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


Standards on water

filters

Laws & water quality standards

Consumer protection


In mature market economy goal could be reached by these factors

SUPPORTINGFUNCTIONS

RULES

COREMARKET


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


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.


Bottled water is extremely viable:Fastest growing marketIndia + 50 % p.a.


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


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

private sector delivery of “public benefit” goods and services private delivery of public goods...

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