By TINA ROSENBERG
What if every time people came up with a new product, they also had to devise a completely new way to sell it? Imagine that we had no Amazons, eBays, Targets or Walmarts — no distribution chain at all, and no stores near potential buyers. Nor is there a way for potential customers to learn about the product. Oh, and they can’t afford it anyway — they can’t afford much of anything.
Many of the world’s poor occupy this alternate universe. Every week someone comes up with an ingenious new water filter, vitamin packet, solar lamp, efficient cookstove, fortified food, new medicine. But these great ideas often fail, or simply don’t reach many people — for want of a business model.
While we like new technologies at Fixes, what we love are new ways to get these technologies to people who need them. Living Goods, which operates in Uganda, has a very promising model. It brings goods the poor need to their doorsteps, at below-market prices. Most important, Living Goods is building a business with the potential to sustain itself — it has already hit some important milestones. That’s the key to a long life and wide growth — to helping vast numbers of people.
Though Living Goods began selling only four years ago, its business model is a familiar one: it’s the Avon Lady.
Avon is famous for its door-to-door representatives. But these women succeed because they are micro-franchisees.
Franchises support one in eight jobs in America, and they are very successful. Most new businesses fail, but according to theInternational Franchise Association (there’s no good government data on this), 90 percent of franchise agreements get renewed when their contract is up — usually after about 10 or 12 years. It’s not hard to see why. A franchise is a business that has been tested over and over. It has an assured supply chain, low-cost inputs (because the franchiser can buy in bulk), training for managers and a trusted brand.
Micro-franchisees get the same things on a smaller scale — and they need them even more. Microcredit in its classic form considers lack of credit to be the only obstacle to business creation. It isn’t. Most people aren’t entrepreneurs. “It’s much more realistic and simple to train someone to be a manager than an entrepreneur.” said Jason Fairbourne, a Provo, Utah-based microfranchising consultant who has written books and articles about the subject. “Microfranchising is the provision of the full business package. The franchisee just has to follow the steps.”
Avon now has more than six million sales representatives in 100 countries. A recent study of black female Avon representatives in South Africa found that their earnings are on a par with black men; three-quarters of the representatives surveyed said that Avon gave them financial autonomy.
Avon was founded in 1886 by David McConnell, a traveling book salesman in rural America. The women who opened their doors to him tended to be isolated, limited to domestic and farm chores, with little education or opportunity to earn money. McConnell carried free perfume samples to give out, and women loved them — they wanted high-quality goods but had no way to learn about or buy them. He also noticed that many women seemed to have a way with people and the management skills to do well at sales.
This is also a description of rural Africa today.
Living Goods uses the Avon model to sell not cosmetics but items like sanitary pads, soap, de-worming pills, iodized salt, condoms, nutritionally fortified foods, kits for clean delivery of babies, malaria treatments, bed nets, high-efficiency cookstoves, solar lamps and cellphone chargers.
It’s not the only organization using microfranchising for a social end.Grameenphone franchises village cellphone posts. VisionSpring has sold a million pairs of eyeglasses. Solar Sister gives women a business in a bag selling solar lamps, the HealthStore Foundationfranchises pharmacies and clinics in Kenyan villages, and HoneyCare Africa trains and buys from beekeepers. Living Goods is one of the smaller and newer groups. But it’s worth an in-depth look because of its scope — it sells products that help with most health problems of the poor — and its potential for sustainability.
Living Goods was founded by Chuck Slaughter, who made his money by starting TravelSmith, a clothing and gear company; he is still Living Goods’ president. Slaughter was in Kenya visiting the HealthStore Foundation’s clinics. They were busy in spurts but idle much of the time, so nurses started traveling out into the community. This was so successful that Slaughter wondered whether the clinic was necessary at all.
Living Goods is out to show that dramatic improvements in health might not require clinics — or, for that matter, nurses. Living Goods’ representatives are village women (a few men have just started) with between 6 and 10 years of schooling — more schooling, and they tend not to stay.
They are not the poorest of the poor. Unlike many microfinance organizations, Living Goods does not aim to help the neediest people start businesses. The group’s focus is improving the health of customers, with the goal of a 15 percent drop in child mortality.
Living Goods began a joint venture with BRAC, the giant antipoverty organization from Bangladesh. BRAC has been helping African countries to replicate its model and launched its program in Uganda in 2006, a year before Living Goods; BRAC is now the biggest development organization in Uganda. About 600 of Living Goods’ sales representatives are women from BRAC’s microfinance groups recruited to work as health promoters — Living Goods provides financing and some operational help. (Another 250 reps are separate from BRAC, trained and managed by Living Goods.) The partnership allows Living Goods to extend its reach and BRAC to experiment with ways to make its network of community health promoters more sustainable.
