Download outcomes previous renewable energy/solar research SNV

Charlotte Elink Schuurman
3504328
Master Research
International Development Studies
University Utrecht
Internship SNV, Arusha, Tanzania
February-May 2014
Let The Sunshine In
An explorative study on the value chain of picosolar products for the rural areas of Tanzania
Host organization: SNV
Supervisor Tanzania: Martijn Veen
Supervisor University Utrecht: Dr. Guus van Westen
Abstract
The current pico-solar1 value chain knows a lot of challenges and despite the many advantages of
pico-solar products, the uptake in rural Tanzania remains low. The distribution to reach the rural
areas and the relatively high initial price of the products for the rural consumer are considered as
the main obstacles for market adoption. Therefore, the value chain of the pico-solar sector needs
to be improved in order to make the products more affordable and accessible for the rural
population. Literature study and field work in three cities of Tanzania is done to investigate the
possible solutions for improvement of the value chain. Both the supply side, the companies, as
the demand side, the consumers, are taken into account in this report, although solely the supply
side has been interviewed in the field work. The improvement of the value chain is researched
through five activities of the value chain namely marketing, inclusive business, finance,
distribution and after sales, discussed in perspective of both the supply and the demand side.
Marketing can create awareness among the rural population about alternatives for the expensive,
unhealthy energy sources they use now. Solar companies can increase their sales through
marketing strategies. Inclusive business in the pico-solar sector can provide jobs and incomes for
the rural population which can set development in motion. Companies can profit from the local
knowledge of the rural population and market when they include local people in their value
chain. Financial aspects can provide consumers with loans to buy products that would otherwise
stay out of reach. For companies, the financial aspects of rural markets, with a big potential
consumer base, contain many potential profit opportunities. The distribution of the products to
the rural areas is important to make sure that products are available for the rural consumers to
buy. For companies, distribution is important to keep the price of their products affordable and
present in local shops. Finally, after sales is needed to keep the consumer satisfied after it has
purchased a product. For companies it is important to create a functional after sales service, to
build and maintain a loyal consumer base. These five activities of the value chain together can
create business opportunities for companies to expand and grow in the rural areas. For the rural
areas, these five activities can bring development through the implementation of the several
abovementioned development opportunities. Moreover, they will provide pico-solar products to
the rural areas. These products can bring light and therewith income opportunities for the rural
households.
1
Small power outputs of solar technology, mainly used for lighting and charging small electric products
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Acknowledgement
In this part I would like to acknowledge all the people I got to meet during my study and
internship and the people who were already in my life and stood beside me during the whole
process.
First of all, I would like to thank my supervisor from the Utrecht University, Guus van Westen,
who guided me with eternal patience through the whole process with emails, feedback, sharp
advices and an encouraging smile (always!).
SNV provided a safe and secure working environment for me where I could go every day during
the four months I was in Arusha. I would like to thank all my colleagues in Tanzania who
welcomed me so warmly into their SNV office during my stay there and made the working days
so much nicer; and a special thanks to Leslee, who is the best secretary of whole Tanzania. My
colleagues at this great SNV office in Arusha, created so many opportunities and made my
internship an unforgettable (work-) experience.
Many thanks to my supervisor in Tanzania, Martijn Veen, who always found time in his busy
schedule to answer my questions, give extensive feedback on my proposals and could always be
counted on when needed.
Furthermore a big thanks to my friends in Utrecht and the friends I met during my internship in
Arusha. Whether I was nearby or far away, they supported me throughout the internship with
emails, updates, pictures, great advices, pep talks, insights, encouraging words, support, laughter
and the much needed distraction, where I am so grateful for.
Last but certainly not least is my family. My mom and dad who are always there for me. Who
supported, helped, encouraged and inspired me during this whole process. Nobody can make me
feel more at home and take such great care of me. And of course my sister, Caroline, who I could
always call for advice, a supporting word and made sure with her unbeatable sense of humor I
kept seeing the bright side of life in desperate, desperate times. Thanks so much mom, dad and
Ca; I couldn’t have done it without you.
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List of Content
Abstract ............................................................................................................................................ 2
Acknowledgement ............................................................................................................................ 3
List of figures ................................................................................................................................... 7
List of Abbreviations ........................................................................................................................ 8
Introduction ...................................................................................................................................... 9
1.1Problem definition ................................................................................................................. 12
1.2 Objectives and research questions ........................................................................................ 12
1.3 Outline .................................................................................................................................. 13
2. Contextualizing the study ........................................................................................................... 14
2.1 Project SNV .......................................................................................................................... 14
2.2 Thematic contexts ................................................................................................................. 16
Geographical context Tanzania .................................................................................................. 16
Why Business in Rural areas? ................................................................................................. 21
3. Theoretical Framework .............................................................................................................. 22
3.1 Business in rural areas .......................................................................................................... 24
3.1.1 Opportunities rural business .......................................................................................... 24
3.1.2 Challenges rural business ............................................................................................... 25
3.2 The value chain ..................................................................................................................... 27
Why the value chain? .............................................................................................................. 27
The value chain adjusted to research ...................................................................................... 28
3.3 Marketing.............................................................................................................................. 29
3.3.1 What is marketing? ........................................................................................................ 30
3.3.2 Rural Marketing ............................................................................................................. 30
3.3.3 The rural marketing mix ................................................................................................ 31
3.3.4 Trust ............................................................................................................................... 33
3.3.5Rural marketing strategies .............................................................................................. 34
3.3.6Marketing Pico-Solar Products ....................................................................................... 35
3.4 Inclusive business ................................................................................................................. 36
3.4.1 Creating Shared Value ................................................................................................... 37
3.5 Finance.................................................................................................................................. 37
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3.5.1 Supply and Demand Side ............................................................................................... 38
3.5.2 The Transaction Cost Approach .................................................................................... 39
3.5.3 Purchasing power poor people ....................................................................................... 40
3.5.4. Loans, credit and finance schemes ................................................................................ 42
3.5.5. Rural prices ................................................................................................................... 43
3.6 Distribution models .............................................................................................................. 44
3.6.1 Rural distribution ........................................................................................................... 44
3.6.2. Distribution models ....................................................................................................... 44
3.7 Aftersales .............................................................................................................................. 49
3.8 Rural Development through light? ...................................................................................... 51
3.8.1 Development? ................................................................................................................ 52
3.9 Conceptual framework ......................................................................................................... 53
4. Methodology ............................................................................................................................. 54
4.1 Research design .................................................................................................................... 54
Research questions .................................................................................................................. 55
4.2 Respondents .......................................................................................................................... 56
4.3 Methodology ......................................................................................................................... 57
4.4 Limitations ............................................................................................................................ 58
5. Findings ...................................................................................................................................... 60
5.1 Doing business in rural areas ................................................................................................ 61
5.2 Marketing.............................................................................................................................. 64
5.2.1 Awareness creation ........................................................................................................ 64
5.2.2 Rural marketing strategies ............................................................................................. 68
5.2.3 Direct and indirect marketing strategies ........................................................................ 69
5.3 Inclusive business ................................................................................................................. 72
5.3.1 Creating Shared Value ................................................................................................... 74
5.4 Finance.................................................................................................................................. 75
5.4.1Price products .................................................................................................................. 76
5.4.2 Loans/credit? .................................................................................................................. 77
5.4.3 Possible solutions ........................................................................................................... 78
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5.5 Distribution ........................................................................................................................... 79
5.5.1 Distribution models ........................................................................................................ 79
5.6 After Sales ............................................................................................................................ 86
5.7 Pico-solar and development.................................................................................................. 88
5.7.1 Development through light ............................................................................................ 89
5.7.2 Development through pico-solar? .................................................................................. 90
5.8 Concluding overview ............................................................................................................ 92
6.0 Conclusion and discussion ....................................................................................................... 93
6.1 Conclusion ............................................................................................................................ 93
6.2 Discussion ............................................................................................................................. 97
6.3 Recommendations ................................................................................................................ 98
References .................................................................................................................................... 101
Appendices ................................................................................................................................... 107
Appendix I: Overview of the interviews with the companies and organizations participating in the
research ......................................................................................................................................... 107
Appendix II: Overview of the time planning of the research ....................................................... 108
Appendix III: Overview of distribution models solar companies respondents. Source: fieldwork,
Tanzania, 2014. ............................................................................................................................ 109
Appendix IV: Overview of data solar companies. Source: interviews, 2014 .............................. 110
Conversions are based upon the currency rates from 13 July 2014 (XE, 2014).
1.00 Euro (EUR) = 2,266.31 Tanzanian Shilling (TZS)
1.00 Tanzanian Shilling (TZS) = 0.000441246 EURO (EUR)
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List of figures2
Figure 1 Difference pico-solar lantern and solar panel ............................................................................... 11
Figure 2 Textbox geographical context Tanzania ....................................................................................... 16
Figure 3 Map un-electrified populations across the world .......................................................................... 18
Figure 4 Population growth electrification .................................................................................................. 18
Figure 5 Power grid connections between the larger cities in Tanzania ..................................................... 19
Figure 6 Challenges in Rural distribution. .................................................................................................. 25
Figure 7 The Value Chain; the parts that are used for this paper are highlighted ....................................... 27
Figure 8 Terms value chain Porter + adjusted terms for research ............................................................... 29
Figure 9 Important rules to reach a rural market. ....................................................................................... 31
Figure 10 Traditional marketing P’s become rural marketing A’s. ............................................................. 32
Figure 11 Overview of rural marketing channels. ....................................................................................... 34
Figure 12 The four basic laws of supply and demand ................................................................................. 38
Figure 13 Description Lighting Africa program. ........................................................................................ 45
Figure 14 Overview of five different rural distribution channels. ............................................................... 45
Figure 15 Value chain stages and sub-stages of pico-solar products. ......................................................... 46
Figure 16 Definition MFI. ........................................................................................................................... 47
Figure 17 definition SACCO. ...................................................................................................................... 47
Figure 18 Definition Micro-franchise concept. ........................................................................................... 47
Figure 19 Micro Franchise Model ............................................................................................................... 48
Figure 20 Conceptual framework ................................................................................................................ 53
Figure 21 Map Research Areas. .................................................................................................................. 54
Figure 22 Terms respondents research ........................................................................................................ 56
Figure 23 Display Mona Solar; example diversity of products in a shop; solar lamps mixed with other
technical products. ....................................................................................................................................... 63
Figure 24 Experienced challenges by the companies implementing pico-solar .......................................... 63
Figure 25 Example disorganized storage pico solar company .................................................................... 66
Figure 26 Example of a real Dlight S2 (left) and a fake Stepsolar lamp (right) .......................................... 67
Figure 27 Different indirect and direct marketing strategies solar companies ............................................ 70
Figure 28 Different marketing strategies used by the import suppliers and retailers to reach their rural
consumers. ................................................................................................................................................... 70
Figure 29 Example daily expenditure rural household. ............................................................................... 76
Figure 30 Example Traditional network...................................................................................................... 80
Figure 31 Scheme Hub-and-spoke model rural areas.................................................................................. 81
Figure 32 Example Direct-to-consumer model ........................................................................................... 81
Figure 33 Example Institutional partnership model. ................................................................................... 82
Figure 35 Example micro-franchise model SolarAid. ................................................................................. 83
Figure 34 Example Micro-Franchise model. ............................................................................................... 83
Figure 36 Overview distribution models currently applied in the pico-solar sector ................................... 84
Figure 37 Example applied margins supply chain....................................................................................... 85
Figure 38 overview problems, solutions and results of findings ................................................................. 92
2
Figures in this paper without a source are created and provided by the author
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List of Abbreviations
Abbreviation/Term Definition
The Base of the Pyramid: The largest and poorest socio-economic
BoP
group in a developing country.
