In response to the growing prevalence of market-based approaches to sanitation, the Bill & Melinda Gates Foundation convened a meeting between three leading sanitation development practitioners—iDE, PSI, and Water for People—to discuss their experiences in building supply capacity and demand for sanitation products and services, and possibly develop a joint understanding of the process. The result of those discussions are presented in this four-part blog series.
Part 1 of 4: The Basics: Terminology, Organization, and Process
Terms and Conditions
Over the last decade, a number of different terms emerged that described essentially the same type of process: using business markets to increase sanitation sales and coverage. The three most commonly used included:
- Sanitation as a Business (SAAB). Unfortunately, SAAB implies only the micro level of enterprise support and development, and this is too limiting. Markets consists of more than just enterprises, and market development efforts need to include the role of consumers, government, and civil society.
- Sanitation Marketing (SanMark). SanMark can lead to misunderstandings as people often think of marketing only as promotions, instead of the wider definition of the 4 Ps of the marketing mix: product, price, place, and promotion.
- Developing Markets for Sanitation. The group felt that the phrase “developing markets for sanitation” captured a more holistic systems approach where customers purchase desirable products and services that suppliers can sustainably offer for a profit.
The group decided to recommend Developing Markets for Sanitation to reinforce the concept that sanitation problems must be dealt with at the ecosystem level and not just at the enterprise level. Market development involves understanding why market failures exist in the first place. For example, why are there no existing actors, be it private or public, providing these necessary goods and services? It is important to understand how the constituent parts of an ecosystem interact with each other and be aware of the dynamic relationships that exist. It is also important that we do not implement overly simplistic interventions that do not address the root of the problem, or ignore the dynamic nature of markets.
The End Game
The end goal of developing markets for sanitation is to achieve a state where:
- Customers can access desirable products and services at an affordable price, and
- Enterprises are selling products and services at a sufficient profit for the businesses to continue providing these products and services.
From an economics perspective, the objective is to establish an ecosystem in which market actors are making efficient use of resources across the sanitation cycle. In order to get to this end state, it is necessary to identify the critical levers that best address any market failure by first asking:
- “Why are no existing businesses providing these goods and services?”
- “What is the root cause of the market failure preventing an efficient allocation of resources?”
In the experience of the group, market failure can be due to a combination of:
- No consumer demand.
- High entry costs for businesses, often related to restrictive capital access and prohibitive regulations.
- Perceived risk of market entry is too high. That is, no business or individual has proven that this is a viable business opportunity.
- There are no desirable, affordable products and/or services.
- Private sector actors do not have the right skillsets and knowledge.
- Household know what they want, but cannot afford it without some form of financing.
The market development process is dynamic and market failures evolve over time with the markets themselves. As a result, the market may have certain market failures at the beginning of the product lifecycle and other market failures at the end of the product lifecycle. This means that market development organizations should always question and continuously change their role so as to maintain relevance as the system changes.
Reasons to Believe
Developing Markets for Sanitation works as an approach because it uses the natural forces of the market. In particular, with regard to other development interventions such as straight government giveaways, it addresses:
- Leveraging resources: Taking a direct subsidy or services approach dictates that your impact will be directly proportional to your available resources. However, investing money into a business, or even a market, means that resources will be leveraged; resources will be spent on supporting a system that can create impact much greater than that of direct subsidies.
- Sustainability: Assuming the market failures are addressed and the market opportunity continues to exist, the market will remain even after you exit. You are investing in developing a self-sustaining system.
- The market allows the natural segmentation of those who are more able and willing to pay from those who are less able and willing to pay. This is a more efficient way of targeting public financing resources to those who really need it.
Markets are not incentivized to reach 100% coverage. This means the markets are not motivated to reach the last segment of the market, which likely contains the poorest of the poor. Markets are incentivized to reach those who are willing and able to pay. As such, there is a trade-off in terms of reaching the poor. However, markets accelerate uptake and, in doing so, change the social norms over toilet use and ownership in a community, which helps get closer to 100% coverage faster than many other approaches.
Research also shows that “the extent of open defecation in a community is more important for a child’s development than whether the child’s household itself openly defecates.” Market-based approaches can quickly accelerate uptake of improved, hygienic latrines within a community at a rate faster than non-market based approaches that solely focus on targeting the poor. Increased latrine uptake results in improvements in public health that in turn benefits all families, poor or wealthy.
In order to be effective at Developing Markets for Sanitation, there are some basic requirements that should be observed by the intervening organization(s):
- Human Resources: Having the right people and the right organizational culture is paramount. An innate sense of business savvy and the ability to take risks are key for successful market development programs. It is also critical to be able to think like a business to understand what motivates businesses and customers.
- Long-term investment in dedicated programs: Too often, long-term development objectives fall prey to short-term projects. Market development is neither quick, cheap, nor easy, but when done well under the right conditions, it can be one of the most powerful mechanisms to reach impact at scale cost-effectively. As such, it is very important to have dedicated long-standing programs supported by donors that view their relationship to the program as a long-term investment rather than a quick win.
- Human-Centered Design: Proper research and design, though it may be expensive, is critical to developing a successful business model that will pay off in terms of the long-term impact of the program.
- Financing: Research and experience shows financing holds significant potential for accelerating uptake. More investment is needed to develop financially and operationally viable models for sanitation financing at scale (more on this in the final post in this series).
Check back for part 2 of 4 on May 11, 2017.
iDE creates income and livelihood opportunities for poor rural households. In the WASH sector, we design and build markets for products that have the potential to transform people’s health by preventing diarrheal-related disease. Contact: Yi Wei email@example.com
Population Services International (PSI) is a global nonprofit organization focused on the encouragement of healthy behavior and affordability of health products. PSI uses a market development approach to deliver sanitation and fecal sludge management products and services in a sustainable manner. Contact: Genevieve Kelly firstname.lastname@example.org
Water For People exists to promote the development of high-quality drinking water and sanitation services, accessible to all, and sustained by strong communities, businesses, and governments. Contact: Steve Sugden email@example.com