The women essentially become their village doctors. They get two weeks’ training in basic health care — preventive measures, and also how to diagnose and cure the most common diseases: malaria, childhood pneumonia, diarrhea. They learn when to refer a patient to the health clinic. Then they spend two weeks in the field. They first follow a working sales representative. Then they go back to their communities and go door to door asking questions about each family’s health — in the process introducing themselves and the Living Goods brand.
The representatives get the blue T-shirt and other marketing materials for free and are loaned a bag of about $60 worth of merchandise. They pay back that loan over 48 weeks from their earnings — they get 15 to 20 percent of whatever they sell. After that, they pay cash for stock at the branch headquarters. Every month all the reps in a district — some 50 people — gather for a half day to update their training and share their victories and defeats.
Why do health promoters sell body lotion or laundry detergent? It helps them stay in business — sustainability is key here — and it attracts customers who then might get interested in health products like de-worming pills. It also allows Living Goods to tweak prices — it charges near-market prices for sanitary pads or detergent so it can subsidize products with a bigger health impact, like oral rehydration salts or a safe delivery kit, at 30 percent below market. The malaria medicine is subsidized by the Global Fund to Fight AIDS, Tuberculosis and Malaria and costs 75 cents — in a drugstore it would be as high as $7.80, said Anita Owakunda, Living Goods’ branch manager and health trainer in the Mpigi district.
Malaria medicine, like the other medicines Living Goods sells, are supposed to be free in Uganda’s health care system. Why, then, would someone spend precious money to buy drugs or a safe delivery kit from Living Goods?
“Before you get to the hospital, there is the cost of transport,” said Owakunda. “That can cost 15,000 to 20,000 shillings [from 6 to 8 dollars].” There are free government hospitals, but say you need Lumartem [a malaria medicine] and it is not in stock, so you have to go to a pharmacy and buy it. You need an IV drip, but we don’t have a connecting set. You might have a free service provider, but the medicine is not available — so you go and buy it.”
If there’s a Living Goods rep in your village, however, and your child gets sick in he middle of the night, you can call her and she’ll come over — and she won’t be out of stock. “Cheaper than free,” Slaughter likes to say.
Living Goods constantly experiments in the districts it runs. As mobile phones become ubiquitous even in rural villages, they have transformed the work. Sales reps now use texting to log their sales and track inventory. Most customers have a phone, too — or their neighbor does — so Living Goods can target them with direct messages — promotions and sales, but also health messages. Someone who buys malaria medicine, for example, will get a text a day later that says “you may be feeling better, but please take ALL your medicine.” Pregnant women get health advice.
A randomized controlled trial is going on to see whether the program is actually improving health. Meanwhile, Living Goods has some indications based on sales of health products, like bed nets and medicines for malaria, respiratory infection or diarrhea. Slaughter said that it is meeting most of the targets necessary to bring down child mortality by 15 percent. But these are outputs — never as good as measuring outcomes, like cases of disease or deaths.
For an organization that aims at achieving grand scale, Living Goods is still quite small. But Slaughter argues that it’s more important to get the model right before expanding. “They’ve grown slowly but very strategically,” said Fairbourne. “They’ve been wise in their growth. You have to focus on getting things to the profitable stage — otherwise you’re going to franchise all your problems as well.“
The organization is now expanding into Kenya, but that’s not how it plans to scale up. “Replication will be 100 times what we can do ourselves,” Slaughter said. The British family planning organizationMarie Stopes International and Washington-based PSI — which has long used commercial marketing techniques to sell health products in poor countries — are talking to Slaughter; both help millions of people but are exploring whether the model might help them get to people they haven’t been able to reach. Living Goods is also talking with Unilever and Nestle about developing new nutritional products to add to its basket and whether the corporations might use micro-franchising to expand their market — and at the same time sell health products.
Some of Living Goods’ branches are now self-financing — which is remarkable — but at a country level the organization does not yet make money and is still supported by donors. “Tax and philanthropic dollars are big, but they are dwarfed by investment dollars,” Slaughter said. “We want to start generating a market rate of return on capital — that’s when it gets interesting to investors. A sustainable distribution platform that can meet the needs of the poor — that’s the holy grail.”
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Tina Rosenberg won a Pulitzer Prize for her book “The Haunted Land: Facing Europe’s Ghosts After Communism.” She is a former editorial writer for The Times and the author of, most recently, “Join the Club: How Peer Pressure Can Transform the World” and the World War II spy story e-book “D for Deception.”
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