Melinda Gates has a quote that has become popular among development advocates that goes something like “Why is it that Coca-Cola can make it to remote villages in the developing world, but life-saving medications can’t?”
The answer usually is ‘insufficient profits’ or something alluding to a lack of economic incentives for the makers of those medications. But the problem to which Melinda is alluding goes well beyond goods with a high development and manufacturing cost, like pharmaceutical drugs. There are a host of high-impact, low-cost interventions and products –antimalarial bed nets, solar cookers, etc. — that would probably be of greatest utility in remote, under-developed areas, but that are much more prevalent elsewhere.
Naturally, the reason is complex, multi-faceted and multi-layered (poor infrastructure is an overly-obvious but important factor). But from an economic standpoint, the reason is clear: a misalignment of resources and incentives. Observe:
Many of the promoters of world-saving, life-improving products like those mentioned above are non-profit organizations who have a desire to distribute them everywhere they are needed, but often lack the resources to actualize that desire.
Many of the companies that have adequate distribution chains don’t stand to make much profit from selling goods — like solar cookers for example –that will probably have to be sold at just above production cost and will only have to be replaced every few years (unlike soft drinks, which can be replaced daily, if not hourly).
The Big Idea
This is where Mary Kary (or Pampered Chef, or any number of other product lines your underemployed friends and their moms have tried to sell you) comes in. Yes, there are a lot of problems with Mary Kay’s ilk, not the least of which is that they tend to operate like a pyramid scheme (“multi-level marketing” is the euphemism).
Moreover, Mary Kay has such a high turnover rate that very few of their”consultants” make a profit.
But the basic idea that makes these “network marketing” models so effective could be harnessed to bring transformative innovations into under-developed rural markets. Pampered Chef, CUTCO et al rely on the basic (and somewhat manipulative) principal that consumers are more likely to buy something from a friend than from a stranger at a store.
But there are two deeper assumption that undergird their success:
1. Diffuse networks of individuals are better at identifying potential customers than even the best market research.
2. Diffuse networks of individuals are more effective at getting products to the right places than a centrally-managed supply chain.
On point 1, consider: A scientific market survey might determine that because you are an 18-24 year old female, you are statistically more likely to want to buy acne cream. The manufacturer of that product will therefore sell their product in stores in which other studies show your demographic is most likely to shop. But your friend, who sees you regularly, notices that you are breaking out and can recommend a specific product and sell it to you directly.
Now, imagine if we replaced cosmetics or expensive cutlery with bed nets or solar ovens. Imagine we hired several hundred “Consultants” who carried with them a small inventory and collected profits on whatever they sold.
There are quite a few advantages this model would have over a conventional supply chain model:
1. The sellers would have added incentive to sell their products in remote areas that normal supply chains wouldn’t reach because of the opportunity cost. If, for example, the seller had family in that remote area or if there were clan ties, there would be incentives supplementing the profit motive.
2. Using the direct-marketing approach for interventions such as bed nets can insure they are used correctly. There have been studies that have shown that antimalarial bed nets distributed by NGOs and governments oftentimes are misused for fishing, or even as wedding dresses. But individuals selling these products to groups of other individuals (as opposed to organizations dropping them off en masse in a village) would have to demonstrate how the product is used and how it is effective to make the sale.
I’m feeling pretty good about this model. I think we could leave the pyramid out of this and still get pretty good results. There are other ways the model used by MK would need to be tweaked, but that’s enough for now.