marketing at the bop elac 2015

Marketing Innovative Devices for the BoP Lessons learned from 15 global pioneers

that challenge conventional sales & marketing approaches

ELAC 2015

QUESTION 0: Which of these statements is true?

2

In order to solve most of the world poors’ basic needs (e.g., access to

safe water, energy, sanitation, housing etc….), the bigger challenge

today is to:

1. Find a way to get existing products into the hands of the BoP, as

there are already many great innovations that do not make it to those

who need it

2. Create new products and technologies, even better adapted to the

needs of the BoP

Life-changing products exist…

3

…but struggle to reach families at the BoP

4

$PPP income/

year/capita for

world population

$1.5k

Marketing Sales Financing After-

sales

4 billion people

at the Base of the Pyramid

$20k

Life-changing products

Need for

replacement

parts

Small

transactions

Geographic

dispersion

Poor

infrastructure

Risk aversion

Lack of cash

To learn how to overcome these barriers we analyzed

15 pioneer organizations

5

Sakhi Retail

Notes: some graphs in this presentation include data

from other organizations studied later by Hystra

6

The overhead curse: too much or not enough!

It’s about

economics!

Risk-free

solutions,

not cheap

products Financing

is best

done

in-house

Serving

the BoP

is a high

gross margin

business

Below-the-Line

marketing

works

better Sales

force

churn can

and should

be avoided

Responsible

and effective

marketing

happens

after a

sale

It is

worth

Investing

in a modern

BoP sales

force

key lessons learned 1 0

Four

direct

sales force

models are

emerging

Value proposition

Marketing

Sales force

QUESTION 1: True or False ?

7

One of the reasons why the poor are poor, is that they do not have

attractive investment opportunities.

1. True

2. False

8

It’s about

economics! #1 Investing in innovative products

offers very attractive economic

returns to BOP families

A new technology substituting an old one can provide very,

very large economic benefits!

9

150%

400%

Solar homesystems

Solar lanterns

Water purifiers *

Irrigation pumps

Improved cookstoves *

Consumer IRR over product lifetime

2-5 months

4-9 months

Product

lifetime

3

14 60%

5000% 2-3 months

Payback

4-6 months

4-9 months

2200%

4 yrs

6

4

15-50%

financing cost

1

* Assuming customers are paying for fuel or boiling

water


10

Poor people do not buy life-changing durable goods mainly because:

1. They do not know these products exist

2. They do not understand the benefits of these products

3. They do not trust these products will bring them the promised

benefits

4. They cannot afford them

11

Risk-free

solutions, not

cheap products #2 A risk-free, holistic solution is what

customers want

SELCO technician installs a solar home system

11%

26%

Clients do not look for cheap products, but risk free solutions…

12

2

Price premium paid by customers to reduce risk

90% rural clients forego

a 10% discount to:

Test stoves at home

for one month

Verify charcoal

savings, deposited in

Toyola box

All clients pay a 26%

premium to get protection

from:

Poor construction design

Building material price

increase

Waste (theft or damage)

of building materials

Lack of saving discipline

13

2 … and prefer premium products

Price

80%

20%

Penetration after 1 year

Customers postpone

installation of latrine until

they can afford a better

quality shelter

2%

1%

$24

$14

latrine + natural

shelter

$40 + 5

zinc/cement

shelter

$40 + 50-200

latrine +

Declared consumer preference Price

Premium filter offered on

credit at launch:

>90% clients opted for the

more expensive version


14

The best way for a distributor to help clients finance the purchase of

durable goods is to:

1. Work with a microfinance organization

2. Work with NGOs that can distribute the products for free or partly

subsidized

3. Sell directly the product on credit, by offering financing in-house

Financing is

best done

in-house #3 In-house financing can provide value to

customers, reduce operating costs,

increase revenue and reach more clients

Financing in-house is a win-win arrangement for clients

and product and service providers

Access to credit without collateral

or credit history

Lower risks of product issues

(tied to payments)

16

3

Up to 3 year loans

Monthly service charge (maintenance, interest)

Installments collected by technician during service visits

Low default rates

(tied to working device)

Profitable activity

Low operating cost (synergies with

distribution or maintenance)

For product and service providers For clients

Working through MFIs is tempting

but raises implementation questions

Easier access to customers

Faster penetration

Lower commercial costs

17

How to avoid customers being pushed

into buying?

How many target customers are served

by MFIs?

What proportion of MFIs can become

effective partners? ?

3

Benefits

Questions

How to effectively handle

default payments and be

paid for it?


