Executive Summary

Focus of the study:

This study focuses on the creation of a market for products which are useful to the poor and allow them to get out of the poverty trap. Consequently, the topic of this study is not „export marketing“ or „fair trade“ which can be associated to the theme of market creation. In this study, one looks at six concrete examples in showing how trees, treadle pumps, rope pumps, maize silos, roofing tiles and latrines can make a difference to the poor. In this sense, it is a “product” approach. Marketing is used to achieve large-scale dissemination and a big reach-out.

The market creation approach to development is a strategy which combines two aims:

To supply to poor people useful and affordable products with a high poverty alleviation impact and

To create a viable business as a private delivery channel, preferably run by poor people.

In the market creation approach to development, there are 3 key elements:

need-based product development for products with a high impact on poverty alleviation, putting the accent on affordability and high returns on investment;

the promotion and marketing of these products, so that the poor can learn about their existence and

the creation of a market for these products to the extent that it becomes viable for the private sector to deliver these products as a business.

This paper contains an analysis of 6 programmes of SDC; it looks at their impact and at the profitability of their respective delivery channels. The methodology followed is to scrutinise these projects with the eyes of a marketing professional and to discuss the 4 Ps of marketing:

product: what exactly is the product? Hardware or software? Is the product a tree for fodder, fuel and fruits or, as it is the case in Bangladesh, is it a long-term asset which can serve as a social insurance in case of emergency? When a child is sick, the tree can be chopped and sold;

price: the art of pricing, so that the product is affordable but still profitable for the supply channel;

place: the supply channel which may consist of many small businesses for making, selling and installing the product;

promotion: ways and means to promote the product with a conservative customer constituency.

It is not only justified for development co-operation to initially subsidise market creation; it is even a very good investment, as the approach may have very high performance indicators. One million dollars investment may result in up to 100 million dollars return on investment in terms of poverty alleviation. The (small scale) private sector alone would not invest in market creation as it is difficult to recover initial costs, because successful products can easily be copied once there is a market.

The good performance is due to the fact that, if it is profitable, a private delivery channel can supply the products effectively and sustainably. Low profits in the supply channel are, however, the main problem of the six examples studied.

Market creation is a very long-term investment and a donor needs patience and endurance to really unfold the potential. The theory about the product cycle – known from conventional marketing theory – shows that the maturation of a product in the market may take time and good promotional efforts. Market creation is successful if a product reaches a critical mass.

Early adopters of a technology are always „elites" or pioneers, the poor are among the „followers" who first wait and see. Thus, it is important not to target only the poor with innovative products, as they want to avoid risks and see how effective the products are. At the same time, sales must take up fast for the marketing channel to be profitable.

Product development for the poor means an interactive process which takes the poor seriously as a customer and tries to understand his/her needs and constraints. The products must satisfy felt needs, be affordable and produce very high returns.

The products require intensive promotion and marketing efforts to make the products known and to set up a delivery channel which can supply the products and spare parts profitably. Promotion needs to be sustained for quite some time due to the conservative nature of the market for the poor.

For the market creation, it may be necessary to create a „big kick" in order to reach the critical mass; and this may only be possible in cooperation with larger campaigns supported by the government and many other organisations (for instance latrine promotion) or with links to the corporate sector (the treadle pump was originally promoted by the Bangladesh Tobacco Company).

In order to sustain promotional efforts and to make use of existing marketing channels, synergies with the corporate sector should be sought. Co-operation with large companies in marketing useful products for the poor could create win-win situations for the companies and for development organisations, and reduce the cost of marketing considerably.

Besides the six examples referred to, there are several products with a high poverty alleviation impact close to a breakthrough:

there is a huge potential to save water and to increase yields with low-cost drip irrigation: several models are already test-marketed, which range from a „bucket kit" for 10 $ to kits for cotton farmers for 250 $ per acre, one fifth of the normal cost for drip systems;

cost-effective building materials other than tiles can contribute to the reduction of the housing gap if marketed and promoted effectively in favor of those who construct their house themselves, which is the case for the majority of the poor housebuilders in developing countries. Such a reality allows many small entreprises to emerge;

a reliable low-cost solar lantern would bring light to millions of rural households who will never get a chance to be connected to the grid;

In the study „do’s and don’ts" of donors in supporting the market creation approach to development are presented as well as the main roles and guiding principles for funding such programmes.

Possible improvements for marketing strategies are also presented, showing especially how one can increase the presently low profits in the supply channel.

Finally, institutional issues are discussed, including how the market creation approach to development can be replicated on a larger scale and how partnership between governments, NGOs and the corporate sector can emerge.