A brand is a distinguishing name and or/symbol(such as a logo,
Brand
trademark or package design) intended to identify the goods or
services of either one seller or a group of sellers, and to differentiate
those goods or services from those of competitors (Aaker, D.2009)
Gross Domestic Product
GDP
Millennium Development Goals: Eight international development
MDG
goals set by the United Nations for 2015 to combat global poverty and
improve human wellbeing in the world.
Ministry of Energy and Minerals
MEM
Micro Finance Institution
MFI
Non-governmental organization: Organization that is neither part of a
NGO
government nor a for-profit business but rather an organization that
can be engaged in a wide range of activities, run primarily by
volunteers
Purchasing Power Parity
PPP
Pico- Solar Photovoltaic
Pico- Solar PV
Renewable Energy Technology
RET
Rural Energy Agency
REA
Savings and Credit Cooperative
SACCO
‘Stichting Nederlandse Vrijwilligers; SNV Netherlands Development
SNV
Organization
Solar Home System
SHS
Solar Photo Voltaic. The method of generating electrical power by
Solar PV
converting solar radiation into electricity
Sub-Sahara Africa
SSA
Tanzanian Shilling
TZS
Tanzania Electric Supply Company
TANESCO
Tanzania Renewable Energy Association
TAREA
United States Dollar
USD
Term respondent Characteristics
research
Produces the pico-solar products in a factory
Manufacturer
Solar company that buys the products from the manufacturer and
Import-supplier
sells and distributes the products to retailers and consumers.
Solar company that buys the products from the manufacturer or
Retailers
import supplier and sells the products to the consumer.
An umbrella term when referred to both import-suppliers ánd
Solar company
retailers. These solar companies sell the products to the consumers.
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1. INTRODUCTION
Martin Luther King Jr. once said “Darkness cannot drive out darkness; only light can do that”
(Washington, 1986). Although very true, this is easier said than done. One of the most
fundamental challenges facing humankind in the 21st century is its energy supply (Poizot, 2011).
1.3 billion people worldwide - a full quarter of the world’s population - lack access to electricity
(IEA, 2013). Moreover, the number of people without access to electricity is predicted to
increase, because population growth currently outpaces grid connections, especially in rural areas
(IEA, 2011).
This lack of access to electricity is also true for the majority of the rural population of Tanzania.
Almost seventy-five percent of the more than forty million residents of Tanzania is reported to
live in rural areas, of which only two to three percent has access to electricity (Sebastian, 2012).
This number is high in rural areas because the remoteness of villages and towns makes it
logistically difficult and prohibitively expensive to connect them to the grid, especially for a
developing country. As a result, a large part of the rural population of Tanzania uses both fossil
fuels, such as kerosene, and biomass, like wood and charcoal, as their main energy source. The
use of biomass fuels represents over ninety-two percent of the energy use of the country
(Sebastian, 2012).
This use of fossil fuels and biomass poses several health, safety, environmental, and financial
risks (Chaurey, 2010). For instance, it leads to accidental burns, bad indoor air quality and puts a
significant strain on natural resources (Lighting Africa, 2010). On top of that, poor households
have to spend a relatively large part of their income to purchase kerosene; a typical rural
household in Tanzania dedicates 33-35% of its total income on purchasing energy (Sebastian,
2012): “Fuel is one of a family’s top three household expenses. People struggle daily to afford
fuel” (Meijer, 2012).
The lack of access to electricity for the majority of Tanzania’s rural population poses a significant
barrier to sustained growth and development outside urban areas. Previous research shows that
lack of access to modern energy services is a serious hindrance to economic and social
development and must be overcome (Tanaka, 2010a). Electricity is a key to development as it
provides light for households, industry and businesses, education and health care (Kaygusuz,
2012). Modi and Saghir (2005) even state in their article that electricity is needed to end poverty,
hunger, educational disparity between boys and girls, the marginalization of women, major
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disease and health service deficits, and environmental degradation. In 2012, U.N. Secretary
General Ban Ki-moon stresses that energy is central to everything, from powering economies to
achieving the anti-poverty targets known as the Millennium Development Goals (MDGs), from
combating climate change to underpinning global security: “Access to energy is the golden
thread that connects economic growth, increases social equity, and preserves the environment”
(U.N. News, 2012).
The negative consequences of the use of fossil fuels on the environment and human health, and
the impact of the lack of electricity in rural areas, including on development and human wellbeing, demands a radical change in energy consumption in rural areas in Tanzania (Malyshev,
2009).
A viable option is renewable energy (RE). RE sources, such as the sun, water, and wind, are
important options for mitigating greenhouse gases and provide clean and affordable forms of
energy to rural populations in need of sustainable energy sources (Ahuja, 2008). Developing
countries have more than half of global RE sources and can therefor easily produce this
renewable energy on a large scale (Flavin and Aeck, 2005). Solar energy, in particular, is an
attractive option. Water and wind are not always present in these countries, but most developing
countries enjoy abundant sunlight year round. This also applies to Tanzania, where the use of
solar electricity seems to be an attractive option for providing clean and sustainable electricity
(Pode, 2013).
Solar energy and pico-solar
Over the period 2000‐11, solar energy Photovoltaic (PV) has been the fastest‐growing renewable
power technology worldwide (Tanaka, 2010b). Solar energy PV is a form of renewable energy
that directly converts solar energy into electricity using a solar panel (Tanaka, 2010b). For the
small houses in the rural area, big solar panels and solar home systems often provide too much
energy. Therefore, there is a smaller version of the Solar PV energy available, which is more
suitable for little households, called pico-solar. Figure 1 provides a picture of both pico-solar and
a solar panel to show the difference between the two products.
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Figure 1 Difference pico-solar lantern and solar panel
Pico-solar PV products are the smallest power output of the solar technologies (Grüner, cited in
Hirmer and Cruickshank, 2014). They can be used mainly for lighting but also for charging small
electric products such as mobile phones, radio’s or even television (Lighting Africa, 2012). The
International Finance Corporation (IFC) and the World Bank (WB) group describes pico-solar as
:‘Off-grid lighting products or systems that are stand-alone, rechargeable and can be installed,
assembled and used easily without requiring assistance from a technician. These products are
affordable, typically costing € 7 or less’(Lighting Africa, 2012)
Even though pico-solar is a relatively new form of energy and a new ‘revolution’ in renewable
energy technology the perceptions of these kinds of products are very optimistic and promising.
According to Ramírez (2008) a pico-solar system can be seen as: “a sustainable energy system
[…which is] clean, safe, reliable, just, affordable and accepted by the public, and guarantees
flexibility, continuity and independence”. In other words, the products could replace unhealthy
and inefficient energy sources are easy to install and use, require little maintenance and after the
purchase they are free of charge. These characteristics of pico solar products could make this
energy source a sustainable solution for the many rural people that would otherwise remain
without light and electricity (Hirmer and Cruickshank, 2014). Besides, after multiple researches
by the Dutch Non-Governmental Organization (NGO) SNV, it is stated that the need and desire
for pico-solar products is significantly present among the rural population in Tanzania (Sebastian,
2012; Sebastian, 2013). This can create great business opportunities for pico-solar companies.
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Concluding, by distributing pico-solar products to rural Tanzania, both the solar sector as the
rural population gets the chance to develop itself significantly. Although this all sounds very
promising, in practice some challenges occur.
1.1Problem definition
Despite all the advantages mentioned above, the problem in practice is that the pico-solar
products do not seem to reach the rural areas in Tanzania in big numbers. The level of uptake and
exposure of these products in Tanzania remains low (Hirmer & Cruickshank, 2014). The
distribution to reach the rural areas and the relatively high initial price of the products seem to be
the main obstacles for market adoption (Lighting Africa, 2010). To deliver affordable and
available pico-solar product to the rural areas, the value chain needs to be improved. Several
activities of the value chain, such as marketing, aftersales, and local involvement needs to be
included to make the products more accessible for the off grid households in the rural areas.
1.2 Objectives and research questions
Pico-solar is a relatively new form of energy and therefore not much research has been done yet.
Especially the field of the value chain to the rural areas is new and exciting. The objective of this
research is to identify the activities of the value chain that are important for the pico-solar sector
and to provide options to improve these activities to make the products more accessible in the
rural areas. The research in the field is solely conducted on the supply side with solar companies
and not on the consumer side. However, this paper focuses on both sides and addresses both the
improvement of knowledge on business opportunities to deliver light to the rural areas as the
subsequent possibilities for rural areas to develop. The outcome of this research can provide new
insights and information that can be useful for projects, interventions and researches of pico-solar
in the future. To summarize the above, and research the aforementioned challenges for the
proliferation of pico-solar in the rural areas of Tanzania, the following main research question is
formulated:
How can the value chain of pico-solar products be improved so as to increase access for off
grid households in rural Tanzania?
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To help answering the main research question, several sub questions have to be answered
beforehand. These research questions will be addressed in both the theoretical framework and the
findings sections.
1.
What challenges and opportunities do companies face when doing business in the rural
areas of Tanzania?
2.
Which activities in the value chain can be distinguished to make the pico-solar products
more affordable and available in the rural areas?
3.
Which distinctive activities in the value chain are currently being applied in the picosolar sector?
4.
How can the distinctive activities of the pico-solar value chain contribute to the
development of the rural areas in Tanzania?
