What is the Bottom of the Pyramid approach, and why is it consider controversial - Essay Example

Bottom of the Pyramid approach The BOP (Bottom of the Pyramid) approach de s a socio-economic concept where the poor are considered to be the untapped purchasing power. This approach further views the need to increase consumption choices to the poor as a way of improving their welfare. Further, the approach considers the poor to act rationally in terms of spending their savings wisely. The group that constitutes the BOP is thought to be over 4billion as postulated by the proponents of this approach and earn averagely $2 per day.

Further, the proponents of BOP emphasises that free markets reduce poverty. In this regard, the poor are seen to be resilient and enterprising in terms of managing their budgets with the meagre income they earn. In essence, the BOP concept has gained prominence out of the consideration of the over 4billion poor around the world who are ignored by multinational corporations, for instance. Consequently, BOP views this group to be significant in terms of influencing trade and growth. The proponents of BOP further suggests that market development targeting the BOP group leads to the development of new entrepreneurs, particularly, at the grass root level.

While BOP approach appears controversial, it has opened up opportunities for multinationals to exploit and serve the BOP consumers effectively. For example, the establishment of micro-finance organisations in Kenya, for instance, has helped entrepreneurs in the informal sector to grow their businesses from small to medium sized businesses.Why BOP approach is considered controversialWhile BOP approach has opened up market opportunities, it is considered that targeting the poor can result in wasteful spending of the already meagre income they earn.

On the other hand, BOP considers spending by the estimated 4billion poor should be left free to decide how to use their earnings since they are value-conscious consumers. As such, they are the only ones who can determine how to maximise their utility. However, a free market ideology such as the poor’s right to maximise their utility tends to harm the disadvantaged in the society. This is because while the poor also can make choices just like the advantaged in the society, some of the decisions are not thought out properly.

This approach is also controversial in the sense that, the poor are affected by numerous social issues and cannot be compared with the upper or middle-class population in terms of making informed choices. This is because a larger percentage of the disadvantaged in the society appears vulnerable due to lack of proper education. They are also deprived socially, economically and to some extent, culturally and thus are not in a position to maximise their utility due to their disadvantaged backgrounds compared to the advantaged in the society economically, socially and culturally.

As such, there is a need for a focus on individuals’ capabilities in terms of maximising their utility rather than their expressed preferences. Further, even though the BOP estimates the purchasing power parity of the 4billion poor at $13 trillion, it could be an exaggeration of the potential of BOP market. On another note, the BOP literature also appears to confuse the rise in the middle-class population with the poor. In addition, due to illiteracy rate among the disadvantaged in the society, they experience challenges in terms of skill development, for instance, needed for entrepreneurial success.

The poor in the society are also focused on subsistence activities, and this does not offer a potential market for large corporations.Conclusion The BOP approach has helped to recognise the untapped market potential among the over 4billion poor around the world. However, research is needed to determine how such a potential can drive economic growth and change lives of the disadvantaged in the society. While the BOP emphasises a free market, there is a need for government involvement to help change the lives of the entrepreneurs in the BOP market through schemes such as funding SMEs, for instance.