Markets are efficient mechanisms for allocating resources between those that have them and those that want them. For over 30 years, iDE has used markets to enable poor, rural households in developing countries to purchase products and services they want through a chain of profitable businesses. These efforts have benefitted more than 23 million people and enabled iDE to gain a strong understanding of how markets work, why they fail, and how to get them to function properly. We have also learned that market development has its challenges, like reaching the extreme poor, and thus should not be implemented in isolation. Although market development is not a silver bullet, it can effectively (i) build off the success of other approaches and (ii) provide a strong foundation that can be leveraged by future efforts. This type of collaboration holds significant potential, but must be coordinated to be effective.
Many people wrongfully view market development as just a supply side intervention; however, markets cannot function properly without both supply and demand. With funding from the Stone Family Foundation and the Bill & Melinda Gates Foundation, and technical assistance provided by the World Bank Water and Sanitation Program (WSP), iDE implemented the Sanitation Marketing Scale Up (SMSU) project in Cambodia. By placing equal focus on generating demand (via pro-active sales and an aspirational product) and facilitating supply (via capacity building for local businesses), a total of 100,000 latrines were purchased through local businesses in the first two years of the project.
Essential to a functioning market is a functioning supply chain that makes desired products or services available when the customer wants to purchase them. To ensure goods and services remain available; the businesses involved in their supply must earn an adequate profit to sustain their interest. In many developing countries, this supply chain is broken or non-existent. Market development efforts identify the problem and engage or enable businesses to profitably fill the gap. iDE uses the Human Centered Design process to understand the needs, wants, and constraints of all supply chain actors. These insights enable us to identify specifically why the supply chain is broken and develop potential business solutions.
By building the capacity of existing businesses and/or training new businesses to enter the market, iDE creates functional supply chains that enable the private sector to produce and sell hygienic latrines. Once functioning, these supply chains should be leveraged. Not only can other sanitation approaches access these hygienic latrines in their projects, but the supply chain itself can be used for the production and sale of other products. The cost of piggy backing on an existing supply chain is lower than building a new distribution network, and the profits generated incentivize the businesses to stay involved as long as demand exists. Strategic coordination with functioning supply chains offers significant opportunity to achieve a variety of development objectives cost effectively.
As markets require products and services to be sold rather than given away, they cannot function without sufficient customer demand. In a functioning market, demand is often created by the businesses through advertising. In dysfunctional markets, like those in most developing countries, passive marketing efforts by local businesses often don’t generate sufficient demand. This ‘extra’ demand can be generated by both the private sector (i.e. businesses) and publicly funded efforts (e.g., government campaigns or NGO programs). Market development focuses on building the private sector’s capacity to generate its own demand for a product or service at scale. For example, iDE trains a network of sales agents to build demand for latrines through group and one-on-one sales meetings with potential customers. These meetings highlight the problems of open defecation, such as inconvenience, shame, and sickness, and position the latrine as the solution. Should people want to address this problem, the sales agents will connect the customer with an affordable hygienic latrine retailer.
By building the capacity of local entrepreneurs, we aim to help the private sector to generate its own demand, creating a more functional market. As many WASH efforts involve strengthening demand for sanitation, it is essential that these strategies complement each other and we all think strategically about how they can be leveraged to achieve multiple goals. This type of collaboration can reduce redundancy and increase impact in our sector.
Even those approaches that are seemingly antithetical to market development can benefit from a functioning market. When functioning properly, markets effectively filter out those who are unable to pay. This feature could help a subsidy program in identifying which households to target in order to maximize impact. Again, however, this requires thoughtful synchronization. If subsidies and market approaches happen simultaneously without strategic coordination, efforts can be nullified and markets could collapse. However, if we stagger the approaches, or closely coordinate them, more people can be reached and resources will be used more efficiently and effectively. iDE is currently working with East Meets West Foundation to explore integrating smart subsidies into the market under the SMSU project.
There are a variety of agendas and approaches in the WASH sector, each with something to bring to the table. The supply and demand infrastructure created by market development efforts can be leveraged by others. The best way to maximize the impact of all approaches is through strategic coordination. We’re all here to achieve the same goal, but each of the approaches has its comparative advantages, and the better we understand this, the better we can coordinate and ensure we maximize impact.