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Marketing Innovative Devices for the BoP Lessons learned from 15 global pioneers that challenge conventional sales & marketing approaches
March 2013
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Life-changing products exist…
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…but struggle to reach families at the BoP
3
$PPP income/ year/capita for world population
$1.5k
Marketing Sales Financing After-sales
4 billion people at the Base of the Pyramid
$20k
Life-changing products
Need for replacement parts
Small transactions
Geographic dispersion
Poor infrastructure
Risk aversion
Lack of cash
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To learn how to overcome these barriers we analyzed 15 pioneer organizations
4
Sakhi Retail
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The overhead curse: too much or not enough!
It’s about economics!
Risk-free solutions, not cheap products
Financing is best done
in-house
Serving the BoP is a high
gross margin business
Below-the-Line marketing
works better Sales
force churn can and should be avoided
Responsible and effective
marketing happens after a sale
It is worth
Investing in a modern BoP sales
force
key lessons learned 1 0
Four direct
sales force models are emerging
Value proposition
Marketing
Sales force
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It’s about economics! #1
Investing in innovative products offers very attractive economic returns to BOP families
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Food
Lighting
Housing Cooking
Household goods Health
Transportation ICT Education
New technology substituting an old one within the constraints of an inelastic budget…
7
1
Standard BoP family budget
$2-3/month in kerosene, candles and batteries
$10-15 for a solar lantern
71%
4%
Brand choice in a flexible budget Living standard choice in a constrained budget
Marketing seeks to influence:
In developed countries In developing countries
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… can provide very, very large economic benefits!
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150%
400%
Solar home systems
Solar lanterns
Water purifiers *
Irrigation pumps
Improved cook stoves *
Consumer IRR over product lifetime
2-5
4-9
Product lifetime
3
14 60%
5000% 2-3 mths
Payback
4-6
4-9
2200%
4 yrs
6
4
15-50% financing cost
1
* Assuming customers are paying for fuel or boiling water
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Risk-free solutions, not cheap products #2
A risk-free, holistic solution is what customers want
SELCO technician installs a solar home system
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11% 26%
Clients do not look for cheap product, but risk free solutions…
10
2
Price premium paid by customers to reduce risk
90% rural clients forego a 10% discount to: ! Test stoves at home
for one month ! Verify charcoal
savings, deposited in Toyola box
All clients pay a 26% premium to get protection from: ! Poor construction design ! Building material price
increase ! Waste (theft or damage)
of building materials ! Lack of saving discipline
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2 … and premium products
Price
80%
20%
Penetration after 1 year
Customers postpone installation of latrine until they can afford a better
quality shelter
2%
1%
$24
$14
latrine + natural shelter
$40 + 5
zinc/cement shelter
$40 + 50-200 latrine +
Declared consumer preference Price
Premium filter offered on credit at launch:
>90% clients opted for the more expensive version
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Financing is best done in-house #3
In-house financing can provide value to customers, reduce operating costs, increase revenue and reach more clients
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Financing in-house is a win-win arrangement for clients and product and service providers
" Access to credit without collateral or credit history
" Lower risks of product issues (tied to payments)
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3
Up to 3 year loans Monthly service charge (maintenance, interest) Installments collected by technician during service visits
" Low default rates (tied to working device)
" Profitable activity " Low operating cost (synergies with
distribution or maintenance)
For product and service providers For clients
Deferred payment 11% price premium Full amount collected by sales agent from saving box after a month
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Working through MFIs is tempting but raises implementation questions
! Easier access to customers ! Faster penetration ! Lower commercial costs
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! How to avoid customers being pushed into buying?
! How many target customers are served by MFIs?
! What proportion of MFIs can become effective partners? ?
3
Benefits
Questions
! How to effectively handle default payments and be paid for it?
