Private sector delivery of “public benefit” goods and services Private delivery of public goods...
Transcript of Private sector delivery of “public benefit” goods and services Private delivery of public goods...
Private sector delivery of “public benefit” goods and services
Synthesis on Integrating the market creation approach into
the M4P frameworkby Urs Heierli
Three parts
1. How it all began... Background
2. Analysis of cases and M4P framework
3. Market creation approach and the marketing toolbox
1. How it all began....• 20 years ago nominated coordinator of SDC in
Bangladesh. • Bangladesh was in a bad shape at that time;
Henry Kissinger: “basket case“• Brigitte Ehrler: „my last duty trip“ Book on German Aid in
Bangladesh, she resigned from her job at BMZ• I asked my predecessor, Erwin Baenteli: „is there anything
that works here?“• Next day he told me: „if you can
mobilise the private energy of the poor people, this works marvelously here“
and it did work.....
After 12 years in Bangladesh and India,
in 1999,
I had a sabbatical and do this study
Six cases with a remarkable outreach• 2500 private nurseries �100 m saplings per
year• 1.5 million treadle pumps sold through private
supply chains
• Over 400‘000 grain storage silos sold through Postcosecha
• Over 2‘000 private workshops produce millions of roofs
• Over 4‘000 private latrine workshops produce over a million latrines
• Rope pump in Central America becomes the mainstream pump
So, what is the secret behind this?
to unleash the energyof private initiative for delivering „public benefit“ goods and
servicesThrough the power of marketing!!!
Is it better to push or pull a rope?
It is much smoother to pull
Six new case studiesunder preparation
Sustainable approaches against malnutrition
Ending Poverty with water control and market access
Just fresh from printer
Making sanitation work
Marketing challenges for safe water
Forthcoming publications
Linking fashion designer and cotton farmers
Malaria bednets: selling them or giving them free?
2. Analysisand synthesis
Integrating the market creation approach into
the M4P framework
SUPPORTINGFUNCTIONS
RULES
COREMARKET
Water filtersupply chain Consumers
Water filter system diagram
Why water filters? Technology pushing or addressing an essential need?• Is tapped water not safe?• Should Government not provide safe water?• Even if water is safe at the tap, it may be
contaminated later (buckets, glasses, hygiene• Cochrane studies have shown that filter (and other
Household Water treatment systems) are very effective and can reduce child mortality significantly
SUPPORTINGFUNCTIONS
RULES
COREMARKET
ITN supply chain Consumers
Mosquito net system diagram
Why mosquito nets?• Studies by STI have shown big impact on child
mortality• Cochrane study has proven effectiveness of ITNs• Problem is that people think „malaria is a natural
thing“• Important to make ITNs available everywhere at
any time
SUPPORTINGFUNCTIONS
RULES
COREMARKET
Water filtersupply chain Consumers
Standards on water
filters
Laws & water quality standards
Consumer protection
Water filter system diagram
In mature market economy goal could be reached by these factors
SUPPORTINGFUNCTIONS
RULES
COREMARKET
Water filtersupply chain Consumers
Quality control
Manufacturing ceramic part
Skillsmanufacturing, selling
Standards on water
filters
Laws & water quality standards
Consumer protection
Testing of quality
Product designR&D Awareness
creation
Water filter system diagram
In most developing countries, intervention is needed here
SUPPORTINGFUNCTIONS
RULES
COREMARKET
ITN supply chain Consumers
Social marketing
Convince manufacturers to do bundling
Train retailers and wholesalers
Extensive research to prove ITNs effectiveness
Make ITN part of health strategy
Mindset: Malaria is unacceptable
Voucher system
Convince manufacturers
to produce Awareness about
Malaria
Mosquito net system diagram
This is a huge task
and i would like to
illustrate this further.
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MOH NMCP TEHIP MARA CollaborSeptember, 2000
A to Z textile mills is also producing plastic products and the first trucks were loaded half-half
Why MM4P is needed?
