Last-Mile Distribution Models

Eric Carlson
Director, Global Social Benefit Incubator

Cynthia Dai
CEO, Dainamic Consulting, Inc.

What do solar lanterns in Africa, consumer goods in the Philippines, and village electrification systems in India have in common? They must meet the challenge of delivering products and services to (and from) remote locations cost-effectively.

In the past nine years, the last-mile distribution problem has been a concern for the vast majority of the 139 social entrepreneurs who have attended the Santa Clara University Global Social Benefit Incubator (GSBI™).  The cost of transportation and middlemen often make it uneconomic to deliver essential products and services to underserved communities.

We have observed that the key issues seem to be:

• build or partner with a channel,
• product mix
• retention and compensation.

With respect to the channel, there are three common alternatives (listed here in order of increasing capital and operating costs):

1. Leverage an existing channel and infrastructure. Microventures’ Hapinoy moves everything from noodles to medicine by aggregating the buying power of existing shops in poor communities in the Philippines. They also rent transportation from ubiquitous “Jeepney” buses to avoid the costs of trucks and drivers.
2. Establish a channel using existing social groups or organizations. Solar Sister works with women’s groups to select well-connected sales-agents to distribute solar products in rural Africa.
3. Complex products or services may require setting up a complete channel including systems integration. Husk Power Systems has used a “micro-franchising model” to supply equipment and training to local entrepreneurs to set up and operate village power-systems in India.

Selecting the right product mix (which affects training, logistics and margin) and deciding if service and support are required (which affects skill levels and training) are a second key decision for all three channels. To increase and supplement income from sale of solar lighting systems in rural India, ONergy also provides “energy audit,” user training, repair, and upgrade services.

Regardless of channel choice and product mix, a key distribution problem for all GSBI alumni has been channel “loyalty” (retention of the channel once it is established). As one might expect, retention seems to be based on agent selection, compensation (which may include non-monetary items such as “status in the community”), and support.

For example, Toughstuff has established a channel to distribute low-cost solar lighting systems, along with mechanisms (support, contracts, and personal relationships) to prevent an alternative supplier from taking over the channel.

In addition to your comments on our observations derived from GSBI™ alumni, we are interested in your insights on other important last-mile distribution issues, such as:

1. What structures, incentives or other factors can reduce the costs (e.g. promotion, training and “churn”) and help maintain a motivated sales force?
2. What are the key factors (price, training, quantities) that determine the right product mix?
3. How do the last-mile distribution issues differ based on the product/service attributes, business model, country, or geography?

Join Eric Carlson (Santa Clara University) and Cynthia Dai (Dainamic Consulting) in the conversation.