1.3 Outline
The report is structured into five different chapters and each chapter will present a part of the
research. Firstly, to understand the context of the study, the report starts with a contextual
background in which the research is done. Therefore, a brief literature study will provide
information on both (pico-) solar energy as the characteristics of the country Tanzania. After that,
the theoretical framework will provide an overview of the academic literature of the research. It
will provide information on the value chain and the related activities that are indicated as useful
for this research. Thirdly, the methodology of the research will be addressed. After that, the
findings of the field research done in Tanzania will be presented. Results from the interviews will
reveal and discuss the different activities of the value chain that are currently being applied. Both
the pros as the cons of each value chain activity will be discussed. The following section sheds
light on the role that the value chain of pico-solar can play in the development of the rural areas.
After that, in the conclusion and discussion, the research questions will be answered based on the
theory and the findings presented in this research. Finally, recommendations for the sector and
further research will be given.
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2. Contextualizing the study
Contextual information is essential to understand the background information of the study. This
chapter provides contextual information on the SNV project that this research is part of and on
the outcomes of previous SNV studies. Information of the geographical context of the study,
Tanzania, is provided briefly in a separate text box. After that, thematic context will be presented
to provide an overview of the energy situation in Africa and Tanzania. This is done to provide
insight on the current situation of energy in Africa and, especially, Tanzania. Finally, in depth
information on important concepts of this research, such as (pico-) solar energy and rural areas,
will be provided.
2.1 Project SNV
This research was part of the 2 year Integrated Renewable Energy Services plus (IRES+) -project
of SNV that is part of a 4 year project, 2011-2015. The IRES project has taking the Market
Intelligence (MI) approach as a starting point. MI is ‘the information relevant to a company’s
markets, gathered and analyzed specifically for the purpose of accurate and confident decisionmaking in determining strategy in areas such as market opportunity, market penetration strategy,
and market development’ ( Cornish, 1997). The IRES + project will develop inclusive businesses
with private enterprises and cooperatives to reach out to rural end-user and households.
This research was part of the second part of the IRES project, 2014-1015, and focuses on the
supply side of the distribution chain. The specific focus hereby is to create inclusive business and
capacity building among companies, import-suppliers and retailers and create knowledge
development for the different stakeholders of the (pico-)solar PV supply chain: ‘The vision is to
design, develop and validate innovative (pico-) solar PV business models and distribution
channels’ (Sebastian, 2013).
The research of this paper had the task to focus on the knowledge component of the IRES+
project. The aim was to gather information to improve the access of pico-solar products for nonelectrified households in the rural areas.
Main outcomes previous renewable energy/solar research SNV
This research was done as a follow-up study of previous research of SNV. Previous research of
SNV was done on the consumer side through MI. Therefore, the focus in this paper is based on
the other side, the supply side. However, it is important to understand the findings of the
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consumer side, provided below. First, a short description of the methodology that was used in
previous research is cited:
‘The MI was composed of 3 interdependent focus assessments that targeted the consumer energy
demand and usage, the RE enterprise capacity, and the enabling environment. These focus
assessments aim to clarify issues of consumer energy demands relative to viable RET availability
in the Lake Zone. Delivery of the MI has been undertaken via the coordination of parallel
research teams under the coordination of SNV. Field surveys in the Lake Zone Market
Intelligence study has been guided by the use of standardized data collection tools. The tools
have been developed to provide a flexible script with individuals that are functional to capturing
respondent information via direct personal interviews relative to the capacity of interview
subjects (language, education, etc.’ (Sebastian, 2010)
The main, important findings of the previous researches are listed below:
-
A main finding of the MI as articulated in the reality that in the local context of
Tanzania’s Lake Zone, ~60% of urban and rural households express preference for RETs.
However, despite a market turnover of solar energy, exceeding ~$3.5 million USD per
year, only a mere 3.5% possess solar technologies (Sebastian, 2012).
-
Although Renewable Energy Technology (RET) diversity (wood burning ICS, small solar
lanterns/home systems/biogas) was present in rural areas, the products were noted as
mainly being available in urban centers via a limited range of closely linked enterprises
and NGOs. Both the urban orientation and availability of the products stands in stark
contrast to areas commonly agreed of being in more dire need of energy – namely rural
communities. By initial appearances, facilitating the wider entry of diverse RET options
capable of meeting the energy needs of wider (i.e. rural market segments) can be viewed
as positive (Sebastian, 2012).
-
Regarding the interplay of actors in both the enabling environment and the private sector,
consistent indications by these parties in the MI were that relations are generally weak to
non-existent. This point was particularly emphasized amongst micro and small enterprises
who cumulatively account for a large majority of RETs being sold to consumers.
Amongst these enterprises it was almost universally stated that they had virtually no
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contact with civil society, public institutions, or financiers. This was further confirmed by
enablers themselves that characterized RE as largely a non- profit and/or unprofitable,
rather than enterprise oriented, initiative(Sebastian, 2012).
2.2 Thematic contexts
In this part, the geographical context and characteristics of Tanzania will be presented very
briefly in a textbox first. This is presented in a textbox because the characteristics of Tanzania is
not highly important for this paper but is still useful to mention as background information to get
an impression of the country. After that, electricity and (pico-)solar will be addressed to provide
information on the topics behind the research.
Figure 2 Textbox geographical context Tanzania
Geographical context Tanzania
The United Republic of Tanzania is a country in East-Africa, next to the Indian Ocean. Kenya, Uganda, Rwanda,
Burundi, Congo, Zambia, Malawi and Mozambique are all neighboring countries. After achieving independence
from Britain in the early 1960s, Tanganyika and Zanzibar merged to form the nation of Tanzania in 1964
(CIA,2013). Tanzania consists of 29 regions; the 24 regions on the mainland and the 5 islands of Zanzibar. It is the
13th largest country in Africa, with 947,300km² of which 883.000 km²(93,4%) is land area and 62.000km² (6.6%)
consists of water (CIA,2014). Dodoma is the capital of the country but Dar es Salaam is the largest city and the
political and economic capital of Tanzania.
Tanzania is home to the highest peak of Africa, Mount Kilimanjaro, Africa’s largest lake, Lake Victoria and
Africa’s deepest lake, Lake Tangayika. The country has a lot of wildlife and national parks with various wildlife
animals.
Demographical
Tanzania has a total population of more than 44 million people and a growing rate of 2.82% (CIA, 2014). 99% of
the population is African and the country consists of more than 120 tribes. The other 1% of the population comes
from other parts of the world; Arab, Asia, Europe (Levinson 1998). The majority of this population lives in the
rural areas of Tanzania, approximately only one-third of the population lives in the urban areas. The official
languages are Swahili and English but many local languages are spoken in Tanzania as well(CIA, 2014).
The population is relatively young; almost 65% of the population is below 25 years old, and only 2.9% is above 65
years old (CIA,2014). The life expectancy at birth is approximately 60 years old(CIA, 2014).
Charlotte Elink Schuurman/Utrecht University/2014
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Political and economical
Tanzania is a republic and a one party dominant state, the Chama Cha Mapinduzi party with Jakaya Mrisho
Kikwete as President. The country consists of 30 administrative divisions, 25 on the land and 5 on the islands
of Zanzibar. Tanzania is one of the poorest economies of the world in terms of per capita income. 37% of the
population lives below the poverty line. However it has achieved high overall growth rates. The GDP
(purchasing power parity) growth in 2009-12 was a respectable 6% per year and is now on the 83st place in the
world with $79,29 billion.
24.82 million people are in the labor force in. 80% works in the agriculture and 20% works in the industry.
The economy is heavily based on agriculture, which accounts for more than 25 percent of gross domestic
product and provides 85 percent of exports (CIA,2014)
Tanzania receives donor assistance which provides large amounts of money every year. In 2008, Tanzania
received the world''s largest Millennium Challenge Compact grant, worth $698 million, and in December 2012
the Millennium Challenge Corporation selected Tanzania for a second Compact(CIA,2014).
Electricity Africa
A big challenge in Africa is the provision of electricity to the households of the population. Sixty
to sixty-five percent of the population in Africa (600 million people) is not connected to the
electricity grid. Most people rely on expensive, polluting and dangerous fuel based lighting such
as kerosene lamps, candles, or battery powered torches (Lighting Africa, 2013). By 2030, the
number of people without access to electricity in Sub-Saharan Africa (SSA) is predicted to
increase by ten percent, from 589 million to 698 million people (Figure 3) (Lighting Africa,
2012).
Charlotte Elink Schuurman/Utrecht University/2014
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Figure 3 Map un-electrified populations across the world
Source: Electricity Access Database, International Energy Agency (IEA), Lighting Africa,2012
This is the result of the population growth that outpaces grid connections, low rural electrification
rates and the continuing use of traditional energy methods (Chaurey, 2012); the population in
Sub-Saharan Africa is growing 4 times faster than there is electrification (Mills, 2006). In the
coming decades, this will lead to more and more people without electricity in SSA (Figure 4).
Figure 4 Population growth electrification
Source: International Energy Agency. Adapted from Mills, 2006
Charlotte Elink Schuurman/Utrecht University/2014
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Electricity Tanzania
Since electricity was introduced in Tanzania, in 1908, it has always been one of the most
significant challenges for Tanzania to provide electricity for the population. Especially to rural
areas where eighty percent of the 41 million residents live; only two percent has access to
electricity here. Cities are better connected to the grid than rural areas. This is illustrated in figure
five, where a map of the electrification in Tanzania is presented. The power grid connection,
provided by Tanzania Electric Supply Company (TANESCO), only connects the major cities in
the country(Figure 5). However, even in these cities only fourteen percent of the total population
has access to electrical grid (Sebastian, 2012).
Figure 5 Power grid connections between the larger cities in Tanzania
Source: TANESCO, 2007
Accessing conventional grid based electrical energy is cost prohibitive and unable to reach the
majority of Tanzanians. Modern fuels (electricity, gaseous and liquid fuels) are costly, and it is
estimated that only 3% of population use these fuels. Greater than ninety five percent of citizens
in Tanzania rely on less efficient solid fuel energy sources. The burning of biomass fuels, mostly
fuel wood, represents over ninety-two percent of the energy use of the country (Sebastian, 2013).
Eighty percent of the national energy consumption is directed to domestic use, such as cooking
and lighting. The use of these energy sources relies on inefficient technologies (3-stone cooking,
kerosene lamps) that consume upwards of thirty-three percent of a typical families’ monthly
income (Sebastian, 2012).
