Reaching rural markets through effective distribution
Editor’s note: This post and tomorrow’s post, also posted on the Villgro Fellows Blog, is the result of a collaboration–we asked one Villgro Fellow and one Acumen Fund Fellow the same prompt: What are the challenges in and the unique approach you take to distribution, marketing, and/or doing dealings with the Base of the Pyramid (BoP) at your social enterprise? Interestingly, this resulted in a contrasting look at distribution and marketing in rural versus urban India, and how two very different business models can serve the rural BoP market in India.
There is an enormous rural market for solar in India. But the key is ‘reach’ through effective marketing and distribution and ensuring that systems continue to work as expected.
Orb Energy, a solar energy company, aims is to serve customers who are looking to adopt a better energy alternative that is safe, environmentally sound, and reliable. Orb is one of India’s leading providers of solar energy systems. To date, Orb has installed over 30,000 systems in 5 states (Karnataka, Tamil Nadu, Kerala, Maharashtra, and AP) and is interested in expanding its reach to regional and international markets. Orb designs, engineers, and distributes its own products including a large range of AC and DC power systems for off and on-grid grid applications, solar water heaters, and solar street lights.
Effective distribution and ongoing service and maintenance are absolutely integral to the success or failure of a business model in the off-grid decentralized solar energy market. In fact, many companies and markets have suffered/failed due to poor distribution and failure to effectively maintain and service systems once they are installed. Regretfully, India has a long history of solar not being properly maintained after installation, therefore leading to system failure of a highly valued asset to the discounted customer.
Orb’s main innovation has been its distribution model of over 100 direct and franchised retail branches and direct sales methodology. Many companies will sell solar products through dealers. Dealers are essentially retail outlets accessible to the end-user that typically sell multiple brands of products and product types. Orb on the other hand, sells Orb-designed and engineered products directly to the customer through its own direct sale branch network and sales team. Orb branches also maintain a team of technicians who service and maintain the systems them after installation. There are many reasons for the direct retail approach, but the most notable is that Orb is able to invest in the end-user customer relationship and oversee that maintenance of the systems after installation. As said earlier, this after sales service is key to the firm’s sustainability in the long run. Happy customers typically introduce new customers to Orb.
Orb’s approach to distribution has been a success made possible by the dedication, vision, and resourceful planning of its managing team and employees. But managing more than 100 branches across 5 states and a distributed workforce of over 550 employees is cumbersome. It’s especially cumbersome for a company like Orb that wants to scale its distribution network into new regions and states within India (not to mention into new countries as well). Not only do you have to scale your network of branches and franchises, you also have to simultaneously maintain the health and performance of the existing branches. Orb has more recently considered diversifying its distribution channels within India and outside, by signing on channel partners and franchisees where possible.
The key distribution and marketing challenges we face are the following:
1) The branch network is expensive but integral to building trust: To establish a direct retail branch, CAPEX (capital expenditure) can be high. The company will typically incur a loss in the beginning because the local solar market is not developed and a fair amount of awareness building and deal pipeline needs to be established.
2) Scale: In order to scale, Orb needs significant capital to deploy to fund new branches. Orb is building trust in the communities they operate in that couldn’t be done via a dealer. The physical Orb office shows commitment of the brand to serving the community.
3) Market Making: Each time Orb sets up a direct retail branch in a new area, solar technology (especially PV) is typically being introduced for the first time to the community. Orb’s branch therefore has to create solar awareness among the community. End user finance is also key to a large group of our customers. Orb works with local banks to familiarize them with the benefits of solar to the end user to create solar lending programs. End-user finance enables more end users, particularly those in the lower income bracket, to purchase solar systems via loans. The presence of Orb branches also means that local employees need to be recruited and trained, both from a sales and technical standpoint. In doing so, Orb is essentially building local market infrastructure from scratch each time it establishes a branch.
4) Capacity: Finding skilled and motivated employees on the ground with a shared vision can be a challenge. Solar energy is a technical product and requires a combination of good sales skills, technical understanding and skills, and strong business acumen as well as an understanding of the customer/end users needs. Many of Orb’s staff do not have a formal background in business, so Orb needs a strong emphasis on training and controls for sales, money collection, distribution, installation, and after-sales service to function smoothly.
5) Retail Productivity: The ability for Orb to be in business is driven by the branch office’s productivity in generating sales and bringing in revenue. Keeping productivity at the branch level growing is a constant challenge, particularly when Orb headquarters are not nearby.
Orb is well positioned to address these challenges to distribution in India but is constantly looking for ways innovate to push this model forward within in India and now particularly into new geographies around the world.
Andrea is an Acumen Fund Fellow, working in Bangalore, India with Orb Energy, which is India’s largest direct provider of off-grid solar systems. Andrea is from the United States, and has worked as an analyst at Bear Stearns and subsequently J.P. Morgan. She has also worked with the UNDP in Senegal and as a Summer Associate with Acumen Fund in Pakistan. She holds a Master’s in International Energy Management and Policy from Columbia University’s School for International and Public Affairs, as well as a B.A. in Economics from the University of Vermont.