Question

Explain global wealth and power inequalities. What are the special challenges of serving the "bottom of the pyramid" sector?

Answer 1

Global wealth is defined as the value of all financial and non-financial assets owned by households/individuals across the globe for all countries combined, less their debts.

Power inequality arises due to wealth owned by individuals/households. This is basically the inequality between the rich and the poor. Wealth inequality is slightly different from income inequality, however, accumulation of income as savings leads to wealth creation.

One one hand, the poorest 70% of the world's population holds only 2.7% of the total global wealth, while only 0.7% of the richest people hold a massive 45.9% of the total global wealth (Reference: Credit Suisse Global Wealth Report 2017). This shows a massive inequality which exists between the rich and poor of the world. Although the situation has improved in recent times, but there is a long way ahead to give a jolt to lopsided graph.

This inequality can also be shown with the help of a triangle with top corner taken the richest of all and the large bottom edge taken by the poorest of all in terms of population. This triangle is to be accompanied with an inverted with triangle with the meagre top richest holding a large edge of the inverted triangle representing a large portion of the total global wealth.

Since ages companies have neglected this sector and focussed only on those customers who had the willingness to pay and who could afford to pay for their companies. But, when companies realised slow growth rates or saturation after serving the upper and middle sectors of the pyramid/triangle, they turned towards the bottom of the pyramid.

Now, there are many challenges faced if we want to serve the "bottom of the pyramid" sector, a few of which are listed below:

1. Profitability: One of the main concerns is this - how to produce product with really low COGS so that it can be matched with the willingness to pay of the bottom of the pyramid customers.

2. Determining willingness to pay: It is really difficult to determine how much would such poor people be willing to pay for using a product.

3. Convincing such people to purchase your product and convincing them to upgrade their lifestyle. For example, how do you convince people living in a poor village to start using a solar panel when there is no or little power in the village? A company developed small solar panels after studying the village and the market. This solar panel could generate enough power to light a lamp, a fan and charge their smartphones. The company had to employ a lot of people in distribution who educated people of the benefits of the solar panel and how it could repay them the complete purchase costs within 2-3 years.