A big challenge for social entrepreneurs is convincing poor people to buy their life-enhancing products. Last week I went to a really interesting conference that got to the bottom of the issue.
The consultancy Hystra had been commissioned by the Bill and Melinda Gates Foundation, the Children’s Investment Fund, and the Shell Foundationto look at the methods of 15 organisations successfully selling life-improving products (clean cookstoves, irrigation pumps, water filters, solar systems, etc) to the poor. The results were presented to a room full of NGOs, social entrepreneurs, and policymakers.
I was particularly excited because 5 of the organisations involved in the study are previous Ashden Award winners: Toyola, GERES Cambodia, SELCO, Hydrologic, and Grameen Shakti. It was a great opportunity to catch up with them – it’s not often our international winners pay us a visit!
The meat of the morning was a presentation on the lessons learned from the study on how to market to the poor. Here are my top 6:
1. Saving money is the main thing that motivates people. Considerations such as health and convenience come later.
2. Poor people want risk-free solutions, not cheap products. Unsurprisingly, poor people are often particularly cautious about how they spend their money, and as many of these devices (solar lanterns, efficient cookstoves, etc) are new to them, to be successful sellers have to minimise risk for the customer. For example Toyola CEO Suraj Wahab noted that most people choose to try one of his cookstoves for a month before buying it, rather than get a 10% discount by buying on the spot.
3. Village demonstrations work better than awareness-raising campaigns, which raise awareness but don’t actually convince people to buy. This relates to point 2 – people want to be able to see something in action – and stamp on it, in the case of ToughStuff’s solar lanterns – before they invest.
4. Financing is best done in house.This point is a bit controversial, as not all those involved in the study agree. The researchers argued that relationships with third-party micro-finance providers often break down, and gave plenty of examples. However, solar installer SELCO does an excellent job linking its customers with rural banks to get finance for its solar home systems. Perhaps it’s hard to get right, but not impossible.
5. Don’t desert your customers after the sale. Checking in with recent customers to make sure their new purchase is working means customers are satisfied and are more likely to recommend the product to their friends and neighbours.
6. Field costs are high. Visiting villages, doing demonstrations, after-sales service, etc all cost time and money, so margins need to be high to cover these costs.
I found lesson two, about risk-aversion being more of a motivation than price, particularly compelling. I admit I had assumed the cheapest product would always win.
So perhaps the overall lesson about marketing to the poor is not to make assumptions about what they want and need. That’s why it’s great to have a piece of research informed by the experience of organisations successfully selling these products, not well-meaning policymakers theorising about what’s best for other people.