The following is one of a series of blogs about presentations, workshops, and panels that were part of the 2015 MIT Scaling Development Venturesconference.
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As more corporations, NGOs and social ventures try to bring life enhancing products to the Base of the Pyramid, three distinct models for last mile distribution have emerged: last mile retail, institutional partnerships and micro-franchising.
The panelists at the 2015 MIT Scaling Development Venturessession Reaching the Last Mile: Distribution Models for Energy Products, which I organized, showed that the market realities are more nuanced and often require complementary distribution strategies that are highly adaptable to local contexts and evolve overtime to match changing market needs.
Greenlight Planet: Micro-franchising and Institutional Partnerships
The Greenlight Planet (GLP) Direct To Village (DTV) model – training micro-entrepreneurs to sell their solar lanterns in non-electrified Indian villages – was proven effective only when the system was highly standardized. “We had to keep it simple and very standardized to ensure success,” said Laurens Friso, Global Partnership Advisor at Greenlight Planet. “This meant that we were not able to add more complex services such as financing, even if that meant we had to miss on potential consumers.”
In Africa, where population density constrains last mile distribution cost efficiencies, GLP works primarily through partnerships with likeminded organizations that have developed a reach within their target population. These include microfinance institutions, utility companies such as TOTAL or other social ventures such as Sunny Money or One Acre Fund. This model was harder to develop in India because most potential partners worked at the national level and that automatically meant scales that the company could not fulfill right away.
While the DTV model allows GLP to stay close to their customers and gather valuable feedback on the product and in-depth knowledge of user patterns, the institutional partnerships are more cost effective and scale more rapidly. Today GLP is employing various combinations of the two models in both India and Africa.
Community Enterprise Solutions: Micro-consignment
The micro-consignment model developed by Community Enterprise Solutions (CES) is most appropriate in markets where uncertainty outweighs the risk perceived by micro-entrepreneurs. These markets are typically half way in between relief situations where donations are necessary and more mature markets where microcredit is available and acceptable for micro-entrepreneurs.
“It comes down to a balance between uncertainty and risk,” said Greg Van Kirk co-founder of CES. “When you ask a micro-entrepreneur to sell a new product in their community they will rightfully question your sanity: I cannot predict demand, I have no experience in selling such product, and I would certainly not want to get in debt with such level of uncertainty.” The key here is in sharing the risk with the micro-entrepreneur to lower the uncertainly of the market. CES provides the business training and the upfront cash to finance the inventory and the entrepreneur invests their time. “What we do is to enable first-time entrepreneurs to bring products to new markets so that these could eventually develop into the direct sales micro-franchising model,” added Greg.
TinyPipes: Micro-retail and Micro-entrepreneurship
“I happened to be in Manila working on a new solar product when the typhoon hit the city and I was struck to see that parts of the city that were on the grid were completely dark while those who relied on car battery hauling were still lit. They were more resilient! And that got me thinking about distributed electrical infrastructure,” said Alex Hornstein, Founder of TinyPipes a social venture offering solar energy as a service in the Philippines.
TinyPipes focuses on households that use car batteries as a source and have a cell phone signal. “By hauling batteries back and forth to be recharged, these household were already on an energy as service model and were already on a pay as you go scheme. The idea was to offer them a much better product and service for the same cost without the inconvenience of hauling,” noted Alex. The company installs a high-quality 60 watt solar panel on their roof and the customer pays for it overtime through monthly payments for the energy they consume. While the panels are mobile technology enabled to monitor usage, payment collection has still to rely on agents as mobile payment infrastructure has a very low penetration and is still expensive in the Philippines.
TinyPipes is piloting a model whereby the company partners with Sari-Sari owners. Sari-Saris are micro-retail stores run by micro-entrepreneurs who sell mostly consumables in their last-mile communities. The Sari-Sari owner is well positioned to convince costumers to sign up and they are used to handling cash so they can collect payments. In ideal circumstances, they also can service the panels and offer complementary products such as batteries or LED lights. “The alternative is finding a local entrepreneur that we can trust and work with to serve the village,” added Alex.
Mercy Corps: Proving Models by Filling Market Gaps
“Mercy Corps works both in pure humanitarian settings and on market development initiatives,” said Shanti Kleiman, Energy and Environment Advisor at Mercy Corps. “So we deal continuously with the question of when is it ok to give away products and when can it lead to market spoilage? In true emergency settings there is definitely room for donations but in many other humanitarian settings where, for example, camps have been there for several years, we do switch gears to market development efforts.”
Mercy Corps very often plays the role of proving the case that there is market where it is not obvious for the private sector to invest. They have enabled the consignment model in markets such as the Wajir County in northeastern Kenya where they supported local community members to become village-based micro-retailers of solar lanterns In other markets Mercy Corps invests in setting up distribution models by filling a gap in the value chain: “In Afghanistan, we took on the role of a leasing company to put up a micro-grid system for a local university and we aim to use the revenues to set up a development fund that would enable the replication of this model,” says Shanti, “But In the future, we will not have to play that role. As leasing companies see the opportunity and step into play their role, we could move to using our funds to providing risk guaranties to finance their capex investments.”
An Evolutionary Process
Jarrod Goenzel, director of the Humanitarian Response Lab at MIT, asked a compelling question: “We heard that experimentation with different models has been undeniably part of each of the panelist’s experience. So, should last-mile distribution be approached through an evolutionary process that employs subsequent strategies as markets develop?”
The panelists seemed to concur that indeed last-mile markets evolve over time and that a model that works in a certain market at a certain time won’t necessarily work in a different market and will certainly have to evolve into different models as the market matures and new actors begin to appear. “We each focus on our specific models because these became part of the expertise we built through our experiences,” noted Greg Van Kirk, “but the solution is probably in approaching each context with sort of a toolbox that represents all of our models combined, and employing the right tools for that specific context.”
Lastly, panelists also agreed that key success factors to figuring out the right last mile distribution models include recognizing that failure is necessary for the process of innovation, approaching each context with a deep sense of empathy and respect and looking for partnerships that are based on mutual trust.
And so it has been the case for our market development efforts in Morocco where the D-Lab Scale-Ups team is working with the microfinance industry and the major LPG distributor TOTAL to bring Greenlight Planet’s solar lanterns to remote non-electrified villages. Building trust and aligning incentives among the different market players at the local level has certainly proven to be essential to achieve progress on the design and implementation of the distribution strategies we are planning to pilot in that market.
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About Saida Benhayoune, Program Director, D-Lab Scale-Ups
Captivated by MIT D-Lab's mission of poverty alleviation through technology design and dissemination, Saida joined MIT in 2011 to launch Scale-Ups: D-Lab’s engine for scaling-up technology and business innovation for social impact. The program includes the Scale-Ups Fellowship, a social venture incubator for MIT and IDDS alumni, and an R&D arm translating D-Lab’s research capabilities into practical technical assistance for local market actors. Recently, Saida also launched the MIT Practical Impact Alliance an industry engagement initiative that fosters shared learning and collaborative action on market-driven poverty solutions among leading world organizations. Saida holds a biochemical engineering degree and an MBA and has over 10 years of experience in manufacturing, sourcing and sustainability for the food industry. Fluent in French, Spanish, English and Arabic, she is a passionate advocate of the catalyst role big business can play in creating economic and social value for communities along their value chains.