Social innovation: Creating products for those at the
bottom of the pyramid
A growing number of global companies
are being drawn to the seductive idea that money can be made by developing and
marketing products for those at the bottom of the pyramid, some four billion
people around the world who eke out a living on about two US dollars a day. Not
only are companies attracted by the prospect of discovering markets with
untapped growth potential, but they’re also aiming to have an impact, in a
global society characterized by deep divisions between the haves and the
have-nots. But those developing new products for those living in poverty are
finding that cost alone isn’t the most important factor.
Last month, the Executive
Sustainability Roundtable, in conjunction with the INSEAD Social Innovation
Centre, highlighted the role that businesses can play in addressing the needs
of the poor, as well as the potential that lower income markets hold for firms.
Executing a bottom of the pyramid
strategy with a new product isn’t easy. Even if you can come up with a product
which would help improve the lives of the world’s poor, distribution can be
difficult due to access barriers in highly segmented lower income markets.
‘It’s
not just about making products cheaper’
When creating innovative, new
products for markets at the base of the pyramid, Peter White, Director of
Global Sustainability at Procter & Gamble, notes that cost alone is not the
issue. “It’s not just about making consumer products cheaper,” he says. “You’ve
got to come up with products that actually meet the specific needs at the
bottom of the pyramid. How do you design products that people need? You
have to actually go and find out, and so we send researchers to find out how
people live – how they do their washing, their cleaning (and) what are their
problems.”
He outlined the case of a water
purification system called PUR, which P&G developed in collaboration with
the US Centre for Disease Control for commercial markets, targeting low income
consumers. The product had clear social benefits, providing clean drinking
water for households in places where the health risks of untreated drinking
water are high, especially for children. After three years of market tests
though, PUR was looking like a commercial failure. Many other firms would have
closed down the project, but P&G instead moved PUR to its corporate
sustainability department, easing the pressure on turning a profit. Since 2003,
P&G has sold the product at cost and worked in partnership with non-profit organisations,
who distribute the product through their development and humanitarian relief
networks. As White explains, “our products have huge reach and so the
opportunity to improve lives and to make sure we reduce our overall
environmental impact is primarily through our products.”
A second case was put forward by
Christine Heuraux, Director Energy Access Programme at Electricité de France
(EDF). She explained how EDF, through Rural Electricity and Services Companies,
has helped bring electricity to rural areas of Mali, Morocco and South Africa,
which would have been otherwise ‘off the grid.’ “We have brought electricity to
800,000 people (and) our goal by 2010 is one million.”
“This is a drop in the ocean,”
Heuraux acknowledges, “but if you consider the difference that we’ve made in
the lives of just one country such as Mali, where we provide 8 to 10 per cent
of electricity, this is quite important.”
Access
is important
A third case was presented by INSEAD
Advanced Management Programme alumnus, Jayanth Bhuvaraghan of Essilor India and
Claude Darnault, Director of Corporate Sustainability, with Essilor
International France.
Essilor International, which
manufactures and distributes optical lenses, found thatinplaces such as rural
India, the absence of adequate eye care facilities has resulted in an almost
negligible use of spectacles. Uncorrected refractive error is one of the major
causes of blindness, which if detected and corrected, would give a fresh lease
of life to individuals. Seeing an opportunity to address this underserved
market, Essilor India established a rural marketing division in 2004 to
increase the company’s reach.
Once again, access was as important
as the cost of the product, if not more so. “We did a barrier study, to find
out why those living in rural markets weren’t buying spectacles, when clearly
there was a need,” says Jayanth Bhuvaraghan. “And we were surprised that the
answer was not just about money.”
Partnerships
are also key
At the forum, participants also
highlighted the importance of finding good partners as a key component of
bottom of the pyramid strategies.
These partners may be from the
public or private sector, as in the case of EDF. “We are never working alone,”
Heuraux says. “We are always working with partners, such as Total,
Nuon, RWE, Hydro Quebec and ESKOM.”
As for Procter & Gamble, it has
been working with NGOs which have been trying to raise awareness of the need to
treat drinking water. “For PUR, we let our NGO partners use their distribution
channels; NGOs such as Population Services International [which] have expertise
in health issues” White says. “For commercial products designed for Bottom of
the Pyramid markets, like Downy One-Rinse, we use our own distribution
channels.”
Distribution
channels that work
Access to markets is also
crucial. As Jayanth Bhuvaraghan of Essilor India relates, “we learned
that in some cases, the service has to be brought to their door steps.”
The company has developed a mobile
refraction van which facilitates eye examination and diagnosis, as well as the
manufacture and delivery of spectacles, with its technicians collaborating with
non-profit partners such as Sankara Netralaya and the Aravind Eye hospital.
“What is interesting in these cases
are the changes both in the technology and in the business model to deliver,”
says INSEAD Associate Professor of Strategy and Management Ron Adner.
Building
sustainable models
Heuraux says that when it comes to
rural electrification, EDF finds it much more impactful to assist in setting up
local energy businesses, using solar panels or fuel powered generators, as
opposed to donating them. “You can go the humanitarian route or the market
route. In 1994, we started with a humanitarian model, donating generators. It
didn’t work. No one could repair the generators, and [the project] was very
small – just a village, a school, a hospital. If we want to help a few million
[people], we have to make it a business, and make it locally sustainable.”
This view is echoed by INSEAD
Adjunct Professor Margaret Hanson. “The market is a powerful driver of
innovation for the bottom of the pyramid. It is also an important source of
sustainability.”
Business plays a couple of important
roles in terms of sustainable solutions, she says. “From the demand side,
socially responsible business can help to inform consumption patterns. From the
supply side, product innovation goes to the heart of social and environmental
sustainability.”
http://knowledge.insead.edu/csr/social-entrepreneurship/creating-products-for-those-at-the-bottom-of-the-pyramid-1957
No comments:
Post a Comment