18

What marketing activities are more effective to trigger first sales among

BoP clients?

1. Awareness campaigns, so that clients understand the benefits of

the products

2. Proximity marketing (below-the-line), to demonstrate the product

and answer directly client concerns

3. TV or radio campaigns, to reach as many users as possible cost-

efficiently

Below the line

marketing works

better #4 Effective marketers excel at village-level

tactics and shy away from investing in

expensive awareness-raising campaigns BRAC Village Wash committee

Awareness and purchases

after health campaign

69% 83%

2%

Awareness ofimpact on health

People statingthey wouldpurchase

People whopurchased

Improved cook stoves

High levels of awareness and understanding

are not sufficient to trigger sales

20

88%

98%

"Not convincedof promised

benefits"

"Too expensive"

Remaining barriers to purchase

(% of non-buyers)

Raising awareness about health impacts

of cookstoves does not overcome

barriers to purchase

Impact of marketing campaign on purchase2

NP: Only first 3 arguments + combine with Kickstart slide

Irrigation pumps

Awareness and penetration

after year-long marketing campaign

84% 63%

13%

Productawareness

Productunderstanding

Salespenetration

4

21

ATL spending does not correlate with commercial success

4

ATL Marketing (% of sales) Total yearly revenues

12%

7%

6%

2%

2%

1%

1%

0%

0%

0%

0%

0%

0%

0%

Profitable

Covering field ops costs

Not covering field ops costs

Leading practitioners concur

22

“People need to see the product, touch it, and ask

questions: an advertising campaign will not be

sufficient.”

Suraj Wahab,

Toyola, CEO

Upamanyu Patil

Sakhi Retail, CEO

“Most people in rural area need

to see the product work

long enough at their neighbor’s.”

Deepak Saksena,

Pureit, Partnership Director

“Above-the-line campaigns work for middle-high class,

rural people would never buy

without further Below-the-Line marketing.”

Iwan Baskoro

GERES,

ICS Program Director

“Only 20% customers bought based on our 3

marketing campaigns (posters, TV, and radio).

Word-of-mouth was the main trigger.”

4

Village WASH

Committee looks

over map of

homes still without

latrines

Most organizations use similar village-level tactics

with varying degrees of excellence in execution

23

All 15 best-in-class organizations use BTL marketing

4

3

3

6

7

2

5

11

Peer pressure

Free trialsfor opinion leaders

Demonstrations(small group)

Vendorsamong trusted

locals

Endorsement fromtrusted

institutions/people

Demonstrations(public place)

Free trials

for poorest

Agents ask

prospects to

pour water on

solar panels

to prove its

durability


24

What is the most important moment for your marketing and sales

activities?

1. During the first sales

2. After sales start picking up

Responsible and effective

marketing occurs after

the sale #5 Despite the fact that word-of-mouth is key, few

organizations systematically measure and manage

customer satisfaction

26

Word-of-mouth from satisfied customers is key

5

92%

60% 60% 49%

Solar home systems* Improved cook stoves Home improvementpackage

Irrigation pump**

Customers citing neighbors or relatives as trigger for purchase

*Customers citing neighbors or relatives as first source

of information about product

**Customers may have cited more than one source

20%

40% 50%

69%

Example 1 Example 2 Example 3 Example 4

And the number of dissatisfied customers can be significant

5

Customers no longer using purchased product/service after 2 years

Drivers of non-compliance :

Need for replacement purchases

Need for behavior change

For each product and service Patriomonio Hoy tracks the Net Promoter Score - NPS (i.e. number of clients who say they will recommend it minus those who say they never will)

Measure customer satisfaction

Organizations can systematically measure

and ensure customer satisfaction

28

5

80%

82%

84%

86%

88%

90%

92%

94%

96%

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2011 NPS score

1

Immediately identifies and

follows-up with dissatisfied

customers to prevent negative

word-of-mouth

Ties sales force compensation

with personal NPS

Act on dissatisfied customers 2

2. Implement systematic

high-quality execution of

marketing and sales

practices at village level

29

In a nutshell, marketing efforts should shift

from raising awareness to ensuring customer satisfaction

5

1. Reassess levels of

ATL spending in light of

customer awareness

3. Invest in “after the sale”

activity to ensure and improve

customer satisfaction

Above-the-Line marketing:

Radio, TV, billboards

Dissatisfied

users

Aware,

tempted

prospects

Village Buyers Satisfied, loyal

users

Positive word-of-mouth

Negative word-of-mouth

Encouraging

word-of-mouth

Follow-up and

problem-solving

(user coaching)

Initial demonstration

Active selling (addressing

remaining barriers to purchase)


30

How attractive is selling durable goods at the BoP?

