The poor have substantial purchasing power too — purely because there are so many of them. The 4 billion people across the world, who stand at the base of the economic pyramid (BOP) have purchasing power of $5 trillion (Rs 2,25,00,000 crore) according to a new report released on Monday by the International Finance Corporation (IFC), the private sector arm of the World Bank.
The report, The Next 4 Billion: Market Size and Business Strategy at the Base of the Pyramid, measures the purchasing power of those with incomes below $ 3000 a year, using income and expenditure data from household surveys.
The BOP market in Asia (including West Asia) is by far the largest: 2.86 billion people in 19 countries, or 83 per cent of the entire population of these countries, have an aggregate income of $3.47 trillion, or 42 per cent of these countries' total purchasing power. In rural areas the BOP comprises the majority of the market — 76 per cent of aggregate household income in rural China and effectively 100 per cent in rural India and rural Indonesia.
A stronger indicator of the market is the number of large companies conducting pilot studies, launching new businesses, or extending product lines in existing businesses that serve BOP markets. "Large national companies have proved to be among the most innovative and adept in meeting needs of BOP consumers and producers. Stand-outs include India's ITC in agriculture and ICICI Bank in financial services," the report said.
It said that franchising and direct marketing by agents of pharmaceuticals, health services, and preventive health materials are gaining popularity in the BOP health sector, as are distribution systems (such as Shakti in India) in the food and consumer goods sectors.
The large size of rural food markets underscores the importance of distribution strategies that can efficiently reach rural BOP households — like those being developed in India by Hindustan Lever Limited.
"The report supports the view of those who call for broader business engagement with the base of the pyramid, stressing the need for the private sector to play a greater role in development," said Michael Klein, World Bank/IFC Vice President for Financial and Private Sector Development and IFC Chief Economist.
In the report's region wise analysis, Eastern Europe's $458 billion market comprising 254 million people followed Asia's. In Latin America the BOP market of $509 billion included 360 million people, while in Africa, the market was worth $429 billion, and consisted of 486 million people.