Ok, here’s a challenge: Go sell and deliver your product into the most remote, rural areas of East Africa where transportation infrastructure is underdeveloped at best (but most likely non-existent) and the average income is less than $2 USD per day. Wait, there’s also a catch: you need to be profitable.
This has come to be known as the “last-mile” or “last kilometer” distribution challenge for the base of the pyramid (BoP). Nearly anyone who has tried to do business in many parts of Africa or India has had to take it on and it is the challenge currently facing us at GCS Tanzania. The most common difficulty in serving these markets comes down to simple economics: the cost and effort required to send people and product to these communities far too often exceeds the income generated from sales.
A conventional wisdom has emerged that the best way to tackle this problem is by recruiting the villagers themselves as sales agents or “village level entrepreneurs” (VLEs). Encouraged by examples like Hindustan Unilever’s Project Shakti in India, companies have adopted this approach hoping not only to build a profitable sales and distribution channel for themselves but also to create a stable and viable source of income for the villagers. When successful, these networks can result in a long lasting mutually beneficial arrangement for everyone involved.
This is the approach that we’ve decided to take on in Tanzania in the form of the “GCS Rafiki network” (“Rafiki” is the Swahili word for “friend”). For now, it is being used exclusively for the sale and distribution of solar lights and chargers, but the network itself is being developed for the future dissemination of innovative technologies of all kinds.
The more immediate goal, however, is to prove (primarily to ourselves) that it can be a profitable and self-sustaining sales channel. Of course, nothing worthwhile comes easily and as expected there are a number of daunting challenges involved, any one of which could easily sink the entire project. Among the more salient at the moment (and in no particular order):
- Infrastructure and logistics: Less than 15% of the roads in Tanzania are paved (and those that are are mostly in urban areas) making it costly and challenging to go to these areas on a regular basis. There is also no postal delivery service as we know it in Western countries. How do we deliver product, monitor sales, and collect payment reliably and effectively under these conditions?
- Entrepreneur recruitment: The success of the network depends entirely on the recruitment and success of the individual entrepreneurs. The challenge is not only to recruit good people and get them started as quickly as possible, but also to ensure that the ones who are already active continue to meet their targets and be successful.
- Customer buying power: At retail prices ranging from $12 – 40 USD, even a basic solar light represents a significant chunk of monthly income for our typical customer. Does it provide enough value to the customer to justify the expense? If so, how do we best demonstrate and communicate that value? How do we empower our VLEs to communicate that value?
- Entrepreneur financing: Like our target customers, newly recruited village entrepreneurs will have very few, if any, assets. In most cases they will not even qualify for microcredit loans. Do we consign them goods or extend them credit ourselves? If so, what is the risk to our company and how do we manage it?
- Incentive structure: This can be tough to get right in any business, let alone in the context of a different culture than your own. Get this one wrong, however, and things can really backfire on you. Understanding the people who are working for you and what motivates them to be successful is absolutely imperative.
- Risk management: A significant amount of cash and product must change hands in the process – most of the time through people we do not know and will never meet. Risk can never be eliminated, but how do we keep it to a minimum?
This post is intended as the first in a series describing the efforts to address some of these challenges and to share what we learn along the way. Future posts will go into more depth on these and other topics.
Comments are always appreciated!