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  • June 2011
  • Article
  • Harvard Business Review

Segmenting the Base of the Pyramid

By: V. Kasturi Rangan, Michael Chu and Djorjiji Petkoski
  • Format:Print
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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

Citation

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

V. Kasturi Rangan

Marketing
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More from the Authors
  • Transformative Social Impact: Health Leads (B) By: V. Kasturi Rangan and Sarah Appleby
  • Asian Community Development Corporation: Building Housing and Community By: Michael Chu and Alexis Lefort
  • Equal Justice Initiative: Mercy, Truth and Dignity By: V. Kasturi Rangan, Gerald Chertavian and Brittany Logan
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