1. Why should the private sector be involved? Why not give filters and mosquito nets away?
2. Why can the market not solve these problems alone?
3. Why are public and private roles needed to make the markets work?
4. How long is donor intervention needed?5. Why not BOP approach? Exploiting the „fortune
at the bottom of the pyramid“?
1. Why private sector supply chains?
• Filters and mosquito nets must be available everywhere and at any time
• If spare parts, insecticide treatment are not available, children may die
• Only private sector is „aggressive“ enough to go everywhere to sell
But• Private supply chains can only emerge if it
is profitable to sell the products
When tap is broken people stop using filter
There is no place to buy spares
Mobile dealer goes every day to another market place to sell nets
2. Why is social marketing needed?
• It is not a private sector role to create awareness on safe water or Malaria
• But is this really needed? Do people not understand on their own?
• Malaria Haikubaliki: Malaria is unacceptable
• When do Anopheles mosquitoes bite?• Small film clip from Malaria Haikubaliki
This man can sell nets but not create awareness on malaria
This man can sell filters but not create awareness on safe water
Market creation has a public purpose
Conven
ience
prod
uct:
comfor
t, priv
acy,
prestig
e, les
s coo
king
Public health product:
hygiene, less pollution
and infection
This can be done by private sector
alone
This is a public task cannot be done by private sector alone
Win-win if both are done:• More sustainable• More profitable• Better service• Cheaper in the long run
4. How long is support needed?
ProductDevelopment
QualityAssurance
Production Distribution Marketing Sales
Dotted lines show roles increasingly taken up by the private sector
Private-sector roles
Social Enterprise
Donor support during start-up
NGO intervention how long?
IDE filter factory Private sector
retailers
wholesalersNow, IDE is producing filters and assembly
Future vision – only core quality control
IDE quality control Private sector
retailers
wholesalersFuture: IDE or private company could only produce filter elements
When?When market is mature and volumes high
enough
Bottom of the pyramid?
Bottled water is extremely profitable:Fastest growing marketIndia + 50 % p.a.
Bottom of the pyramid?
Bottled water is extremely viable:Fastest growing marketIndia + 50 % p.a.
Bottom of the pyramid?
Middle classes are either boiling, drinking bottled water or drinking unsafe water
Lower social strata do drink unsafe water, as they often have no other choice, but many are also not aware they should drink safe water
One solution: HLL pure it• Hindustan Lever has designed a
filter (4 filters, safety features)• Positioned to urban lower middle
class• Cheaper than boiling• Upper crust of BOP, but first low
hanging fruits• Good that upper crust is targetted
first, from there it will go lower• Supply chain becomes viable by
targetting the low hanging fruits first
Bottom of the pyramid?
Targetting the real BOP? What strategies?IDE is here with 7 $ filter
Targetting the real BOP? What strategies?IDE is here with 7 $ filter and may reach more downward in future
HLL pure it is hereWith 35 $ per filter
Functions of voucher:1. Access to target group
and reach the bottom2. Stimulate first movers
and widen the market3. Create incentive for
supply chain
Functions of voucher:1. Access to target group
and reach the bottom2. Stimulate first movers
and widen the market3. Create incentive for
supply chain
Pricing is a real issue:
1. How to make safe water affordable?
2. How to make it viable
Agenda for future
• Why bother with M4P or market creation? Why not giving away?
