Removing Friction at the Bottom of the Pyramid

Dharavi is a slum of over a million souls packed into a single square mile in the heart of Mumbai, India. It holds the dubious distinction of being the largest slum in Asia. Families of 15 crowd into 300-square-feet tenements, sharing the space with many more mice. It’s hard to imagine the people of Dharavi as consumers moving up the economic ladder, but that is precisely what is happening.

Kashyap Deorah moved back to India from the US recently, and has spent the last several months visiting Dharavi to understand its micro-economy. Every street in Dharavi is home to an electronics dealer. The main business is used cell phones and prepaid SIM cards; India now has over 246 million cell phone subscribers, with the number growing at a scorching pace. One of the hottest items is — hold your breath — used flat screen LCD televisions! Surprising, yet clear enough when you think about it: space is at a premium, so slum-dwellers behave rationally in opting for flat screen televisions.

This anecdote illustrates the demand for used consumer durables of all kinds among the upwardly-mobile masses in India. McKinsey has published a fantastic study on how the rapidly expanding Indian economy is creating new consumers. This study divides Indian households into 5 segments based on household income: Globals, Strivers, Seekers, Aspirers, and Deprived. The Globals are the super-rich elite; the Strivers and Seekers constitute the middle class; and the Deprived are the destitute outside the pale of consumption.

The most interesting class are the Aspirers: these are not quite destitute or middle-class, but are upwardly mobile and aspire to enter the middle class. Today, only 5% of Indian households are in the middle class, 41% are Aspirers, and 54% are Deprived. In 2025, the study expects the middle class to have swelled to 41% of households, the Aspirers to remain steady at 36%, while the Deprived drop to 22% of households. What is happening is a massive shift of households from Aspirers to middle class and from Deprived to Aspirers. The people of Dharavi are among today’s Aspirers and tomorrow’s middle class.

Aspirers cannot afford new cell phones, or televisions, or washing machines. But there is huge demand for used cell phones, televisions, and consumer durables of all kinds. In India today, the market for used consumer durables is extremely inefficient, and relies primarily on word-of-mouth. A free flow of information about demand and supply can make the market efficient, and also help millions of people take their first steps to becoming consumers.

Given the almost universal penetration of cell phones among Aspirers in India, the natural solution would seem to be a solution that uses mobile phones to help people buy and sell used goods. Kashyap has started a company named Chaupaati Bazaar (named after a famous beachside bazaar in Mumbai) to do just this. The problem is challenging: create a used goods market, make it work entirely through SMS and voice (no web interface), make it work for a semi-literate user base speaking many languages, and figure out the business model. Not a challenge for the faint-hearted, but something that could really make a difference if it can be made to work. I’m proud to join Chaupaati’s Board of Directors as its lead investor.

Dr. C.K. Prahalad is famous for coining the phrase “fortune at the bottom of the pyramid.” The bottom of the pyramid consists of the poorest section of the world’s population, who are not viewed as a viable market by most consumer products companies. There are 4 billion people at the bottom of the pyramid, out a world population of 6 billion. This is an opportunity to use technology to eliminate friction at the bottom of the pyramid, enabling at least some of those people to climb the rung to the middle class.

Initially posted on Datawocky by Anand Rajaraman.