The Multiple Objectives Trap
While trying to combine socially useful products with firm profitability is a major challenge, initiatives for selling to the poor often make this even harder by adding other social and environmental objectives.
GDFL started out with ambitious environmental sustainability objectives. The initial plan was to package Shoktidoi in cups made of polylacticacid (PLA), which is manufactured from corn and is biodegradable. The plant would recycle PLA waste to produce biogas that would be used for lighting and heating purposes. Delivery would be done by cycle rickshaws to avoid fuel consumption. GDFL also planned to encourage customers to use their own containers to fill with yogurt rather than buy it prepackaged. Most of these environmentally friendly plans have been abandoned because they increased the complexity and cost of the project. GDFL now uses polystyrene (an oil derivative) packaging.
GDFL also wanted to create jobs for poor women as a social objective of the venture. This was consistent with the Grameen philosophy of developing and empowering women through microentrepreneurship as way to fight poverty. As discussed above, the Shokti Ladies scheme too has proven to be problematic.
Because of the alliance with eye care hospitals, Aravind and Sankara Nethralaya, the Essilor venture also had the social objective of diagnosing eye diseases. All “eye camps” therefore involved two vans, operated by six people: Essilor’s “refraction van” focused on mounting and selling spectacles while the hospital’s “tele?ophthalmology van” performed eye-disease diagnosis. However, the staff included only an optometrist, whose training focused on refractive error, not on eye diseases. When the optometrist suspected an eye disease (in particular cataracts, which is a major cause for blindness in India), the optometrist could route the patient to the “tele-ophthalmology van” to perform an examination of the eye fundus (the interior of the eye). The technician conducting the eye examination was in contact with an ophthalmologist in the base hospital using a satellite communication link, hence the “tele-ophthalmology” concept. This, of course, increases the cost and complexity of the initiative. It might have been more profitable to focus on correcting refractive problems, without adding other public health objectives.
Multiple objectives, such as profitability, generating employment, environmental sustainability, and public health, are often in conflict, at least in the sense of drawing on a pool of limited resources, and impose trade-offs. The danger is that attempting to achieve too many objectives simultaneously leads to the project’s commercial failure and demise, and none of the objectives being achieved. Perfection is the enemy of the good. Much of the strategy literature emphasizes the value of “focus.” Initiatives for selling to the poor are well advised to focus on ensuring the product being marketed is in fact useful to the poor, affordable by the poor, and that the project is economically profitable to enable scaling up.
Sidebar 5.1 Designing a Business Model to Profitably Sell to the Poor
The Cost of Capital Trap
To be sustainable in the long term, a business has to earn more profits than the opportunity cost of capital employed in the business. It is not enough to just cover operating costs.
The Unmet Needs Trap
The size of a market is determined by the number of people willing to pay a price for the product that is higher than the cost of producing the product, not by the number of people who need the product.
The Affordability Trap
The poor can afford only low-priced products because they have very little purchasing power and many competing demands on their meager income.
The Adaptability trap
It is usually necessary to reduce quality in order to significantly reduce costs; the challenge is to make the cost-quality tradeoff acceptable to the poor. Starting with the product sold to affluent markets and adapting it to the poor often does not work.
The Distribution Trap
Successful business models often piggyback on existing distribution networks and try to achieve economies of scope. Distribution networks to serve the poor often do not exist or are very inefficient.
Multiple Objectives Trap
Successful ventures have a narrow focus on profitably selling beneficial products to the poor. Trying to serve multiple social objectives usually leads to failure.
