Welcome back to our blog series Social Enterprise: Understanding the Base of the Pyramid. Over the past few weeks we’ve been taking a look at how businesses can avoid some of the potential pitfalls in emerging markets. This week we examine the benefits of collaborating with local organizations to mitigate some BoP market barriers.
In previous posts we have noted some of the difficulties of providing products and services to the BoP.
- Poor infrastructure in developing countries may limit distribution of products and services.
- Limited households resources may make consumers less likely to purchase new products from unfamiliar brands
- Products that are not easily integrated with day-to-day activities and lifestyles are unlikely to penetrate the market enough to insure profitability.
To some extent, these issues can be mitigated by partnering and collaborating with local organizations and experts. As demonstrated in the examples that follow, partnerships with local organizations and community leaders significantly increase the likelihood of a product’s successful adoption.
One way community partners can help companies is by leading them to reliable and scalable distribution channels. The California-based company, d.light, which makes affordable solar-powered technology, has successfully partnered with local organizations to access already established distribution networks in developing countries. Specifically, d.light increases its market penetration by selling its products to NGOs and rural entrepreneurs, both community actors with significant local knowledge and connections in most BoP markets.
To strengthen these partnerships, d.light provides trainings on proper use and care for their products and it provide consumers with after-sale support for the technologies. This sort of guerilla-marketing, leveraging low-cost and unconventional distribution channels, has allowed the company to reach 13 million people. By replacing a kerosene lamp with d.light products, consumers can expect to experience cost savings of up to $150 over five years, increased safety from the elimination of accidental fires caused by traditional lamps, better health, and increased productivity.
M-Pesa’s success offers another example of how local partnerships can help a product’s reputation and catalyze distribution. M-Pesa was initially created for the disbursement and repayment of microfinance loans, but since expanded to a general money transfer for the unbanked. Although the service was originally envisioned by Vodafone, it was launched by Safaricom in Kenya. Safaricom is well known in Kenya, so the partnership offered the service even greater credibility.
Vodafone’s vast network has allowed the service to expand across the company’s operations, with M-Pesa now operating in Afghanistan, India, Tanzania, and Eastern Europe. By layering a new service atop an existing distribution channel, M-Pesa has been able to quickly reach scale. Launched in 2007, Safaricom reported over 17 million active users in 2013.
Companies also seek ways to connect with community knowledge and expertise through what is called a “value-open” proposition. After incorporating a product into their lives, local customers are in the best position to further define a product’s value proposition.
Solae, a Dupont subsidiary, used this approach to test a soy protein product among BoP populations. A field team in India developed recipes and educational events in cooperation with a group of women micro-entrepreneurs. After some practice incorporating the new ingredient into traditional recipes, the women encouraged others in the community to do so through scheduled cooking displays and activities. The protein was received well by others and by the time the women were ready to launch their new business, others in the community were asking to purchase the product.
By contrast, Solae exercised a value-closed approach with the same exact product in other areas. Despite being priced nearly 50% higher than the value-closed soy product, the value-open product experienced higher demand than the value-closed one. Yet in spite of an encouraging start, the recent economic downturn impacted the initiative. The additional investment required to grow the business and the patience to reach break-even on the additional investments were not there. Still, while the initiative was eventually shutdown, this experience demonstrates the potential of partnering with the community to launch new products.
In anticipation of next week’s topic which will discuss the economic development importance of creating shared value through BoP market strategies, please share your thoughts on the role local organizations have in ensuring that business strategies improve community wellbeing. Do you have other examples of how partnership with local organizations deepened social impact? Or examples when partnerships failed to bring about social development?
 Acumen: http://acumen.org/investment/d-light-design/