Charlotte Elink Schuurman/Utrecht University/2014
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By current estimates of the Ministry of Energy and Minerals (MEM) in Tanzania, consumptive
demand for electricity is increasing by twelve to fourteen percent annually while electrical
generation increases are a mere six percent every year (MEM, 2012). Within this framework,
MEM has specifically identified a greater role for new and renewable energy sources (biofuel,
solar and wind) with targets to increase their presence in the current national energy mix from six
percent to fourteen percent by 2015. However, despite these priorities, most attention (and
investments) in energy in Tanzania continue to be directed to recently discovered oil and gas
reserves, grid extension, and to a lesser extent, hydro power (Sebastian, 2013).
In rural areas, as mentioned earlier, a lot of households in the rural areas of Tanzania are unelectrified. Lahimer (2012) mentions various reasons for this: “Rural electrification is a
complicated issue because of user affordability, rural inaccessibility and remoteness, low
population densities and dispersed households, low project profitability, fiscal deficit, scarcity of
energy resources, population growth, lack of professionalism, and over-dependence on
subsidies” (Lahimer, 2012)
Another main reason is the cost of connecting to the grid. In many cases, houses are right
underneath a TANESCO3 power cable, but they are still not connected because of the connection
cost: ‘US $700 cost to connect to the grid is equivalent to eight months of minimum wage.’4 Even
in the most positive of scenarios the largest part of the rural population will not have access to
modern energy in the coming 40-50 years (Sebastian, 2013).
Renewable energy sources such as solar PV can contribute to lower the household expenditures
in Tanzania and provide sustainable, clean energy for the future.
Solar PV and Pico- Solar PV
Solar technology, or solar PV energy, is a renewable energy that does not release any greenhouse
gases into the atmosphere when in use, as the process absorbs light energy as opposed to the
burning of a fuel in order to generate the output of electricity. Photovoltaic (PV) is a method of
generating electrical power by converting solar radiation into direct current electricity using
semiconductors that exhibit the photovoltaic effect. Photovoltaic power generation employs solar
3
4
Tanzania Electric Supply Company Limited
Tanzania statistics 2013, http://www.ashden.org/winners/OffGrid14
Charlotte Elink Schuurman/Utrecht University/2014
20
panels composed of a number of solar cells containing a photovoltaic material. According to IEA
analysis, under extreme assumptions solar energy could provide up to one-third of the world’s
final energy demand after 2060 (Legros, 2009).
The promotion of Solar PV has reached Tanzania and although several solar PV companies have
entered the market over the last couple of years, it has by far not reached the majority of the
(rural) population.
Currently, the Tanzanian government is promoting the private sector and renewable energy
approaches for rural electrification. One of these approaches involves the lifting of the VAT
(Value-Added Tax) for solar energy, specifically the development of the market for solar
photovoltaic (PV) technology. The once small Tanzanian solar market is slowly growing
exponentially, although the overall numbers are still relatively small given the size of the country
and the needs of the rural population.
Pico-solar PV systems are the smallest power output of the solar technologies.
Systems are available in a variety of forms with a solar panel, battery and LED light; the IFC has
described pico-solar as follows:
‘Off-grid lighting products or systems that are stand-alone, rechargeable and can be installed,
assembled and used easily without requiring assistance from a technician. These products are
affordable, typically costing less than €70-80, with some retailing at € 7 or less. They typically
have three key components:
A. electricity source, most commonly a small 1-5W solar panel
B. a modern rechargeable battery
C. a modern lantern or lamp, usually with an LED (Light Emitting Diode) bulb. (ESMAP, 2013)
Why Business in Rural areas?
Rural areas have a lot of business potential. The next elaboration of Prahalad illustrates the
upcoming of rural areas worldwide: ‘Figures from the UN and the World Resources Institute
indicate that by 2015, in Africa, 225 cities will each have populations of more than 1 million; in
Latin America, another 225; and in Asia, 903. The population of at least 27 cities will reach or
exceed 8 million. Collectively, the 1,300 largest cities will account for some 1.5 billion to 2
billion people, roughly half of whom will be rural consumers now served primarily by informal
Charlotte Elink Schuurman/Utrecht University/2014
21
economies. Companies that operate in these areas will have access to millions of potential new
customers, who together have billions of dollars to spend’ (Prahalad, 2002).
In Tanzania, as mentioned in the geographical textbox earlier, two-third of the population lives in
rural areas. That means that approximately 30 million, of the forty-four million people living in
Tanzania, live in the rural areas. Concluding, Prahalad statement also goes for the rural areas of
Tanzania; a huge potential consumer base for companies is available in the rural areas of
Tanzania.
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3. Theoretical Framework
In this chapter, the theoretical framework behind the research questions will be unraveled after
extensive research in the literature. The main question of this paper focuses on improving the
value chain to make pico-solar products more available and affordable for the off-grid households
in the rural areas. Different activities of the value chain, which can contribute to an affordable
way of delivering pico-solar products to the rural areas, can help find the answer to this
challenge.
Five activities of the value chain have been identified, in the academic literature, as useful and/or
necessary to improve the availability and affordability of pico-solar products to the rural areas.
These activities form the base of this chapter and will be discussed in the next paragraphs:
1. Marketing
2. Inclusive business
3. Finance
4. Distribution
5. After sales and warranty
Besides above mentioned activities, several other topics will be discussed in this chapter. The
chapter starts out with a look at the business opportunities and challenges for companies in rural
areas. Thereafter, a description of the value chain will be given. This will explain the activities
that are needed to deliver a pico-solar product to a rural consumer. After that, the five activities of
the value chain relevant to this research, mentioned above, will be discussed individually. The
chapter closes with a discussion on the developing perspective of the products for the rural areas.
The theory in all parts will be mainly based on theory for new products, since pico-solar products
are perceived as relatively new products.
The first and second sub-questions of the research will be answered in this part:
1.
What challenges and opportunities do companies face when doing business in the rural
areas of Tanzania?
2.
Which activities in the value chain can be distinguished to make the pico-solar products
more affordable and available in the rural areas?
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3.1 Business in rural areas
1.
What challenges and opportunities do companies face when doing business in rural areas of
Tanzania?
It is debatable, for various reasons, whether doing business in rural areas and poor communities is
worthwhile for companies. Rural markets in the developing world are different from those in
urban areas in the developing world or in developed countries (Kaur, 2013). Even between rural
markets, wide variations exist. It is important for companies to realize that a universal approach
to doing business in rural communities does not exist; heterogeneous, new and creative
approaches are required by companies to succeed in rural markets (Prahalad, 2009).
An
overview of the different challenges and opportunities of doing business in rural areas is
presented in the next part.
3.1.1 Opportunities rural business
Many experts emphasize the many opportunities that exist for companies in relatively untapped
rural markets. Prahalad in particular is a big proponent of doing business with the rural poor and
encourages companies to invest in this market segment (Prahalad, 2002). He argues that
companies that operate in these areas will have access to millions of potential new customers,
who together have billions of dollars to spend (Prahalad, 2002). This huge population base in
rural areas provides a large consumer base for companies to sell their products and services on a
sizeable scale (Kaur, 2013). Rural markets have become important for every company, especially
as companies appear to have largely saturated their existing markets in the developed countries
(Prahalad, 2002). The level of competition in urban markets has intensified and thus penetration
into rural markets offers a good opportunity for companies to ensure continued growth (Kaur,
2013).
Furthermore, it is a common misperception that the goods sold in developing markets are
invariably cheap and, hence, that there is no room for a new competitor to enter the market and
turn a profit (Prahalad, 2002). In reality, consumers at the bottom of the pyramid pay much
higher prices for most commodities and services than their middle-class counterparts. This is
mainly due to the long distances that the products need to pass to reach rural consumers. This
means that there is a real opportunity for companies to capture market share by offering high
quality goods at lower prices and thereby maintain attractive profits (Prahalad, 2002). Prahalad
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24
explains in his book ‘ The Fortune at the Bottom of The Pyramid’ (2009) that companies need to
figure out what the poor people need and want and offer products that are in line with these
desires. Moreover, the products for the poor often need to be smaller and cheaper versions of the
products for the developed population. Pico-solar is a good example of the strategy to customize
products for the poor, being the smaller and cheaper version of large solar systems.
3.1.2 Challenges rural business
Just as there are arguments for doing business in rural areas, there are also arguments against
doing so. The distribution of products to rural areas remains a significant challenge. In particular,
businesses face challenges in reaching potential customers in dispersed areas where there is a low
density of shops, and the lack of transportation infrastructure hinders the establishment of a
functional, affordable distribution model. Other distribution challenges for companies to rural
areas are mentioned in Figure 6.
Figure 6 Challenges in Rural distribution.
Challenges in Rural Distribution:
Dispersed Target Population
Poor road connectivity and infrastructure
Besides distribution problems, there are mainly
financial challenges to doing business in rural
areas. Solar companies face two financing
challenges. First, companies often lack the
start-up capital needed to purchase the
Large number of small markets
products (Lighting Africa, 2010). However,
Low investment capacity of retailers
since
for-profit
companies
are
profit-
motivated, their path to profitability is
Poor storage system
Low density of shops per village
Difficult to find suitable dealers
generally shorter, and it is easier for them to
raise the needed start-up capital to manufacture
and distribute their product (Lehr, 2008).
Second, the solar companies lack working
Lot of effort without any guarantees of purchase
capital to sustain their business. Working
Heterogeneous customers, partners and market
capital means having sufficient liquidity to
characteristics; difficult to replicate successful
purchase products and sell them before
models
receiving payment (Lighting Africa, 2010).
Source: Rajendran, 2012/ Lighting Africa, 2012
Retailers face the greatest upstream financing
challenges and therefore struggle to purchase
Charlotte Elink Schuurman/Utrecht University/2014
25
the products from the manufacturer for delivery to rural markets. Distributors are not typically
offered credit from manufacturers that they need to purchase the product, and, as small
institutions with limited credit history, struggle to get credit from mainstream finance institutions
like commercial banks (Lighting Africa, 2012). On top of that, retailers are often required to
extend credit to other retailers in order to stimulate sales (Lighting Africa, 2010).
The other challenge for retailers in rural or peri-urban areas is that they are confronted with the
end-consumer’s limited ability to pay for product up-front (Lighting Africa, 2010). Having to
come up with an upfront-capital is a problem as most people in rural areas do not have the
savings to afford a sometimes substantial up-front cost to purchasing an item.
Karnani (2007) argues that profit opportunities are modest at best and doing business with the
Base Of the Pyramid (BOP) only leads to high overall costs. The dispersion of the rural poor
increases distribution and marketing costs, and makes it difficult to exploit economies of scale
that facilitate business practices in urban areas in developing countries or in developed countries.
