Business models for low-income markets

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Business models for low-income markets

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Title: Business models for low-income markets
How can MNCs capture value in the Base of the Pyramid?
Author: Håpnes, Emmy Margrete Solvi
Abstract: The world’s poor is the largest of all income groups in population, and it is increasingly argued that the private sector and MNCs could make a fortune by serving these markers, as the needs are so many and the competition low. Based on the assumption that there is a fortune at the bottom of the pyramid (Bop), how can MNCs build business models that will generate value in terms of profit in low-income markets? Relying on both propositions from literature and empirical data, central arguments from the Bop-literature were first mapped according to how they approach value creation in lowincome markers, in a business model canvas. There were 2 main propositions: a bottom approach, focusing on the capacity to consume, and the base approach focusing on mutual value and co-creation of markets. Second, 20 cases were reviewed for identifying for-profit businesses in low-income markets. 6 profiting Bop-business, and 4 that yet had not profited from their for-profit strategies were identified. These were analysed in the same canvas and compared to the propositions made in literature. The result from the analysis was that MNCs are currently not extensively represented in Bopbusinesses generating positive returns. Here local Bop-businesses are more represented. The analysis of the Bop-literature’s approach to business models, showed that the bottom and the base approaches are present in both the profiting – and the yet not profiting cases. Meaning that both approaches can result in business models generating profits – and both might fail. There is however an overrepresentation of base-approaches and local Bop-businesses in the profiting cases, which means that business models focusing on local integration and mutual value creation might be more able to generate value in terms of profit, than a bottom approach focusing on creating the capacity to consume through access, availability and affordability. The business model building blocks that showed to create value independent of approach were focusing on a broad customer segment, targeting the “poverties” related to the sate of low-income, and using partnerships extensively for both distributions, acquiring needed resources and development of business and offering. Furthermore, the business models were focused on at point sales, and keeping investment costs down. The time of operation before profiting depended on the initial investments, but is likely to exceed 5 years. However, the business model of a failing for-profit case shows that there is no simple recipe for generating value in the Bop, so there is no universal model that can guarantee profits.
URI: http://hdl.handle.net/10417/3066
Date: 2012-04-25
Pages: 100 s.
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