Nature of Setting
Large segments of populations in many countries are neglected by sellers of needed products and services (e.g., medicines, loans). The neglect is mainly for economic reasons. Sellers believe they will lose money or earn too little to justify the investment and effort. The common argument is that people in neglected populations have low incomes and cannot afford to pay for the seller’s products or services. If the population is in rural or remote areas then costs rise further. Professionally managed firms stay away from such markets which are instead served, usually poorly if at all, by small traders and ill-qualified service providers. The latter typically lack the professional management to run operations efficiently, innovate, and attain large scale to lower costs. The lack of competition means that consumers do not benefit from innovation and price declines. Members of neglected populations, consequently, often end up paying far higher prices for essentials than do high income earners who are the target of competitive, professionally managed firms. And the higher prices are paid for inferior quality. Governments, charities, and NGOs do serve neglected markets but supply often falls short of needs. While charities and NGOs usually provide good quality, government organizations are often poorly run and provide low quality goods and services. For example, this pattern is evident in the provision of medical care in many low and lower-middle income countries. If professionally managed firms target neglected markets creatively with new business models, they could provide goods and services of improved quality at prices affordable to buyers while making a profit for themselves.
Astonishingly, populations neglected by professionally managed firms are the majority of the global population. Segmenting the world population of 7 billion by income yields a pyramidal pattern. A small portion of the population has high levels of income while the majority has income levels that place them in lower layers of the income pyramid. Just 1 billion of the world’s population earns $12,196 or more a year (or more than $1,016 a month or $33 a day). About 5 billion people make less than $3,945 a year (or less than $329 a month or $11 a day). Few professional firms target people earning less than $33 a day, although this varies by geography, and even fewer target people earning less than $11 a day. The innovative and commercial efforts of professional firms are mainly for the benefit of the 1 billion or fewer people who are at the top of the income pyramid. The remaining 6 billion are served, if they are at all, by governments, charities, NGOs, small traders, and ill-qualified service providers. Neglected markets dominate the landscape! In many countries, neglected populations are the majority. They are not just the poor and low income earners but for some needs (e.g., healthcare) also middle income earners.
In some instances, even the financially well-off may be neglected because the cost of providing them specialized offerings may be high relative to their incomes. Until the biotechnology company Genzyme blazed the way with its pioneering business model, drug companies preferred to not develop treatments for diseases with fewer than 200,000 patients (called orphan diseases) because they believed they would not recoup the hundreds of millions of dollars they would have to invest in drug discovery, development, and commercialization. Many diseases continue to be neglected for economic reasons but today their populations lie in low-income and lower-middle income countries. In high-income countries where patients are covered by health insurance or the government, small patient populations are not as neglected as they used to be.
With neglected markets comprising billions of people, there is a need for government organizations to adopt professional management to be more efficient and effective at their work and for professional firms to target neglected markets with creatively conceived products and services and new business models.
Problem Solvers in This Space
Several problems solvers in neglected markets are in the healthcare space. LifeSpring Hospitals provides safe, good quality, and affordable maternity medical care to low-income women. Aravind Eye Care System provides free treatment to the poor for preventable blindness. It uses its earnings from charging those who can afford to pay to subsidize eye care for those who cannot. Diagnostics For All is developing inexpensive, easy-to-use, point-of-care diagnostics for neglected patient populations in low and middle income countries. Partners In Health and One World Health provide medical care to the poor in several countries.
The diversified Indian company Tata is bringing needed offerings to neglected markets, such as, water purifiers and its Nano car for middle-income families that used scooters and motorcycles for family transportation.
Sources of Information
C. K. Prahalad and Allen Hammond. “Serving the world’s poor, profitably,” Harvard Business Review, September 2002, pp. 48-57.
The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits, C. K. Prahalad, 2004.
Creative Capitalism: A Conversation with Bill Gates, Warren Buffett, and Other Economic Leaders, edited by Michael Kinsley, 2008.