1. Distributors earn lower margins than in richer markets, to keep

products affordable. They accept these low margins, hoping to

realize big volumes instead

2. Distributors must build high margins to cover all marketing, sales

and distribution costs. And clients are ready to pay a higher price

3. Distributors must build high margins to cover all sales costs. But

clients cannot afford higher prices and subsidies are needed

31

Serving the BoP

is a high gross

margin business #6 The15 organizations we analyzed face

different degrees of marketing challenges,

yet all require relatively high gross margins

to sustainably serve BoP customers KickStart’s irrigation pumps

32

Serving BoP customers sustainably

requires high gross margins

6

Upgraded

value chains

(single

product)

Product

in a box

(single

product)

Multiproduct

distributors

Equipment

and service

25-30%

35-45%

30-50%

25-40%

What gross margins are

needed to sustainably

serve the BoP?

Actual gross margins of

profitable companies

or

Estimated gross margins

required for companies

to achieve breakeven at

scale

Gross margins*

*Calculated over total value chain revenues, including

all servicing and financing revenues, and Output

Based Aid


33

Which of these is true about the BoP market for innovative durable

goods?

1. One cannot keep a stable field force in developing countries,

because salespeople will always leave for better prospects

2. A key factor to lower field force turnover is to recruit people who

really care about the business’s social mission, and in exchange

for that commitment provide them a career path and continuous

rewards

3. A key factor to lower field force turnover is to pay them well

34

Sales force churn

can and should

be avoided #7 Competitive compensation and close

management can reduce undesirable

sales force churn to 30% or less Greenlight Planet

✓

✓ ✓

✓

✓

✓

✓

35

7

<30% sales force churn can be achieved, with appropriate

levels of compensation and oversight

Field sales force yearly churn* Career

Opportunities

Compensation

Partly

fixed

Notes: Competitive compensation compared to other

local opportunities; churn does not include management

Awards

and rewards

✓

✓ ✓

✓ ✓

✓ ✓

✓

✓

✓

✓

✓ ✓

✓

✓

✓

✓

✓

✓ ✓

Close

mgmt

✓

Competitive*

80%

60%

60%

40%

40%

30%

30%

25%

20%

10%

8%

7%

✓ ✓ ✓ ✓

✓


36

The best distribution strategy for durable goods at the BoP

1. Is to employ local people as sales people, as they know their

neighbors well and can overcome the trust issue

2. Is to employ mobile, professional sales people as only them can

deliver a very convincing pitch to overcome the trust issue

3. Is to give sales people more, various goods to sell so that they

can earn better revenues from this activity

4. Is to use different sales force for different products because each

product needs a specific pitch to sell

37

Four emerging

effective sales &

marketing models #8 Four methods of solving the sustainability

equation (enough customers and sales

per customer to cover sales force costs)

Clockwise from top left: SELCO, Toyola, Sakhi Retail, Pureit

20

22

35

42

42

47

52

56

72

128

3

4

5

5

7

11

12

38

Sales per FTE sales person per year

($k)

per sales agent FTE

per “local entrepreneur” FTE

Full-

time

sales

people

Part-

time

sales

people

8 Solving the sales force productivity equation

39

0

3000

0 50 100 150 200 250 300 3500

500

1000

1500

2000

2500

3000

Clients per FTE sales person per year

‘Farming’ model

4400

9000

Client spending ($)

1300

‘Hunting’ model

‘Shifting cultivation’

model

‘Gardening’

model

8 Four sales models emerge, at different levels of maturity


40

A sophisticated IT system (for sales and customer management)

1. Is an ‘luxury’ for social businesses operating in BoP markets

2. Is even more important in environments with poor infrastructure

and limited resources

41

It is worth investing

in a modern sales

force for the BoP #9 A full-time, mobile sales force, with referrals,

CRM tools and close management, can be

more loyal and effective

Living Goods sales person

42

9 Our recommendation: Invest in a modern sales force

for the BoP

1.

Employ a full-time

mobile sales force 2.

Choose good

managers

3.