Moreover, weak infrastructure (transportation, communication and media) and the comparatively
small size of each transaction further increase the cost of doing business in rural areas (Karnani,
2007). Karnani attacks Prahalad’s thesis concerning sales to rural poor, as articulated in his book
‘Fortune at the Bottom of the Pyramid’, claiming that there is no fortune to be made by selling to
the poor (Karnani, 2007).
To conclude, on the one hand, business opportunities at the Base Of the Pyramid are real, and
they are open to any company willing to engage with rural communities and learn from the
experiences of others. However, on the other hand, companies need to stay realistic. It is
debatable if high profits will and can be made at the BOP where the population earns and owns
so little money and the transaction costs are so high. It can be profitable to do business with
higher income segments within rural markets, as companies can focus on building a business with
relatively wealthy individuals, such as farm owners, business people, or government employees,
all of whom can more easily afford these product offerings. This can especially be a valid option
for new companies with limited capital and relatively expensive products for the rural consumer,
such as pico-solar (Neuwirth, 2012).
Several activities of the value chain, such as distribution, finance and marketing, can make
Charlotte Elink Schuurman/Utrecht University/2014
26
business in rural areas easier; this will be elaborated in the rest of this chapter.
3.2 The value chain
2.
Which activities in the value chain can be distinguished to make the pico-solar products
more affordable and available in the rural areas?
Why the value chain?
To distribute new products, from its manufacture to the end-consumer, there are a lot of aspects
to take into account. Besides a distribution model, financial aspects, recruitment of (local) staff,
marketing and after sales service are all components that play an important role in the final
delivery of a product to the end-consumer (Porter, 2008). Over time, several constructions have
captured these different activities in a so-called chain. The (Global) Commodity Chain (GCC) of
both Hopkins & Wallerstein (1986) and Gereffi (1994) focuses on the range of activities required
to bring a product to the end consumer. However, for this paper, the focus in the (G) CC was too
much on the governance and international aspects of the activities in this chain. The Value Chain
of Porter is more closely linked to this research and was there for identified as the best model as
base for this paper (Porter, 1985) (Figure 7).
Figure 7 The Value Chain; the parts that are used for this paper are highlighted
Source: Porter, 2008
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27
In his book ‘Competitive Advantage’, Porter defines a value chain as a set of activities (Porter,
2008). These activities—to design, produce, market, deliver and the after sales service of a
product—are performed by a company to create value for its customers. In competitive terms,
value is ‘the amount buyers are willing to pay for what a firm provides them; the goal of any
generic strategy. A firm is profitable if the value it commands exceeds the cost involved in
creating the product’ (Porter, 2008). By creating value for customers, marketers capture value
from customers in the form of sales, profits and long-term customer equity (Kotler, 2013).
Differences among competitors’ value chains are a key source of competitive advantage between
them. These advantages can be the result of different product lines, marketing strategies,
geographic areas or distribution channels (Porter, 2008).
Value activities can be divided into two broad types: primary activities and support activities.
Primary activities are activities that the organization performs to add value to the products and to
transfer the finished product to the customer. Supporting activities are activities that assist the
primary activities.
The value chain adjusted to research
This paper does not include all activities in Porter’s value chain; it only focuses on some of the
primary and supporting activities, and then only on parts of these activities. Only the activities
from the point where a solar company gets the product from the manufacturer until it delivers the
product to the consumer are included in this research. Therefore, relevant activities from the
value chain of Porter for this research are: marketing and sales, human resource management,
firm infrastructure, outbound logistics and after sales service. These activities are considered
important to improve the value chain of pico-solar products. The other four activities (technical
development, procurement, inbound logistics and operations) are not relevant for this paper
because they are mainly concerned with the (technical) processes, and the production of a
product. This is not the focus of this research and thus is excluded from discussion throughout the
rest of this paper.
The terms used in this paper have been adjusted to fit the research more precisely (Figure 8),
although they are derived from and mirror those used by Porter in his value chain. They have
been adjusted because the research revealed that the original terms were too broad and these
adjusted terms helped the research to be more specific:
Charlotte Elink Schuurman/Utrecht University/2014
28
Figure 8 Terms value chain Porter + adjusted terms for research
Term Porters Value Chain:
Term used in research:
Marketing and Sales

Marketing
Human resource Management

Inclusive business
Firm Infrastructure

Finance
Outbound logistics

Distribution models
Service

After sales and warranty
The five adjusted terms are defined below and will be further discussed in the following subsections:
-
Marketing: Activities that inform buyers about products and services, induce buyers to
purchase them, and facilitate their purchase(Porter, 1985).
-
Inclusive business: Business models that include low-income consumers, retailers,
suppliers, or distributors in core operations (IFC, 2014).
-
Finance: The financial capacity and capital need of both the company and the consumer
(Brigham, 2013).
-
Distribution models: Activities that deliver the product the customer. Distribution
systems can be either internal or external to the company(Porter, 1985).
-
After sales service: Activities required to keep the product or service working effectively
for the buyer after it is sold and delivered (Porter, 1985).
3.3 Marketing
Marketing is important because it creates awareness of the existence of a new product on the
market. This is necessary because it informs potential customers and convinces them to buy a
product. However, previous studies show that rural marketing is very different from urban
marketing (Shah, 2013; Kaur, 2013). Many general marketing strategies cannot be used in rural
areas and need to be adapted to persuade the rural consumer to take notice of and purchase a
Charlotte Elink Schuurman/Utrecht University/2014
29
product. This problem for companies that want to use marketing strategies for their products in
rural areas is presented in this section. First, the definition of marketing will be discussed. After
that, specific marketing strategies for rural areas will be analyzed, including the so-called
marketing mix. Finally, the importance of word of mouth and trust among the consumer
population will be analyzed.
3.3.1 What is marketing?
“Marketing is an organizational function and a set of processes for creating,
communicating, and delivering value to customers and for managing customer
relationships in ways that benefit the organization and its stakeholders” (Kotler, 2013).
To effectively sell products, a company needs a marketing strategy. Without marketing, a
business may offer the best products but none of the potential customers will know about it.
Marketing ensures the promotion, sales, advertising and awareness creation of a product, and is
important in creating a customer base for a product (Belch, 2003). As defined by Kotler,
“Marketing management is the art and science of choosing target markets and getting, keeping,
and growing customers through creating, delivering and communicating superior customer
value” (Kotler, 2013).
Kotler has also reinforced the importance of marketing on every level of the value chain, stating:
“Marketing is the art of identifying and understanding customer needs and creating solutions
that deliver satisfaction to the customers, profits to the producers and benefits for the
stakeholders” (Kotler, 2013). In the marketing process, companies have to work to understand
consumers, create customer value, and build strong customer relationships (Kotler,2013).
3.3.2 Rural Marketing
Rural marketing is different than general marketing, which is mainly used in urban areas.
Marketing strategies for rural areas need to be adjusted in order to fit the rural consumer (Kaur,
2013). Rural marketing involves more intensive personal selling efforts as compared to urban
marketing. Firms should refrain from designing goods for urban markets and subsequently
marketing them in rural areas (Kar, 2008). Instead, marketers need to try and understand the
psyche of the rural consumers and then act accordingly (Prahalad, 2003). The evidence suggests
Charlotte Elink Schuurman/Utrecht University/2014
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that rural marketing campaigns can be extremely costly and time consuming, often requiring
door-to-door and direct contact to stimulate interest in products. Simple consumer awareness in
rural areas is usually insufficient by itself to generate sales. Especially for small organizations
this can be a big problem, as they are incapable of mobilizing large resources needed to run
marketing campaigns, and consequently the products of large organizations/enterprises
monopolize rural markets (Hirmer & Cruickshank, 2014). However, it remains necessary,
especially in early phases of new market development, to use marketing strategies until a “critical
mass” of customers develops (Martinot et
al., 2001).
Figure 9 Important rules to reach a rural market.
Several ‘rules’ for successful rural marketing
Important rules for marketers to reach a
rural market:
have been established over the years (Figure
9) as well as different tools to make rural
1. Use of print media or radio but no
alternate form of advertising for
promoting their brands
2. More focus on price of product but less
attention devoted to quality or durability
3. Low frequency of marketing campaigns
4. More focus on men as decision makers
and buyers.
marketing easier to comprehend. In this
paragraph, the business tool ‘the marketing
mix’ that can be used for rural areas will be
explained. After that, the importance of trust
will be discussed. Finally, different rural
marketing strategies will be presented.
Source: Chandrasekar, 2010
3.3.3 The rural marketing mix
Kotler (2013) mentions in his book ‘Principles of Marketing’ a business tool called the
‘marketing mix’. This marketing tool helps companies make choices in the process of bringing a
new product to the market by using the so-called four P’s: Price, Product, Promotion and Place.
The four P’s can help a company, as McCarthy , already in 1964, so eloquently described, to ‘put
the right Product in the right Place, at the right Price, with the right Promotion’ (McCarthy,
1964). However, as mentioned above, rural marketing is different from urban marketing, and
thus the mix needs to be adjusted to the requirements and expectations of the rural people. As
stated by Shah (2013): ‘The overall marketing mix framework for rural markets necessarily
focuses around delivery the right product, using value for money pricing, using effective means of
promotion, selecting the most appropriate method of distribution and building long term
relationship with the customer in order to sell their products’. To make this possible, and fit the
31
Charlotte Elink Schuurman/Utrecht University/2014
Source: Shah, 2013
rural markets, the four P’s of marketing have been replaced and modified to the so-called four
A’s (Figure 10): Acceptability, Affordability, Availability and Awareness (Kotler, 2009). The
four A’s are elaborated below.

Acceptability
Figure 10 Traditional marketing P’s become
rural marketing A’s.
Acceptability means that the companies need to
convince the customer to accept the (new)
Urban
marketing
Rural
marketing
Product
Acceptibility
Price
Affordability
Place
Availability
Promotion
Awareness
product. Therefore, there is a need to offer
products that suit the rural market. Companies
need to deliver products that are relevant to the
rural consumer in a way that she or he will
accept the product and eventually purchase it
(Shah, 2013).

Affordability
Affordability means that the price of the
product needs to be adapted to the rural
consumer’s budget (Shah, 2013). Due to rural
poverty, this usually means that the price must
be lowered. Affordability will be further discussed in chapter ‘Finance’.