• Our belief: one can make marketing even viable for public benefit goods
• If need be, one can subsidise with vouchers but only to the poorest (and to first movers)
• Long-term vision: one day it will be viable and thus sustainable
• This is never possible if one starts with giving away
3. Market creation – the basics
What is market creation?• Aim of market creation: making products and
services available and viable, mainly by reducing the often exorbitant transaction costs
• Dilemma: products are highly price-elastic. Viable almost always means: high volumes
• Only with high volumes can the transaction costs go down and business become viable
• Example: for a mobile dealer of mosquito nets he must sell at least 10 nets a day to make money
Market creation: The product cycle
R&D phase
No sales
Intro-duction
Low sales
Matura-tion
Sales pick up
Satura-tionSales slow down
A „big kick“from the demand side
may be neededto create a
„critical mass“Losses which every companywould have to bear.Sometimes difficult to recover for poverty alleviation products
sales
profits
Poverty alleviation effectsales
profits
Supply chain
R&D phase
Onlyprototypes
Intro-duction
„scouts“join
Saturation
New products needed
Maturation
„troops“ join
Poverty alleviation continues even if sales
decline; (linear relationship with number of products sold
and in use)
But, early adopters may not be the poor;
The poor are more likely the followers!!
Poverty alleviation
How to create markets
The best toolbox for market creation is marketing
The paramount importance of the 4 Ps (5 Ps)
• Product• Price• Place• Promotion• People
Before we start: market research• Know your customers: what do they need, want and how
much can they pay• Philip Kotler, the famous marketing guru tells the following
story:• A Hong Kong shoe manufacturer sends an order taker to
a remote island in South Pacific to explore new markets. He comes back and said: „The people here don‘t wear shoes. There is no market“.
• He was not happy with that answer and sent a salesmanto the island. He came back and said: „The people here don‘t wear shoes. There is a tremendous market“
• Who was right?
What did market research find out?
A marketing professional went and said after having talked to some village chiefs:
• „The people here don‘t wear shoes. However they have bad feet.
• I have shown the chief how shoes could help.• He estimates that 70 % of his people will buy the shoes
at $ 10 a pair. • We can probably sell 5000 pair in the first year and it
costs us $ 6 to bring a pair of shoes here. We will thus make a profit of $ 20‘000 in the first year and this may cover our startup costs.“
Perception of radio programming in Uganda
• Radio markets focusing too much on music, humour and national politics and too little on ‘development’ issues.
Market segmentation
Everett Rogers: the diffusion of innovations• Who is who? Who will most likely adopt first?• Who influences whom?
2.5 %
13.5 % 34 % 34 % 16 %
1st buyer
2nd buyer
3 rd buyer
Applied to ceramic filter
2.5 %
13.5 % 34 % 34 % 16 %
Second 50 % may be reached by social marketing: creating awareness on safe water
First 50 % may be reached by marketing: those who already boil the water
Marketing and the 5 Ps
Peter Drucker:Some people say „marketing is selling“;This is wrong: „good marketing makes selling superflous“
Product: develop suitable products
• People‘s needs are different: the answer can not be „one size fits all“
• Example: Mosquito nets: all sizes depending on family situation. A student in a boarding school needs a different net than a mother with her baby
• Similar for water filters, latrines, and for many other products and services
• It is crucial to give the customer a choice and meet his / her needs
Price: make things affordable• Even more choice is needed for pricing• Biggest hurdle for poor people is the downpayment, the
initial investment• They may even need subsidies (vouchers) as we have
seen. But not all need subsidies• I wish we could be as innovative as mobile phone
companies in pricing. This has led to a real revolution everywhere
• But we should also take into account the enormous investments mobile phone companies have made to develop markets (billions were lost and are still lost)
Place: support viable supply chains
• Who can deliver the goods and services efficiently and permanently?
• Not only the goods but also spare parts, replacements, accessories?
• How can we reduce transaction costs of delivery? (e.g. Mosquito nets and plastic goods loaded in the same truck)
• Supply chains, dealers network are the biggest asset for a company, it should be the same for development agencies
• Only if it is profitable to sell the goods, services and spare parts is it also sustainable
• Scaling-up is a big challenge: how to reach to rural areas country wide?
