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Doing Business at the Bottom of the Pyramid Is Not All about Low-Income Countries

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Although low-income consumers predominantly concentrate in developing countries, the idea of doing business at the bottom of the pyramid (BOP) is not all about the world’s poorest nations. In developed countries, the number of households with an annual disposable income below US$10,000 (in purchasing power parity – PPP terms) totalled 15.5 million in 2015 and is set to fall to some 10 million in 2030. As today’s low-income consumers are tomorrow’s middle class, businesses can build a new, important consumer base if they specifically seek out BOP consumers and cultivate brand loyalty among this segment of the market in developed countries.

The USA is an important BOP market

The USA has a substantial BOP market – one that is comparable in size to that of South Africa, with 6.3 million households with an annual disposable income below US$10,000 (in PPP terms) in 2015.

US low-income consumers are highly price-sensitive, as their incomes have fallen in recent years. Between 2009 (after the onset of the financial crisis) and 2015, the average disposable income of the poorest 10% of US households dipped by 0.3% in real terms while the richest 10% enjoyed a 7.9% real gain.

Yet, the low-income segment in the USA is profitable and has seen intensifying competition among major retailers:

  • Discounter Dollar General, despite being regularly voted as one of the worst companies to work for in the USA, is a retailing success story. It has done well especially since the financial crisis by targeting low-income consumers, operating in remote rural areas where other retailers shun, and selling low-end merchandise at very low prices;

Source: Euromonitor International's Competitor Analytics

  • Meanwhile, Amazon is also pushing for the low-income consumer segment. Amazon offers its private label packaged foods and home care products at prices similar to Dollar General’s. And with free delivery, Amazon can reach low-income consumers in both dense urban and rural areas who do not have regular access to cars;
  • Walmart is another key player in the BOP space. Its online capabilities start to rival Amazon’s while its deep discounting capabilities exceed Amazon’s. It also has another advantage over Amazon, as the 75 million low-income Americans in receipt of “food stamps” can only use them to shop in stores like Walmart rather than online.

Euromonitor International forecasts that the number of BOP households in the USA will fall to 4.0 million in 2030, accounting for 40.0% of the developed world’s BOP in that year and thus retaining the USA’s position as the most important market for any companies seeking to tap the potential of the BOP in developed economies.

For the full Strategy Briefing Doing Business at the Bottom of the Pyramid, click here.

Strategy Briefings offer unique insight into emerging trends worldwide. Aimed squarely at strategists and planners, they draw on Euromonitor International’s vast information resources and add new intensive research to give top line insight across markets and within consumer segments.

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