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Below the line marketing works better #4
Effective marketers excel at village-level tactics and shy away from investing in expensive awareness-raising campaigns
BRAC Village Wash committee
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Winning one village at a time 4
A village in Ghana
Dissatisfied users
Aware, tempted
prospects Village Buyers
Positive word-of-mouth
Negative word-of-mouth
Satisfied, loyal users
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Awareness and purchases after health campaign
69% 83%
2%
Awareness of impact on health
People stating they would purchase
People who purchased
Improved cook stoves
High levels of awareness and understanding are not sufficient to trigger sales
17
88%
98%
"Not convinced of promised
benefits"
"Too expensive"
Remaining barriers to purchase (% of non-buyers)
Raising awareness about health impacts of cookstoves does not overcome
barriers to purchase Impact of marketing campaign on purchase2
NP: Only first 3 arguments + combine with Kickstart
slide
Irrigation pumps
Awareness and penetration after year-long marketing campaign
84% 63%
13%
Product awareness
Product understanding
Sales penetration
4
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Leading practitioners concur
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“People need to see the product, touch it, and ask questions: an advertising campaign will not be
sufficient.”
Suraj Wahab, Toyola, CEO
Upamanyu Patil Sakhi Retail, CEO
“Most people in rural area need to see the product work
long enough at their neighbor’s.”
Deepak Saksena, Pureit, Partnership Director
“Despite marketing campaigns done for middle-high class, rural people would never buy
without further Below-the-Line marketing.”
Iwan Baskoro GERES,
ICS Program Director
“Only 20% customers bought based on our 3 marketing campaigns (posters, TV, and radio).
Word-of-mouth was the main trigger.”
4
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ATL spending does not correlate with commercial success 4
ATL Marketing (% of sales) Total yearly revenues
12% 7%
6%
2%
2%
1%
1%
0%
0%
0%
0%
0%
0%
0%
Profitable
Covering field ops costs
Not covering field ops costs
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Village WASH Committee looks
over map of homes still without
latrines
Most organizations use similar village-level tactics with varying degrees of excellence in execution
20
All 15 best-in-class organizations use BTL marketing
4
3
3
6
7
2
5
11
Peer pressure
Free trials for opinion leaders
Demonstrations (small group)
Vendors among trusted
locals
Endorsement from trusted institutions/
people
Demonstrations (public place)
Free trials for poorest
Agents ask prospects to pour water on solar panels to prove its durability
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Responsible and effective marketing occurs after the sale #5
Despite the fact word-of-mouth is key, few systematically measure and manage customer satisfaction
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Word-of-mouth from satisfied customers is key 5
92%
60% 60% 49%
Solar home systems* Improved cook stoves Home improvement package
Irrigation pump**
Customers citing neighbors or relatives as trigger for purchase
*Customers citing neighbors or relatives as first source of information about product **Customers may have cited more than one source
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20%
40% 50%
69%
Example 1 Example 2 Example 3 Example 4
And the number of dissatisfied customers can be significant 5
Customers no longer using purchased product/service after 2 years
Drivers of non-compliance : ! Need for replacement purchases ! Need for behavior change
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For each product and service Patriomonio Hoy tracks the Net Promoter Score - NPS (i.e. number of clients who say they will recommend it minus those who say they never will)
Measure customer satisfaction
Organizations can systematically measure and ensure customer satisfaction
24
5
80% 82% 84% 86% 88% 90% 92% 94% 96%
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2011 NPS score
1
! Immediately identifies and follows-up with dissatisfied customers to prevent negative word-of-mouth
! Ties sales force compensation with personal NPS
Act on dissatisfied customers 2
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2. Implement systematic high-quality execution of
marketing and sales practices at village level
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In a nutshell, marketing efforts should shift from raising awareness to ensuring customer satisfaction
5
1. Reassess levels of ATL spending in light of
customer awareness
3. Invest in “after the sale” activity to ensure and improve
customer satisfaction
Above-the-Line marketing: Radio, TV, billboards
Dissatisfied users
Aware, tempted
prospects Village Buyers Satisfied, loyal
users
Positive word-of-mouth
Negative word-of-mouth
Encouraging word-of-mouth
Follow-up and problem-solving (user coaching)
Initial demonstration
Active selling (addressing remaining barriers to purchase)
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Serving the BoP is a high gross margin business #6
The15 organizations we analyzed face different degrees of marketing challenges, yet all require relatively high gross margins to sustainably serve BoP customers
KickStart’s irrigation pumps
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Serving BoP customers sustainably requires high gross margins
6
Upgraded value chains (single product)
Product in a box (single product)
Multiproduct distributors
Equipment and service
25-30%
35-45%
30-50%
25-40%
What gross margins are needed to sustainably serve the BoP?