Availability
Availability concerns the physical presence of the products in stores in rural markets. This entails
the product being available for the rural consumer in even the most remote places (Prahalad,
2012). Availability is particularly important in rural areas because the consumer usually
purchases what is offered and available at the outlet (Kaur, 2013). To build trust and a loyal base
at the Base Of the Pyramid, an uninterrupted supply of products and services needs to be ensured,
and direct contact with the local vendors and retailers has to be established. All possible efforts
should be made to make products available at the figurative doorstep of the target audience. For
example, cooperative societies, public distribution system, feeder markets, weekly village
markets, fairs and festivals can be utilized to ensure adequate distribution and availability of
particular products (Kaur, 2013).

Awareness
Charlotte Elink Schuurman/Utrecht University/2014
32
Awareness makes the consumer aware that the product exists. Companies need to let the
consumer know what products are available and which ones they sell. An important goal of
awareness creation is to win the trust of the consumers for the new products that they offer,
which is explained in the next sub-section.
3.3.4 Trust
A problem with the marketing of a new product in rural areas is the lack of trust for a brand or
company. Trust among the population is needed in order for the consumer to be convinced to buy
a product. The trust of consumers is often limited with new products because of their
unfamiliarity. Prahalad points out that this especially applies to rural consumers, stating: ‘the
poor are actually “very brand-conscious” and only seek out the brands they know well and trust’
(Prahalad, 2009).
Fake technological products on the market can be a big problem when it comes to building trust
among potential consumers. When consumers purchase a fake product of worse quality than the
real one, and the product breaks down, they take away the trust of the customer in the real item.
To discourage fake products on the market, it is important to emphasize the need to only sell and
distribute certified products. Certification ensures a certain product quality. It is thereby
important to offer a functional warranty for the product and to establish a good, functioning
network for replacing and returning faulty goods (Hirmer & Cruickshank, 2014).
Another way to build trust among the rural population for new companies entering the markets
with unknown brands is to ‘piggyback’ on an existing and trusted brand, known locally.
Piggybacking is known as a strategy whereby a ‘rider company’ joins an established ‘carrier
company’ that lends its brand name and strong distribution network to the rider (Neuwirth, 2012).
When seeking out a trusted brand to piggyback of, the rider should look for the following
attributes:
1.
The carrier does not already market a competing or substitutable product;
2.
The carrier’s brand is compatible with the brand image the rider is seeking to instill in
consumers; and
3.
The carrier has a long-term commercial or social interest in allowing the rider to
piggyback off their brand (Neuwirth, 2012).
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33
3.3.5Rural marketing strategies
Rural marketing strategies are methods to promote the product and reach the rural consumer
(Kaur, 2013). These promotional activities should be undertaken through media that are familiar,
comfortable and appropriate for the rural areas, to effectively tap the rural market.
In order to do this a strong brand name needs to be created first. A strong brand name causes
favorable and unique brand associations in the mind of the consumer, which often leads to the
purchase of that specific brand product. A high level of awareness and familiarity with a brand
can create an intense, active and loyal relationship between customers and a product (Keller,
2001).
A strong brand name can be established in rural areas by using marketing strategies. Figure 11
provides an overview of different rural marketing methods and their characteristics, established
by Lighting Africa.
Figure 11 Overview of rural marketing channels.
Source: Lighting Africa, 2012
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34
Marketing strategies should successfully associate a product with things rural people need. This
can be done by utilizing rural networks to reach consumers in their own language and in large
numbers, including folk dances, puppet shows, celebrations, festivals or other activities where the
rural consumers are familiar and comfortable with (Prahalad, 2003). Several other marketing
strategies, like the distribution of pamphlets, use of mobile publicity vans and advertising on
walls, can also assist in establishing a relationship with rural consumers (Kaur, 2013). However,
despite all these marketing strategies, although effective, simple word-of mouth between
consumers has the biggest impact on potential sales in rural areas (Elms & Pincott, 2009).
Word of mouth is considered as the key to success in the rural markets (Shah, 2013). As Elms
and Pincott (2009) write: “Word of mouth is one of the most influential touch points in creating
brand demand and informing purchase decisions. It is not a new touch point; people have been
offering one another advice since the development of language, but it remains very influential”.
Companies experience that knowledge of their products spread like wildfire through positive
word-of-mouth between consumers (Shah,2013). That is because consumers do not expect a
brand’s advertising to be objective, but they do expect their friends and relatives to provide an
unbiased view (Elms & Pincott, 2009). So if the word of mouth about a product is positive,
people are tempted to purchase a product and this can significantly increase sales of a product.
3.3.6Marketing Pico-Solar Products
Marketing pico-solar products is not easy, given the fact that they are likely to remain more
expensive than their conventional counterparts, such as kerosene, wood or charcoal (Ahuja,
2008). Companies seeking to facilitate consumer energy transitions, from conventional resources
to renewable sources, must demonstrate that the overall financial and nonfinancial benefits are
significant enough for the consumer to warrant spending their limited financial resources
(Ballesteros, 2012). Reasoning that in cases where switching to a clean energy product or service
does not provide a clear upfront economic advantage quality considerations are especially
important. For example, in regions where commodities for light are gathered, like wood, the
quality of pico-solar products can play an important role in convincing consumers to make a
purchase (Ballesteros, 2012).
Currently, the main problem in the pico-solar sector is that import-suppliers often accuse retailers
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35
of being wholly accountable for marketing campaigns and vice-versa (Hirmer & Cruickshank,
2014). This leads to the conclusion that there are two main factors that hinder successful
marketing in rural areas:
•The lack of capacity of the retailer to undertake marketing; and
•The lack of clarity of responsibility for marketing between import suppliers and retailers
(Hirmer & Cruickshank, 2014).
However, it is been shown by SNV that there is a potential demand for pico-solar products in
rural Tanzania, where there is no electricity at the moment (Sebastian, 2013). This existing need
for pico-solar products provides a big advantage to companies in the process to market and sell
these products. According to marketing expert Peter Drucker: “Selling is only the tip of the
iceberg. The aim of marketing is to know and understand the customer so well that the product or
service fits him and sells itself. Ideally, marketing should result in a customer who is ready to
buy” (Kotler, 2013).
3.4 Inclusive business
“The future lies with those companies who see the poor as their customers” (C.K.
Prahalad, 2000)
There is significant empirical evidence showing that “creating decent employment opportunities
is the best way to take people out of poverty” (World Employment Report, 2005). Moreover, free
market advocates argue that the best antidote to poverty is by creating opportunities for poor
people with steady employment at reasonable wages (Karnani, 2007).
Inclusive business, where the local population gets involved in the value chain of a company, can
create these opportunities for jobs and incomes in rural areas. Inclusive business models are
conceived as sustainable business solutions that increase access to goods and services, and create
new sources of income for low-income communities. Poor consumers can benefit from products
and services that are not only more in line with their needs but are also affordable. By focusing
on business viability and sustainability, these new models have the capacity to grow in scale, thus
including more and more people living in poverty in rural areas (Gradl, 2009).
However, the emphasis of inclusive business is mainly on “core business” rather than on
philanthropy (Gradl, 2009). Prahalad explicitly rejects social responsibility as the basis for rural
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market initiatives (Prahalad, 2009). Primarily doing business and creating jobs are assumed to
make the significant contribution in fighting poverty (Gradl, 2009). Although this is true, social
shortcomings can be identified. The concept of Creating Shared Value (CSV) combines social
and economic responsibility. CSV enhances the competitiveness of a company while
simultaneously advancing the economic and social conditions in the communities in which it
operates.
3.4.1 Creating Shared Value
CSV is a business concept that is premised on the idea that the competitiveness of a company and
the health of the communities in which it operates are mutually dependent (Kramer, 2007). The
principle of CSV involves creating economic value in a way that also creates value for society by
addressing its needs and challenges (Porter, 2011). Improving the lives of the billions of people
at the bottom of the economic pyramid is a noble endeavor but it can also be a lucrative one
(Prahalad,2002). Businesses must reconnect financial success with social progress. As Porter
(2011) argues: ‘The purpose of the corporation must be redefined as creating shared value, not
just profit per se’.
Companies can create shared value opportunities in three ways, by:

Reconceiving products and markets – Companies can meet social needs while better
serving existing markets, accessing new ones, or lowering costs through innovation;

Redefining productivity in the value chain – Companies can improve the quality, quantity,
cost, and reliability of inputs and distribution while they simultaneously acting as a steward
for essential natural resources and driving economic and social development;

Enabling local cluster development – Companies do not operate in isolation from their
surroundings. To compete and thrive, for example, they need reliable local suppliers, a
functioning infrastructure of roads and telecommunications, access to talent, and an effective
and predictable legal system (Porter, 2011).
3.5 Finance
Important parts of the value chain are related to financial issues. Finance plays a crucial role
when it comes to bringing a new product on the market. For both the supply side, the companies,
as the demand side, the consumer, financial capital is important. In the next sub-section, the
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37
supply and demand side will be explained. After that the “Transaction Cost Approach” will be
discussed to provide background information on the concept behind selling and buying of
products. Following an analysis of the purchasing power of the poor will be given. This section
ends with the discussion of possible loans and credit options for both the supply and the demand
side.
3.5.1 Supply and Demand Side
The price of a particular good in a market will vary due to supply and demand. The supply side is
a term for the side that produces and delivers a product, the company. The demand side is the
side that receives the products at the end of the value chain, the customers. The price
determination is an economic model of supply and demand; the quantity demanded by the
consumers and the quantity supplied by the producers. When the demand from the demand side
equals the supply from the supply side, the price of a product will be established. The four basic
laws of supply and demand are described in figure 12 (Besanko, 2010). Thus, for pico-solar
products, a lower demand from the rural population with the same amount of supply from the
solar companies can lead to a surplus and eventually lower the price of the pico-solar products.
Or the solar companies need to start produce more products leading to a surplus and a lower
price, when the demand from the population remains the same.
Figure 12 The four basic laws of supply and demand
1. If demand increases and supply remains unchanged, a shortage occurs,
leading to a higher equilibrium price.
2. If demand decreases and supply remains unchanged, a surplus occurs,
leading to a lower equilibrium price.
3. If demand remains unchanged and supply increases, a surplus occurs,
leading to a lower equilibrium price.
4. If demand remains unchanged and supply decreases, a shortage occurs,
leading to a higher equilibrium price.
Source: Besanko,2010
(Source: Besanko,2010)
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3.5.2 The Transaction Cost Approach
The Transaction Cost Approach (TCA) is a theory outlined by Williamson (1981) in his article
“The Economics of Organizations: The Transaction Cost Approach”.
