The Myth of the Poverty Premium

There is a widespread view that people in poverty pay more for their products and services than richer people. This price difference was described by C.K Prahalad and Allen Hammond as the poverty premium, in an article in the Havard Business Review (HBR) in 2002 – which Prahalad expanded on in his book ‘The Fortune at the Bottom of the Pyramid’. However, an article by Ethan Kay and Woody Lewenstein in the April 2013 edition of the HBR cast doubt on the theory, and showed results of an experiment that illustrated that the poverty premium is not always present. The implications for this theory being wrong can have major implications for marketers and by implication market researchers. The idea behind the poverty premium is that more affluent shoppers can buy more efficiently, for example by driving to discount stores or by buying in larger pack sizes. At one level we can see this is true, the price paid for a can of Coca-Cola in a convenience store in a poor neighbourhood is likely to cost more than the proportionate costs of one can of Coca-Cola purchased as part of a multi-pack from the local equivalent of a WalMart. Kay and […]