! Actual gross margins of profitable companies
or
! Estimated gross margins required for companies to achieve breakeven at scale
Gross margins*
*Calculated over total value chain revenues, including all servicing and financing revenues, and Output Based Aid
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Sales force churn can and should be avoided #7
Competitive compensation and close management can reduce undesirable sales force churn to 30% or less
Greenlight Planet
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7<30% sales force churn can be achieved, with appropriate levels of compensation and oversight
Field sales force yearly churn* Career Opportunities
Compensation
Partly fixed
Notes: Competitive compensation compared to other local opportunities; churn does not include management
Awards and events
Close mgmt
Competitive*
80%
60%
60%
40%
40%
30%
30%
25%
20% 10%
8%
7%
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Four emerging effective sales & marketing models #8
Four methods of solving the sustainability equation (enough customers and sales per customer to cover sales force costs)
Clockwise from top left: SELCO, Toyola, Sakhi Retail, Pureit
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8
20
22
42
42
47
52
56
3
4
5
7
11
12
128
Solving the sales force productivity equation
31
Sales per FTE sales person per year ($k)
Full-time sales
people
Part-time sales
people
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0
500
1000
1500
2000
0 50 100 150 200 250 300 350
‘Farming’ model
32
8 Four sales models emerge, at different levels of maturity
Client spending per year ($)
Clients per FTE sales person per year
1300
‘Hunting’ model
‘Shifting cultivation’ model
4400
‘Gardening’ model
$20k sales/FTE/Year
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It is worth investing in a modern sales force for the BoP #9
A full-time, mobile sales force, with referrals, CRM tools and close management, can be more loyal and effective
Living Goods sales person
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9 Our recommendation: Invest in a modern sales force for the BoP
1.
Employ a full-time mobile sales force 2.
Choose good managers
3.
Leverage referrals to aggregate sales
Village
4.
Leverage technology
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LG cloud-based mobile platform
Client
Sales manager
! Treatment reminders ! Tailored education,
e.g. for pregnant mothers
! Promotions
Coaching
! Real-time patient treatment registration
! Daily sales reporting ! Client inquiries
! Sales agent performance statistics
Sales agent
! Agent performance feedback
! Treatment quality control
! Client follow-up reminders ! Announcement of new
products and programs
Headquarters
Inquiries
Technology is another emerging lever for time-efficient CRM and sales force management
9
Living Goods mobile platform
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#1 The overhead curse: too much or not enough!
Investments in overhead should be temporary 0
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0%
20%
40%
60%
80%
100%
0 1 2 3
Bootstrapping organizations
(overheads below $200k) might be
trapped if they do not raise the necessary
amounts for growth
Fast-growing organizations invest ~30% revenues in
building professional overheads (likely to decrease
to 10% as they grow)
The overhead curse: not enough or too much!
* Logarithmic scale
100
300%
Overhead as % of total revenues
Very large, successful organizations with professional
management structures
Total yearly revenues ($m)*
10
Donor-dependent organizations with
corresponding fundraising expenses
including impact monitoring
Large, stable organizations maintain low overheads but may fail to invest
in professional management
?
10
?
?
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The overhead curse: too much or not enough!
It’s about economics!
Risk-free solutions, not cheap products
Financing is best done
in-house
Serving the BoP is a high
gross margin business
Below-the-Line marketing
works better Sales
force churn can and should be avoided
Responsible and effective
marketing happens after a sale
It is worth
Investing in a modern BoP sales
force
key lessons learned 1 0
Four direct
sales force models are emerging
Value proposition
Marketing
Sales force
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Going forward: the virtuous cycle of collaboration
39
Bench-marking