP consumer. However, quality should not be compromised.

Accessibility: Strategy formulation should ensure that the products are easily accessible by the target group; they should be considerate of the target group's location, and patterns of work. For instance, consumers in the BoP may have to work the whole day, and may only make purchases at the end of the day, i.e. when they receive their pay. In such a case, businesses that close as early as 4:00 PM may be irrelevant (Prahalad, 2010). All these factors need to be considered if an effective BoP strategy is to be implemented.

Availability: This is more of a market creation incentive. It appreciates the fact that low-income earners tend to rely on current rather than future consumption and may be unwilling to postpone their purchases (The Bottom of Pyramid Strategy, 2010).

ii) Product Development

Business developers have to come up with affordable, quality products that suit the BoP market. This is the only way to get the BoP more involved in the global markets. In this way, a sense of responsibility, and trust, would develop between the BoP and the business world. Although "trust is difficult to build after 50 years of suspicion and prejudice, based on little evidence and strong stereotyping," it would be beneficial to, at least, try (Prahalad, 2010, p.46). The poor have many needs, and the BoP has huge potential. However, in order to fully realize this, developers and managers have to be more innovative (Stead & Stead, 2004).

Advantages of the BoP Strategy

i) To the BoP Consumer

The.....

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