Leverage referrals

to aggregate sales

Village

4. Leverage technology

43

LG cloud-based

mobile platform

Client

Sales manager

Treatment reminders

Tailored education,

e.g. for pregnant

mothers

Promotions

Coaching

Real-time patient

treatment

registration

Daily sales reporting

Client inquiries

Sales agent performance statistics

Sales agent

Agent

performance

feedback

Treatment

quality

control

Client follow-up reminders

Announcement of new

products and programs

Headquarters

Inquiries

Technology enables superior CRM and sales force

management 9

Living Goods mobile platform


44

The social businesses that have achieved largest scale and impact

today are:

1. Those that started as ‘boot-strapped’ businesses, but invested in a

professional (well paid) management team and solid processes (IT,

HR) as they grew

2. Those that started as a socially-oriented business with a

management team accepting lesser wages than in the traditional

business sector so that profits could be (re)invested into reaching the

poor

3. Those that started as NGOs, which have time to test and refine their

models without the pressure of making profit, and started to grow

only once they had a proven model

45

#1 The overhead

curse: too much

or not enough! Investments in overhead should be temporary

0

0%

20%

40%

60%

80%

100%

0 1 2 3

Fast-growing organizations

invest ~30% revenues in

building professional

overheads (likely to decrease

to 10% as they grow)

The overhead curse: not enough or too much!

* Logarithmic scale

100

300%

Overhead as % of total revenues

Very large, successful

organizations with professional

management structures

Total yearly

revenues ($m)*

10

Donor-dependent

organizations with

corresponding

fundraising expenses

including impact

monitoring

Large, stable organizations maintain

low overheads but may fail to invest in professional management

?

10

?

?

47

The overhead curse: too much or not enough!

It’s about

economics!

Risk-free

solutions,

not cheap

products Financing

is best

done

in-house

Serving

the BoP

is a high

gross margin

business

Below-the-Line

marketing

works

better Sales

force

churn can

and should

be avoided

Responsible

and effective

marketing

happens

after a

sale

It is

worth

Investing

in a modern

BoP sales

force

Your score/

10?

Four

direct

sales force

models are

emerging

Value proposition

Marketing

Sales force

10 questions to benchmark and improve your business

48

A. Are you offering a comprehensive and competitive solution compared to alternatives?

C. Is your sales strategy both economically sustainable and socially effective?

Are you sustainably*

providing as many people as possible with access to your products’ benefits?

7. Are you maximizing sales force productivity?

6. Are you creating attractive local income opportunities?

8. Is your sales organization cost-efficient?

2. Are you providing a comprehensive solution to users and society?

3. Is your Gross Margin sufficient?

1. Is your price competitive compared to alternatives?

4. Are you reaching your target users?

9. Can you sustainably finance core central activities?

10. Are your headquarters equipped to scale up and replicate while continuously improving quality?

D. Is your central organization able to drive network performance, impact, growth and replication?

* Sustainably: guaranteeing your clients quality service in a long

term financially viable way for your company

B. Does your marketing leverage/reinforce positive community dynamics?

5. Are you efficiently allocating your marketing budget along the penetration cycle?

Where do you stand?

49


6. Are you creating attractive local income opportunities?

5. Does your marketing leverage/reinforce positive community dynamics?


1. Is your price competitive compared to alternatives?

4. Is your Gross Margin sufficiently high?

2. Are you providing a comprehensive solution?

3. Are you reaching your target users?

9. Can you sustainably finance core central activities?

Key indicators

% sales from core products

Benchmark* You

28-87%

Product IRR over lifetime

Range of prices

20-5000%

×2-4

Gross margin (incl. commissions) 35-45%

Max penetration reached

Time to full penetration

10-30%

3-10 yrs

% of continued use after 2 years

ATL costs as % of revenues

Systematic focus on satisfaction

95%-100%

0%

Yes

Sales force churn

Sales force compensation/FTE

7-10%

$2.4-4.9k

Sales/FTE

% salesforce time spent on sales

Sales people doing 80% of sales

>$50k

60-80%

>60%

Spending on sales force

Spending on sales managers

Manager span of control (FTE)

Vendor to manager compensation

<10%

3-4%

3-8

×1-4

*These data correspond to range observed among best practices of comparable projects

Overhead costs (% of revenues)

Net margin

8-30%

0-10%

Possible levers

More than 60 tried-and-tested

indicators to help you track

performance

A two-day interactive workshop for management teams

50

Benchmark your

performance against

your peers

Identify priority

areas for

improvement

Design new sales

and marketing

approaches

inspired by best

practices

1 2 3

Company indicators Best practices

Database

Marketing Innovative Devices for the BoP Lessons learned from 15 global pioneers

that challenge conventional sales & marketing approaches

Full report available on www.hystra.com

Contact: Jessica Graf, [email protected]

Questions?

marketing at the bop elac 2015

Leadership & Management