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(PDF, 1MB) This case tests the proposition that organizations promoting Savings Groups can facilitate the development of new market channels for socially useful products in rural areas by linking existing networks of Savings Groups to commercial providers of these products. Social marketing through Savings Groups can create efficiencies and cost advantages without compromising the autonomy or performance of the groups.
Uganda Women’s Effort to Save Orphans (UWESO) and Community Organisation for Rural Enterprise Activity Management (CREAM) are among the leading facilitating agencies of SGs in the country. They have positioned SGs at the core of their development efforts, believing the groups are central to their future growth, credibility and funding.
Both NGOs sell solar lamps imported by BASE Technologies, a Uganda-based subsidiary of the solar products company, Barefoot Power. BASE Technologies sells a kit consisting of a stand-alone solar lamp with rechargeable batteries in the base and an accompanying solar panel for recharging the batteries. The kit, which sells for the equivalent of about US$25, can also charge a mobile telephone.
Leveraging SGs as Platforms for Social Marketing
Using SGs as a marketing channel for socially beneficial products has benefits for all parties involved, from suppliers to customers. Working through SG community-based trainers (CBTs), who serve as sales agents, suppliers gain access to a large rural market both efficiently and at a reduced cost. The familiarity of SG members with the CBTs generates credibility for and interest in the socially useful goods. Importantly, SGs provide their members access to lump sums that can be used to finance purchases of socially beneficial products.
To assemble the necessary funds, purchasers can choose from multiple payment strategies, including cash out of pocket, loans from the SG, and funds from the annual SG share-out. The research uncovered two additional group-based methods of financing: interest free loans from the group’s social fund and the creation of a Rotating Savings and Credit Association (ROSCA) within the group. In the case of the ROSCA, members contribute a pre-determined amount at every meeting and use the collected sum to purchase a lamp for a different member at each meeting, enabling all members to eventually purchase a lamp.
The odourless, smokeless and safe solar lamp is a new experience for clients accustomed to the paraffin (kerosene) lamps used by ninety percent of rural households in Uganda, which pose various health and safety risks while providing minimal lighting. The social benefits of this product range from allowing students to read comfortably at night to saving beneficiaries’ money on the costs of paraffin and mobile phone charging. These savings have the potential to recover the purchase price of the lamp in less than a year. The proactive sales efforts coordinated by CREAM and UWESO were crucial in making this beneficial product accessible to SG members.
Marketing Solar Lamps
The study identified three different models used by SG networks as platforms to sell solar lamps. Each model uses CBTs as sales agents, but their management and incentive structures differ.
The Microfranchise Model
Initially, a UWESO staff member became a microfranchisee functioning as the intermediary between BASE Technologies and the UWESO field staff who acted as sales agents. The microfranchisee controlled the supply and distribution of the solar lamps and made decisions regarding commissions paid to the sales agents.
The implementation of this model was ad hoc and encountered several problems. None of the parties could produce credible records of sales and memories varied substantially concerning how many lamps were actually sold. There was no business plan, and the compensation for sales agents (CBTs) was inadequate. The microfranchisee captured most of the profit margin on lamp sales in order to cover his unsubsidized costs to purchase lamps and transport them from Kampala. CBTs nevertheless complained that their commissions barely covered the cost of selling and delivering the solar lamps to customers.
Neither BASE Technologies nor UWESO assured that local repair services were available, which meant customers were left without light as easily correctable solar lamp failures went unrepaired. As implemented, the microfranchise model focused primarily on sales, leaving a critical gap in the value chain that resulted in business failure.
NGO as Intermediary
CREAM took a different approach and inserted itself as an active intermediary between the wholesaler and the CBTs. CREAM negotiated wholesale orders, delivered the lamps, and supervised the sales. CREAM engaged existing staff and, in addition to their base salary, paid them a commission on lamp sales. This approach further confirmed the demand for lamps, opened new market channels, and provided rural people with a new and useful product. However, the fact that salaries of the agents were paid by CREAM with donor funds and that repair services for the lamps were not available made this model unsustainable in the long term.
The Village Agent Model
CREAM has since transitioned to a new model. In June 2010, many of their former CBTs transitioned into the new role of Village Agents, independent contractors who earn income from two sources: lamp sales to individual group members and fees paid by group members for training groups on SG operations. Currently, 18 Village Agents earn approximately two-thirds of their income from training groups and one-third from lamp sales.
Similar to UWESO, CREAM faces several constraints in the value chain. Since CREAM lacks the capital to maintain an inventory of lamps, the Village Agents request payment in full from each buyer before submitting an order to CREAM. On a monthly basis, CREAM deposits all payments received with BASE Technologies and places the order. Customers then face an additional wait of approximately two weeks for the lamp to be delivered. This system of payment requires the buyers to have a significant level of trust in the NGO.
Sustainability and Scale
Both UWESO and CREAM aim to maintain contact with the SGs indefinitely, even after groups have achieved self- sufficiency. The NGOs consider their accomplishments and relationships with SGs as evidence of their credibility vis-à-vis donors and government. Marketing solar lamps, especially using the Village Agent model, provides CREAM and UWESO the ability to maintain their best personnel irrespective of donor funding. By building a cadre of experienced and effective CBTs, these local NGOs aim to cultivate one of their most strategic assets: networks of organized SGs. The Village Agent model generates sufficient support for Agents to stay in the field after grant funding has ended.
Both NGOs are engaging in a business with growth potential and positive development impact; however, to operate effectively in what inevitably will become a more competitive market, they have to participate in all the components of building a business, including finance, inventory management, sales and service. As the local NGOs broaden their participation in the value chain, measures should be taken to avoid the potential negative impacts of commercialization on the relationship between NGOs and SGs.
The case highlights lessons for using SGs as a platform for social marketing. First, there is no substitute for clarity and transparency; the microfranchise model in particular suffered from the lack of both. Second, improving NGOs’ understanding of the value chain is a first step towards enabling the design of sustainable business models without compromising the core social mission of these local NGOs. If managed responsibly, residual value from donor-funded projects can be potentially useful in marketing socially beneficial goods to communities where NGOs have already established a positive reputation and strong relationships. Third, it is impossible to disassociate the product from the marketing channel. Solar lamps have unusual advantages in terms of low cost and high benefits versus other products that might be sold through SGs. It is therefore inadvisable to apply the lessons learnt in the marketing of solar lamps through SGs to other products and marketing opportunities.
This brief is based on research and case study sponsored by the Aga Khan Foundation’s Savings Groups Learning Initiative, written by Paul Rippey and Candace Nelson in September 2010. View the full case study
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