Segmenting the Base of the Pyramid

V. Kasturi  Rangan; Michael  Chu; Djorjiji  Petkoski

Article | Harvard Business Review | June 2011

Segmenting the Base of the Pyramid

by V. Kasturi Rangan, Michael Chu and Djorjiji Petkoski

Abstract

The bottom of the economic pyramid is a risky place for business, but decent profits 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: 1) Low income: 1.4 billion people, $3 to $5 a day; 2) Subsistence: 1.6 billion people, $1 to $3 a day; and 3) 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.

Keywords: International Finance; Risk and Uncertainty; Value Creation; Human Needs; Income; Poverty; Profit; Relationships; Economics; Segmentation;

Format: Print

Find at Harvard Purchase

Citation:

Rangan, V. Kasturi, Michael Chu, and Djorjiji Petkoski. "Segmenting the Base of the Pyramid." Harvard Business Review 89, no. 6 (June 2011).

Gilead had come up with an innovative drug for Hepatitis C, which affected 180 million people worldwide. The drug was priced at $1,000 a pill for the US market. Gilead had to decide how to price and market the pill in developing countries that bore the brunt of the disease. The company had earned accolades for its work in HIV/AIDS, where its innovative medicines now accounted for 60% of all patients on Anti-Retroviral (ARV) medicines. Much of this was accomplished through generic licensing, which brought a $10,000/year treatment regimen down to $100! Should the company replicate that strategy for Hepatitis C? If so, how would its US Healthcare customers, who were paying $84,000 per patient, react? On the other hand, Gilead had to balance the interests of its shareholders, who paid $11 billion for an acquisition that led to the new Hepatitis C drug.

Jai Vakeel, a nonprofit organization in India, serves individuals with Intellectual Disability (IQ below 70). The organization was founded by the parents of a child with Down Syndrome, and they (and their next generation) steadily built the organization over 60 years to the become the largest such organization in India. Yet the organization served only some 1000 children annually when there were millions more needing the healthcare, education and skills to lead a decent life with ID. This case describes the evolution of the organization from the founder’s family (six decades) to the first CEO from outside. As Archana Chandra appointed in 2013 brings about several changes to the organization she wonders how to scale the organization from the current 1,000 people it serves annually to at least 10,000 and then to the many millions who are in need.

Faculty & Research

Segmenting the Base of the Pyramid

Abstract

Citation:

About the Authors

More from these Authors