Four billion low-income people, a majority of the world’s population, constitute the base of the economic pyramid. New empirical measures of their behavior as consumers and their aggregate purchasing power suggest significant opportunities for market-based approaches to better meet their needs, increase their productivity and incomes, and empower their entry into the formal economy.
The 4 billion people at the base of the economic pyramid (BOP)—all those with incomes below $3,000 in local purchasing power—live in relative poverty. Their incomes in current U.S. dollars are less than $3.35 a day in Brazil, $2.11 in China, $1.89 in Ghana, and $1.56 in India.1 Yet together they have substantial purchasing power: the BOP constitutes a $5 trillion global consumer market.
The wealthier mid-market population segment, the 1.4 billion people with per capita incomes between $3,000 and $20,000, represents a $12.5 trillion market globally. This market is largely urban, already relatively well served, and extremely competitive.
In contrast, BOP markets are often rural—especially in rapidly growing Asia—very poorly served, dominated by the informal economy, and, as a result, relatively inefficient and uncompetitive. Yet these markets represent a substantial share of the world’s population. Data from national household surveys in 110 countries show that the BOP makes up 72% of the 5,575 million people recorded by the surveys and an overwhelming majority of the population in Africa, Asia, Eastern Europe, and Latin America and the Caribbean—home to nearly all the BOP.
Analysis of the survey data—the latest available on incomes, expenditures, and access to services—shows marked differences across countries in the composition of these BOP markets. Some, like Nigeria’s, are concentrated in the lowest income segments of the BOP; others, like those in Ukraine, are concentrated in the upper income segments. Regional differences are also apparent. Rural areas dominate most BOP markets in Africa and Asia; urban areas dominate most in Eastern Europe and Latin America.
Striking patterns also emerge in spending. Not surprisingly, food dominates BOP household budgets. As incomes rise, however, the share spent on food declines, while the share for housing remains relatively constant—and the shares for transportation and telecommunications grow rapidly. In all regions half of BOP household spending on health goes to pharmaceuticals. And in all except Eastern Europe the lower income segments of the BOP depend mainly on firewood as a cooking fuel, the higher segments on propane or other modern fuels.
That these substantial markets remain underserved is to the detriment of BOP households. Business is also missing out. But there is now enough information about these markets, and enough experience with viable business strategies, to justify far closer business attention to the opportunities they represent. Market-based approaches also warrant far more attention in the development community, for the potential benefits they offer in bringing more of the BOP into the formal economy and in improving the delivery of essential services to this large population segment.