Ethics and Distribution Methods

Coming from a background in the nonprofit sector, the sections of our readings that discuss the differences between the nonprofit sector and social enterprise always catch my attention. This week, our readings provided the opportunity to learn about examples of profitable and self-sustainable products that are targeted toward low-income consumers in developing markets. This strategy allows social innovators to capitalize on an often untouched base of customers. Innovations such as Smart mobile phone technology in the Phillipines, the Tata Nano car in India, and Dannon’s yogurt sachets in Senegal are all examples of this. However, as several classmates have already mentioned in their blog posts, there are concerns that this type of venture does not have the needs of the public in mind any more than private ventures do. In this blog post, I am going to explore the way that, in addition to the products themselves, distribution methods can allow social enterprise ventures to create positive change in the lives of their customers.

Much of the discomfort regarding the ethics of social ventures centers around the idea of making a profit off of those who are in desperate need of these services, or have so little extra income to part with that it seems more ethical to provide these services for free not providing these services for free—as nonprofit organizations traditionally would. However, as Sam Goldman, the creator of D.Light argues, growth and results come much faster for private ventures. In the 2009 NY Times article “A Social Solution, Without Going the Nonprofit Route” by Marci Alboher, Goldman is quoted as saying, “We could have done [D.Light] as a nonprofit over a hundred years, but if we wanted to do it in five or 10 years, then we believed it needed to be fueled by profit. That’s the way to grow.”

As Goldman suggests, a private model means that consumers in developing markets who are greatly in need of services will have to pay for them. However, if this results in these crucial services becoming available faster, is the trade-off worthwhile? This question is difficult to answer and most definitely varies from case to case. However, it is possible to look at other ways social ventures that gain revenue from low-income consumers could benefit those to whom they target their services.

One of the “4 A’s” for innovation in developing markets, as they are referred to in “Innovation at the Base of the Pyramid” (Anderson and Markides, MIT Sloan Management Review, Fall 2007) is availability, which includes distribution methods. With many developing markets are in very rural areas, actually getting products to customers can prove to be very difficult and calls for companies to use creative models. For example, in India, Eveready uses a large fleet of vans to transport its goods.

Going door-to-door with Avon

I found it very interesting that one of the most successful distribution methods in a variety of case studies has been the door-to-door model—similar to that of Avon. In fact, Avon itself is located in more than 100 countries and employs approximately 6.4 million sales reps worldwide (avoncompany.com). “Innovation at the Base of the Pyramid” references Avon saleswomen in Brazil, who “travel along the Amazon and its tributaries in ferries, small boats and canoes to serve isolated communities” (87). Propelled by these efforts, Avon is one of the leading cosmetics companies in Brazil.

Even if they aren’t willing to go to such extremely lengths to sell their products, one large advantage of employing locals to sell products is that they are familiar with the culture of the area. For companies located in other countries—such as Dannon, who didn’t have great success in sales of its yogurt sachets in Senegal until it got its product out into small markets on the street—similar employment strategies could greatly benefit business. After all, what better way to get a product into the hands of customers than day-to-day meetings with their neighbors?

If companies were to prioritize hiring local employees to meet their distribution needs—

whether through door-to-door sales methods, or even by participating in training to drive delivery vans—they could provide an additional benefit for the low-income populations who buy their products. By producing jobs, companies would empower the individuals in their markets, allowing them to earn a more livable wage and have a better quality of life. Such strategies have the potential to create a “best of both worlds” scenario for social enterprises:

1. Generating revenue from these sales allows them to achieve the results they want quickly and sustainably, and avoid the complications with finding funding and getting approval from many outside entities that nonprofits frequently face.
2. By employing members of the communities they target their sales toward, the companies have a direct, positive impact on the communities where they target their sales.

Should social enterprises be concerned that if their employees become successful enough, they may no longer desire to buy their products? In your opinion, does making a concerted effort to hire within customer base/population served make sales models that target "the base of the pyramid" more ethical?