Stanford Progressive

The Poor as Consumers

By Nikola Milanovic, published May, 2010


A new trend is emerging in the field of poverty and inequality alleviation. The social attitude of firms and philanthropists towards addressing these grandiose problems is, more and more, resembling that of businesses rather than charities. The change in how poor people are being addressed reflects a growing categorization of the poor as consumers rather than beneficiaries.

In his book, The Fortune at the Bottom of the Pyramid, University of Michigan Prof. of Corporate Strategy C. K. Prahalad argues that firms should not view poverty as a problem, but rather should see it as an opportunity. By treating poor people as potential consumers instead of recipients of aid, dilemmas like poverty and inequality can be addressed in sustainable ways that capitalize on market mechanisms. This attitude has manifested itself in a number of new companies with an exclusive focus on addressing poverty. For these firms, economic profit is not an end goal, but rather is a means of generating sufficient resources to address social problems.

This approach is present and obvious in numerous philanthropic sectors. For instance, renewable energy companies and traditional marketers of fossil fuels alike are investing massive resources in the research and development of environmentally friendly technology. The business incentive is less obvious in the case of poor people: the poor are typically viewed as a consumer base with insufficient purchasing power to warrant business attention. Firms that do try to use market solutions to address poverty are often viewed as ‘capitalizing’ on the plight of inequality suffered by poor people.

In his article At the Base of the Pyramid, William Davidson Institute Co-Director Erik Simanis acknowledges that numerous creative businessmen and entrepreneurs have proclaimed their faith in a large, untapped market at the lower rungs of the global socio-economic ladder. A problem with this approach, he notes, is that these businesses have failed to create markets where they need to be created. For a product to be successfully marketed, consumers need to be in the habit of purchasing that product – it needs to conform to their lifestyles. So when a company produces clean water, cheap and renewable power, or low-interest loans for small businesses and poor lenders, these products need to be marketed in a way that fosters the creation of a self-sustaining market environment.

Simanis recounts the struggle of Proctor & Gamble Co., which worked with the Centers for Disease Control and Prevention to develop a chemical treatment that turned contaminated water into potable water for only 10 cents. After conducting extensive market research, the company launched its product – only to fail massively. The problem, Simanis points out, was that they did not market the purifying chemical in a way that integrated it easily into the lives of poor consumers, whether due to competing purchases, social stigmas, or the change that a consumer would have to make in his/her life.

This type of literature all points to the growing philosophy that the poor should be welcomed in to the market, rather than ostracized by global business due to lack of purchasing power. By relying on charity and donations, impoverished countries are given an unsustainable resource for coping with the problems that result from poverty. Any problem that arises and alters the influx of charitable donations, as a result, badly cripples the very communities that relied on them so much. The visionary new approach to tackling these types of challenges is treating poor consumers as a market, in which the profit incentive to cater to this particular class of buyers stimulates research and development, and makes philanthropy sustainable.

Many high-profile businesses, entrepreneurs, and philanthropists have already signed on to this mentality. Most notably, Bill Gates announced his intention to step down as chairman of Microsoft in order to dedicate himself to philanthropy. With the help of billionaire Warren Buffett, who donated $30 billion to the Gates Foundation, Gates has applied the same type of analysis, decision-making, and results-oriented evaluation to his foundation as he did to Microsoft.

Similarly, microfinance, a concept born over thirty years ago and made most famous by Muhammad Yunus’ Grameen Bank in India, has developed and matured on a global scale. There are now estimated to be over 7,000 unique microfinance institutions worldwide, all of which seek to provide low-interest loans to impoverished families and small businesses, in order to help them escape poverty.

This new philosophy invites the old adage, “Give a man a fish, he eats for a day; teach a man to fish, he eats for a lifetime.” By treating the poor as consumers, firms and entrepreneurs are not simply pulling them up out of the hardships of inequality. Rather they equip the poor with the tools necessary to pull themselves out of poverty. Furthermore, viewing poverty eradication as a business with the impoverished as a market is truly a philosophy for powerful and sustainable social change.


3 Comments »

  1.  Saurabh Lall, May 19, 2010 @ 3:32 pm

    Grameen Bank and Younus are from Bangladesh, not India.

  2.  Nikola, May 20, 2010 @ 4:06 am

    Whoops – thanks for the clarification. My mistake.

  3.  lexus is, July 18, 2010 @ 9:22 pm

    You have a way with words, but remember by and large, language is a tool for hiding the truth

    Sent from my iPad 4G


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