The article “Reality check at the bottom of the pyramid” (2012) was written by Erik Simanis, the managing director of Market Creation. The author takes a critical look at the model of Prahalad’s bottom pyramid. Simanis claims that Prahalad’s approach requires high market penetration, which might be impractical. He further argues that two variables are determinants for one to succeed in business. One is a decent infrastructure that facilitates the distribution of products, and the other is consumer awareness of the commodities. However, this tactic outcome is at the bottom of the pyramid and can be too expensive to maintain since that is where most of the poorest people survive worldwide.
Simanis says that businesses should increase their profits by raising prices and reducing variable costs to sustain the bottom of the pyramid. Simanis mentioned three strategies for margin boosting: marketing through peer groups, creating an enabling service, and localization of base products to be sold as bundles. Applying these tactics allows organizations to make more sales per transaction and save on the cost of labor. It provides the customers with the necessary skills to maximize products’ functionality. Simanis further claims that companies must embrace that price points and high margins reality are not only a top-of-the-pyramid phenomenon but are also necessary for ensuring business sustainability at the bottom of the pyramid.
The article by Simanis helps companies build a margin-boosting platform that can solve problems of costs incurred when supplying products and services in the markets. The bottom-of-the-pyramid approach interprets poverty as an economic opportunity for multinational corporations (MNCs). The massive growth prospects and profit potential MNCs constitute the poor. These entities should play a leading practice in unlocking the economic latent of accessing complex markets. Bringing the vulnerable population into the global economy simultaneously generates fortunes for MNCs and resolves the global poverty problem.
The strategy of low prices and high margins does not work because for an organization to achieve profitability; it has to make more sales. Increasing sales might be a challenge in the issue of Bottom of the Pyramid (BoP) because most of the target customers comprise the poor population, which makes up to 4 billion (Simanis, 2012). According to Nobre & Morais-da-Silva (2022), companies that exercise the BoP are responsible for contributing long-term and short-term capabilities to sustain the ecosystem’s values. Nobre & Morais-da-Silva (2022) support Simanis’s (2012) article, arguing that it is impractical to penetrate a market due to some factors that hinder the process. Entities develop strategies that aim to solve the BoP issues related to their business type.
In conclusion, the pyramid approach indicates that at the very top, a small fraction of consumers corresponds to the affluent in developed countries. Poor people should be converted into active customers, although it can be costly to apply the BoP due to their low living conditions, including deficient infrastructure. It requires the MNCs’ managers to develop strategies that accommodate all people in the markets. These strategies include orientation to managers who come from affluent backgrounds and are not aware of the challenges of the vulnerable. Creation of buyer power that has access to credits since it is hard for these individuals to get loans from banks without collateral. The MNCs should offer employment to make them generate income to afford the products they sell. Consumer education is also vital since it provides aspirations and knowledge about commodities.
References
Nobre, F. S., & Morais-da-Silva, R. L. (2022). Capabilities of bottom of the pyramid organizations. Business & Society, 61(8), 2115-2155. Web.
Simanis, E. (2012). Reality check at the bottom of the pyramid. Harvard Business Review. Web.