Promotion
• Schoolmasterly promotion is inappropriate• We can learn a lot from creative
advertisement• To pass on the right messages, sometimes
also with humourTwo small film clips:Rhäzünser mineral water
Examples for a good promotion
Grandmothers in Rhäzüns
Rhäzünser_Grossmütter.mpg
The promotion says:
The fittest grandmothers come from Räzüns :
..... something must be in it (the bottle)
Examples of a good promotion
Babies from Rhäzüns RhäzünserBaby.mpg
The promotion says:
The liveliest babies come from Rhäzüns
.....something must be in it
Generic and specific promotion
• Dealer may promote the product and manufacturers may promote the brand (A to Z nets versus Sunflag nets, „Rabbit“ filters)
• But neither manufacturers nor dealers can promote „safe water“ or create awareness about malaria
• Generic promotion is a public health task, for instance awareness for safe water through boiling, filtering etc.
• Good messages based on market research and understanding of customers
5th P: People
• Many times we are influenced not directly by rational arguments but by peer pressure
• Peer pressure can be working in a positive way: he / she has it: I must have it also (iPod)
• Or in a negative way: He / she would disapprove if I do this My professor said: „intelligent people dont smoke!“
• Often children can influence adults a lot:children blowing a whistle if they spot somebody to defecate in the bushes
• Often in very subtle ways: Roger Federer is suggesting I should have a Rolex
Dos and don‘ts for donors
Is there a role for donors?• This is not simply a BOP (bottom of the pyramid)
approach; Prahalads book is very inspiring and there is a role for business to cater to the needs of those at the bottom of the pyramid. Controversy: „fair and lovely“
• But there may not be that fortune at the bottom.Ron Rivera, the man behind the water filter said: One may well loose a fortune while developing the market at the bottom
• For important MDG agenda points like safe water, malaria, sanitation there are public and private roles to be played
It is a win-win to combine the two elements:1. Let the private sector deliver the goods2. Let the public sector create the demand
Market creation has a public purpose
Conven
ience
prod
uct:
comfor
t, priv
acy,
prestig
e, les
s coo
king
Public health product:
hygiene, less pollution
and infection
This can be done by private sector
alone
This is a public task cannot be done by private sector alone
Win-win if both are done:• More sustainable• More profitable• Better service• Cheaper in the long run
Manu-
facturer
Dealer
Installer
FarmerFacilitator‘s
role: Active vs. passive role:
Sometimes, one needs to step in as a doer, but this can be dangerous: if one withdraws, the chain may collapse = this is an art!
Manu-
facturer
Dealer
Installer
FarmerActive Role vs.
passive role:
Unsustainable withdrawal
Manu-
facturer
Dealer
Installer
Farmer
Facilitator Role changes over time:
Sometimespull
Sometimespush
Sometimesstand besides
Manu-
facturer
Dealer
Installer
FarmerDo‘s and don‘ts
...or distort the market
Never stand in-between!!...
Facilitatingthis process and creating a good environment
What donors should do• Create awareness (for hygiene, for nutrition, for safe
water, for malaria prevention)• Create markets (critical mass) so that private sector
becomes viable (e.g. Sanitation, filters, mosquito nets)• Support marketing studies and marketing strategies• Support product development (R&D, design) no design for
the poor• Support pricing strategies with smart subsidies for the
poor only and for first movers• Help organise supply chains and value chains (farmers
support)
What donors should not do• Do not act in place of private actors• Do not think that all private enterpreneurs are
exploiters • Do not give things away free• Do not distort markets with subsidies • Do not subsidise transactions directly • Use subsidies intelligently, e.g. to reduce
transaction costs (like in micro-finance group formation)
• Do not promote products „only for the poor“• Do not spoil long-term opportunties with short
term support
Summary and future agenda• Markets can work for the poor!• One good way to deliver goods of public benefit to all
(and to the poor) is to involve the private sector by making a business out of the delivery – often a business for the poor
• For this, systemic analysis is needed and marketing provides an excellent toolbox
• There is an important role for donors to facilitate• But the best way for donors is
„not to be the doer“but the facilitator
who allows others to do........their job as a business
Sustainably..
Thank you