The best way for companies to improve the lives of the world's poorest people--those at the bottom of the pyramid--is to focus first on doing good business, not just on doing good. That's the contention of the authors, who say that a steady flow of profits from manageable ventures will pave the way for later investments in more-ambitious socially beneficial projects. The authors cite two main challenges in selling profitably to the bottom of the pyramid: changing consumers' behavior and changing the way products are made and delivered. To help companies see how these challenges affect various business prospects, they have developed an "opportunity map" that classifies opportunities along a spectrum from the least complex and resource-intensive to the most. At the simplest end are targeted marketing opportunities in mature markets. In the middle are opportunities in growth markets: efforts to redesign products, extend distribution channels, or create new ones. At the other end of the spectrum are frontier-market ventures to develop new products, conquer competitors' markets, expand into greenfield markets, develop new business models, or create altogether new markets. The authors present examples of each type and explain that companies can pursue multiple opportunities simultaneously. If they choose wisely, they can make profits and advance their social missions at the same time.

There's a fatal flaw in the low-price, low-margin, high-volume strategy that multinationals have been pursuing in the bottom of the economic pyramid for the past decade: In order to cover the built-in costs of doing business among low-income customers scattered in rural villages and urban slums, penetration rates must be impractically high--often 30% or more. Erik Simanis of Cornell University's Johnson School of Management argues that companies seeking to improve the lives of the world's poor should focus on a more realistic route to profitability: They need to elevate gross margins far above the company average by pushing down variable costs and boosting the price consumers are willing to pay for a unit of product. They also need to raise the price point for a single transaction. This combination of higher margins and higher price points increases the contribution--the amount of money that goes to covering fixed and operating costs--generated from every transaction. Achieving sustainable margins in low-income markets requires a margin-boosting platform that integrates three common approaches--bundling products, offering an enabling service, and cultivating customer peer groups--into a coherent strategy. In this way, companies can launch flourishing ventures capable of transforming the lives of millions of low-income people across the developing world.

This is an MIT Sloan Management Review article.