Williamson used the concept of transaction costs to explain the organization of firms and the way
in which they interact along a value chain. Transaction costs are the transfer of goods or a service
between separate units in the value chain (Williamson, 1981). For example, a consumer buys a
pico-solar product from an organization for 10.000TZS; the customer hands over the money and
the company gives the costumer the product. Transactions arise wherever there is any form of
economic exchange. It is useful to divide transaction costs into three main classifications:
information costs, negotiation costs, and monitoring costs. Firms and individuals face costs in the
search for information about products, prices, inputs, and buyers or sellers. Negotiation costs
arise from the physical act of the transaction, such as negotiating and writing contracts, or paying
for the services of an intermediary to the transaction (Hobbs, 1996). Monitoring or enforcement
costs arise after an exchange has been negotiated. This may involve monitoring the quality of
goods from a supplier or monitoring the behavior of a supplier or buyer to ensure that all the preagreed terms of the transaction are met. Information plays a key role in all three cases, however,
the lack of information prior to a transaction is explicitly considered to be an information cost
(Hobbs, 1996).
Four key concepts underpin TCA: bounded rationality, opportunism, asset specificity and
informational asymmetry (Hobbs, 1996). The four concepts will be explained below.
Bounded rationality: This means that although people may intend to make a rational decision,
their capacity to evaluate accurately all possible alternatives is physically limited. Bounded
rationality poses a problem only in situations of complexity or uncertainty where the ability of
people to make a fully rational decision is impeded. This can occur when pico-solar companies
convince less educated or illiterate people in rural areas to buy their products using marketing
pitches.
Opportunism: This has been defined by Williamson as self-interest seeking with guile. In other
words, it recognizes that businesses and individuals will sometimes seek to exploit a situation to
their own advantage. For example, when pico-solar companies completely focus on profit making
instead of fulfilling the needs and desires of the rural population.
Asset specificity: This arises when one partner to an exchange (firm A) has invested resources
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39
specific to that exchange which have little or no value in an alternative use. Examples might be
the installation of specialized machinery in a production plant or the development or promotion
of a product unique to one market. Knowing that firm A has made a specialized investment, and
is therefore locked into the exchange, firm B could renege on the previous agreement by offering
firm A lower price for the product. This can occur when pico-solar manufacturers decide to work
together or contract manufacturers to build parts of pico-solar products.
Informational asymmetry: This means that many business exchanges are characterized by
incomplete, imperfect or asymmetrical information (Hobbs, 1996). Information asymmetry arises
when there is public information available to all parties but also private information that is only
available to selected parties, so that all parties to the transaction no longer possess the same levels
of information. Informational asymmetries can lead to opportunistic behavior in two ways. The
first involves information that is hidden prior to a transaction. This can occur if solar companies
hide information about faults in the pico-solar products such as bad working parts or toxic
batteries. The second occurs after a transaction because of the hidden actions of individuals or
firms. This can happen because their actions are not directly observable by other parties. For
example, the customer deliberately breaks a pico-solar product to get a new one from the
company.
In conclusion, the transaction cost analysis appears to provide a means to bridge the gap between
those who buy a product and those who sell the product.
The TCA is an important theory to understand the process behind the selling, and buying of
products. It is valuable to know what occurs in the financial processes along the value chain. The
approach serves as background information for this paper and is not specifically used in the
research itself.
3.5.3 Purchasing power poor people
In order for companies to sell their products, they need to understand their consumer and her or
his purchasing behavior. There are very few micro-level studies on the purchasing behavior of the
poor (Karnani,2007). However, it is known that income is one of the key factors why poor people
do not buy certain products. Poor people in rural areas do not have much income to spend, which
forces them to live day-by-day. As Fairborne (2007) has noted: ‘Poverty is living one day at a
time’. Poor people make small purchases and often do not have savings to afford products that are
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40
of higher quality or make long-term economic sense. This short-term thinking is a much seen,
typical characteristic in rural areas and the main reason why poor people not buy certain products
that they cannot afford (Fairborne, 2007).
Prahalad, on the other hand, argues that the assumption that the poor do not have money may
sound obvious on the surface, but is ultimately wrong (Prahalad, 2002). He maintains that, while
individual incomes may be low, the aggregate buying power of poor communities is actually
quite large (Prahalad, 2002). The purchasing power of rural consumers has increased over the
past decade and has transformed consumption patterns (Kaur, 2013). The rural consumer is no
longer dependent only on traditional or agricultural products as they are keen on buying modern
products that can augment their style of living and quality of life (Kaur, 2013). According to
these scholars, the poor are not solely concerned with fulfilling their basic needs and that they
cannot afford to “waste” money on nonessential goods anymore. In fact, Prahalad claims that the
poor often do buy “luxury” items (Prahalad, 2002). A majority of rural households own a radio, a
gas stove or have mobile telephones. That can be explained by the fact that buying a house for
most people at the BOP is not a realistic option so they spend their income on products they can
get now that can improve the quality of their lives (Prahalad, 2002). Banerjee and Duflo (2011)
claim that poor people could save money but that they choose not to, by spending all their money.
They show, in a survey on the choices the poor make, that the poor “could easily save more
without getting less nutrition by spending less on alcohol, tobacco, and food items such as sugar,
spice, and tea” (Banerjee, 2007).
However, not all scholars support the above mentioned positive perspective on the purchasing
power of poor people. Karnani (2007), for instance, argues in ‘The Mirage of Marketing to the
Bottom of the Pyramid’ that purchases are not based on choices or priorities that poor people
make when spending their income but that there is simply no money for the poor people left to
spend. Gangopadhyay(2004) agrees and points out that poor people spend about 80% of their
meager income on food, clothing, and fuel alone, which leaves no room for savings or for luxury
items. Poor people consume most of what they earn, and, as a consequence, it is a fallacy to claim
that there is much “untapped” purchasing power among the BOP (Karnani, 2007). As a
consequence, companies working in the BOP market often fail because they overestimate the
purchasing power of poor people. They think it is because of lack of availability of a product in a
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market that the consumer does not buy the product. To the contrary, a poor person is far more
constrained by lack of income than by lack of variety of goods and services offered in the market
(Karnani, 2007).
In conclusion, poor communities are not always able to purchase new technologies that improve
their economic opportunities or their quality of life. Companies need to be creative in order to sell
their products to the rural areas (Prahalad, 2002). A famous English saying is that a good
company can sell snow to an Eskimo. However, if people simply do not have the money to buy
the products, companies can be as creative as they want but then it will make no difference.
Besides, if people use their scarce savings to buy a product, it is debatable if they are better off.
3.5.4. Loans, credit and finance schemes
Loans and finance schemes can be useful in the process of selling or buying a product. Loans for
companies to sell products can be of great help in order to finance their startup capital or working
capital, which were indicated earlier as challenges for companies. Loans for buying can engage
costumers in a finance scheme and provide access to products that otherwise might be out of their
reach. Several finance schemes for energy products are available for both the supply side and the
demand side in rural areas such as loans or credits. However, finance schemes in rural areas of
developing countries are not always easy to engage in and even when financing is available, the
interest rates are typically prohibitively high (Lighting Africa, 2012). The ‘lucky’ small-scale
entrepreneurs who get loans from nonprofit microfinance institutions pay between 40% and 70%
interest per year, rates that are illegal in most developed countries (Prahalad, 2002). The same is
true for consumers. They have to deal with high interest rates that make it very difficult to pay the
loans back. Especially households and businesses with low or unreliable incomes, those that
typically have the greatest need for finance schemes, have the least ability to repay loans and are
often vulnerable to economic shocks (Winiecki, 2009).
Karnani (2007) states that providing credit or loans does not change the affordability of a
product; it only provides some other value to the poor, namely instant gratification. For the
privilege of this instant gratification, the consumer pays an interest rate per month. This does not
change whether the customer can really ‘afford’ an appliance, which is a function of the price of
the product. Karnani (2007) claims that people with “low and unpredictable income” should
rather put off the purchase of items, and instead save their money and pay in cash later .
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If a company operating in a rural emerging market still decides to provide loans and let customers
buy the products on credit, the following rules about how to avoid customer defaults need to be
followed:
1. Carefully screen customer credit-worthiness using in-person interviews;
2. Prevent the customer from overextending herself of himself financially;
3. Design a payment plan that is manageable for rural customers;
4. Create a customer-payment system that constantly reminds customers about the
requirement to pay their bills (Neuwirth, 2012).
For pico-solar products, it has been shown from research that poor consumers are willing and
able to pay for products under an appropriately designed credit scheme (SNV RBF, 2012).
However, providing credit, especially for small products in rural areas, is not directly
recommended. Credit risk is a serious concern of both financiers and dealers, and makes credit
sales particularly challenging (Martinot, Cabraal, & Mathur, 2001). Furthermore, the small ticket
size of the product, the lack of financing for these programs, the challenges of risk-sharing and
logistics coordination between financial institutions and product companies make granting loans
a lot of work for a relatively small reward (Lighting Africa, 2010).
The same recommendation applies to subsidies and micro-finances for small products in rural
areas. The risks to destroy a natural market with subsidies, and the aforementioned challenges
that come with these finance schemes, are big.
3.5.5. Rural prices
An option to avoid dealing with finance schemes, credit or loans, but still make a product
affordable for the rural areas, can be to lower the price of a product. It can be concluded from
existing research that the rural customer is price sensitive and expects value for money (Kaur,
2013). The pricing of a product has to be in line with this expectation, and marketers have to
devise strategies that can make their products affordable for rural customers (Kaur, 2013). The
importance of affordability is mentioned above in the sub-section ‘Rural Marketing’. It
emphasizes the price adjustment of a product to the rural consumers’ budget. An example of a
company who adjusted their prices is Coca-Cola. The company addressed the problem by
creating smaller bottles and selling these bottles for a third of the price in urban areas. Therewith
making it affordable for the rural costumers (Shah, 2013).
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There are three ways for companies to try and reduce their prices: reduce profits, reduce costs
without reducing quality, and reduce costs by reducing quality (Karnani, 2007). However, profits
are already very slim in rural areas and reducing quality for rural consumers is rarely advisable.
The only realistic way to reduce price to the consumer is to reduce cost without reducing quality.
This can be done by reducing the costs of the producer. For example, a significant improvement
in the technology of a product could already reduce producing costs dramatically (Karnani,
2007).
Besides reducing price, commercialization and competition is needed to make a product
affordable (Nielsen, 2010). The significant competition from other better performing and
available technologies means that cost must be essentially reduced to attract any market share:
“Lack of competition may stifle innovation, new products and services, and cost reductions”
(Martinot, Cabraal, & Mathur, 2001).
3.6 Distribution models
Distribution is a part of the value chain and refers to ‘the steps taken to move and store a product
from the supplier stage to a customer stage’ (Chopra, 2003). Distribution is a key driver of the
overall profitability of a firm because it directly impacts both the value chain cost and the
customer experience (Chopra, 2003). In the next part, rural distribution will first be described.
After that, five different distribution models will be analyzed with reference to their advantages
and disadvantages.
3.6.1 Rural distribution
For rural areas, distribution is referred to as the most critical barrier to doing business (Prahalad,
2002). It is difficult to reach rural customers because of the dispersed areas people live in, the
poor road infrastructure and the difficulty to set up a functional, affordable distribution model.
Therefore, well-functioning distribution models to rural areas can be of great value for a
company. It can grant access to otherwise isolated communities, provide marketing channels and
drive down transportation costs (Prahalad, 2002).
3.6.2. Distribution models
Lighting Africa (Figure 13) has identified five different distribution models to distribute products
to the rural areas (Lighting Africa, 2010; 2012). These distribution models are highlighted in this
Charlotte Elink Schuurman/Utrecht University/2014
Source: Lighting Africa, 2010
44
paper because they specifically Figure 13 Description Lighting Africa program.
apply to the characteristics and
challenges of the distribution of
pico-solar products to rural areas in
Tanzania.
The
five
different
distribution
models will be described below.
Lighting Africa
Lighting Africa, a joint World Bank and IFC program,
seeks to accelerate the development of markets for
modern off-grid lighting products in Sub-Saharan Africa.
The goal is to mobilize and provide support to the private
sector in supplying high-quality, affordable, and safe
lighting while creating a sustainable commercial platform
to realize the vision of providing 250 million people with
modern off-grid lighting products by 2030.
Figure 14 provides an overview of
different rural distribution models and their characteristics, established by Lighting Africa:
Figure 14 Overview of five different rural distribution channels.
Source: Lighting Africa, 2012
1. Standard distributor-retailer networks
In the first model, the standard distributor-retailer network, a company sells its products through
the traditional supply chain. The product is delivered from the manufacturer to the importsupplier or the retailer to its ultimate end at the consumer (Figure 15). This model is often used in
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developing countries in Africa because it is well-understood by the local population, there is a
share in marketing and logistics expense and the manufacturers can gain from the retailers local
knowledge of the market and consumer (Lighting Africa, 2010). However, there are also
roadblocks to the implementation of this model. Most companies require that retailers pay cash
upfront for products and this is a key bottleneck (further discussed in sub-section ‘Finance’).
Furthermore, it is difficult for all the stakeholders along the supply chain to find reliable and
trustworthy partners. The stakeholders often need guidance, training about the products and
continuous monitoring, which can become both costly and time consuming (Lighting Africa,
2010)
Figure 15 Value chain stages and sub-stages of pico-solar products.
Source: EnDev, 2010
The so-called hub-and-spoke model is also part of the traditional network. Under this model,
shops in major towns receive stock from the supplier and function as a warehouse and subdistributor to smaller towns and rural areas. Retailers in and around these major act as hubs and
the products are further distributed with vans or other transports to the rural areas, which are on
the spokes emanating from the major town hub. From the smaller towns on the spokes, the
products can be further dispersed to small rural villages. This way the scattered populations living
in small villages in even the most remote, rural areas can be reached (Rajendran, 2012).
2. Institutional partnerships; with MFIs NGOs and SACCO’s
“By designing tailored, sustainable solutions based on consumer needs and capacity to pay,
socially oriented energy enterprises and organizations can help identify, inform, and overcome
policy, capacity, and financing barriers that hinder energy access for low-income
communities”(Ballesteros, 2012)
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Import-suppliers and retailers often partner with NGO’s, SACCO’s (Figure 16), MFI’s (Figure
17) and even with other companies whose core activities do not directly relate to energy access.
Figure 17 definition SACCO.
Figure 16 Definition MFI.
Savings and Credit Co-operative
(SACCO):
Micro Finance Institution (MFI):
Microfinance Institutions supplies
loans, savings, and other basic
financial services to the poor and
low-income households
Source: Neidl,2012
A SACCO is a member-owned
financial cooperative, democratically
controlled by its members, and
operated for the purpose of promoting
thrift, providing credit at competitive
rates, and providing other financial
services to its members.
Source: SNV RBF Report,2013
These cooperative arrangements allow companies to gain from their partner’s customer base,
enable access to greater financial resources and increase the potential for high volume orders with
lower operating costs (Lighting Africa, 2012). Possible challenges that come with this model are
the high reliance level on each of the partners and the frequent disputes over cost sharing, risk
sharing, roles and responsibilities in the partnership (Lighting Africa, 2010).
3. Micro-franchise
In this network the manufacturer offers
Figure 18 Definition Micro-franchise concept.
franchising packages with the products, and
(Micro-) Franchising
support,
Franchising is the practice of copying the
practice of copying a successful business and
replicating it at another location by following a
consistent set of well-defined processes and
procedures. Micro-franchising follows the same
precepts of franchising but is smaller in its size
and scale and more focused on development.
Micro-franchising brings already successful
social entrepreneurs together with people who
are motivated to create their own small
enterprises, but who often lack the skills and
capital that can lead to success. Together, they
can grow the overall impact of a business and
create a local ownership and management
opportunity.
such
as
income
opportunities,
training and marketing support, to microentrepreneurs
(Figure
18).
Micro-
entrepreneurs thereby become a player in the
supply chain and they will be incentivized to
increase sale volumes, market the products
and raise brand awareness (Lighting Africa,
2012) Figure 19 provides an description of
the different activities for companies in a
micro franchise model.
Source: Lehr, 2008
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47
The share in marketing and logistics expense make it an attractive model for manufacturers and
import-suppliers although it can take a while to identify and build the franchisee network,
training and ensuring brand ownership.
Figure 19 Micro Franchise Model
Source: Hürlimann, 2011
4. Proprietary/ own distribution
Companies with a proprietary distribution strategy move products from the manufacturing
location to in-house storage facilities in rural areas and eventually to end-consumers using their
own networks (Lighting Africa, 2012). The advantages of this model are that the company
maintains control over pricing, quality and brand image, and avoids dealing with external players
or partnerships. The company can target its marketing directly to the customer and maintain all
the profits they make. A key disadvantage is that the costs of setting up the company for local
staff/infrastructure in rural areas are high for small goods; there is a considerable risk that the
local market will become saturated before recouping the cost of sales/distribution in that area
(Lighting Africa, 2010)
5. Rental/leasing
In this model the company leases the use of its products to consumers. In this way the company
allows the consumer to avoid the relatively high upfront expenditure of buying a pico-solar
product (Lighting Africa, 2013). In case of the pico-solar products, the retailers either rent
products out to consumers on an hourly/daily basis or sell the lanterns without a power source
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48
and offer a fixed fee for charging (Lighting Africa, 2010). The advantage of this model is that
products reach customers that cannot afford the full cost of pico-solar products. The small cash
flows of kerosene are imitated and ensure that people are able to afford the rental/leasing costs.
The challenges of the rental/leasing model are that a company is formed to maintain products and
ensure quality control, as well as the potential loss of the item itself (Lighting Africa, 2010).
Piggybacking
Besides these five models, there is another option for the entering company to distribute their
products to rural areas, namely piggybacking. This concept entails that a new company joins an
existing successful distribution network, which either already has been built by companies or that
already exist in the local areas (Neuwirth, 2012). ‘Piggybacking’ on existing infrastructure and
entrepreneurial networks has been identified in the academic literature as a good alternative to
building a new distribution network. As Terpstra (2001) argues: “Piggybacking is a non-equity
arrangement wherein one producer markets the products of another producer. The first producer
– the carrier in this case – performs as a distributor in marketing the products of the second
producer – the rider. The fact that the rider’s products are being distributed by another producer
may bring important benefits to the rider as compared with using a regular distributor”.
It is proven that piggybacking lowers the cost of the value chain, is time and cost effective and
helps sell new products more easily. This results from the trust in an existing brand/company that
is already there (Rehman, 2010). However, the World Bank (2010) points out that existing
distribution and logistics companies in rural areas can be unorganized and inefficient. Not to
mention that the entering company may have little opportunity for recourse should the
distributors it hires renege on their contracted promises (The World Bank, 2010).
3.7 Aftersales
After-sales service is an important component of the supply chain that builds trust in a company’s
brand (Neuwirth, 2012). It entails the service of a company to a customer including basic repairs
and technical support and/or replacement of a product (Lighting Africa, 2012). Although the
activity takes place after a purchase has already been made, it can distinguish a company from the
competition. If a company’s after-sales service is poor, customers will likely not purchase the
company’s products again (Neuwirth, 2012). Moreover, it is likely that unhappy customers will
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49
tell potential customers about their bad experience, and, as mentioned earlier, negative word of
mouth can be very bad for a company’s brand and sales.
There are two primary options for after-sales service: repair or replacement of the product
(Lighting Africa, 2012).
Repair often requires import-suppliers to operate service centers, processing complaints and
providing repair of the products. This requires significant investment in both training of
technicians, as well as managing service centers in different rural regions. Replacement of
products is based on their warranty. With this after-sales system, customers can take their faulty
products back to the point of sale; the retailer takes back the faulty product and passes it on to the
import-supplier. The import-supplier then send a replacement product to the retailer who
eventually delivers it to the customer. This method is relatively light on investment and only
needs an efficient means of sending faulty products and replacements along the value chain
(Lighting Africa, 2012).
There are a number of aspects that can be put in place to facilitate an effective after sales service:
-
Include cost of the support infrastructure in the product’s price so as this does not have to
be carried directly by the customer or by the companies
-
Provide appropriate guidance for correct product handling and repair, such as graphical
manuals and training guides
-
Ensure customers have access to repair or replacement services; product replacement
needs to be ensured at each stage along the value chain (cited in Hirmer & Cruickshank,
2014).
After sales service, both repair and replacement, for pico-solar products has a high relative cost,
given the low price of the products themselves. The additional value chain difficulties in
servicing remote rural areas can make after sales services very costly and time consuming for
companies. If a company chooses to provide after sales service, Lighting Africa states that,
considering the nature of pico-solar products, limited number of moving and component parts,
and long lifecycles, replacing of products will be often more cost-effective than repair (Lighting
Africa, 2012).
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3.8 Rural Development through light?
A lack of reliable lighting access limits the productivity of nearly a quarter of the world’s
population. Hindering their ability to carry out basic activities at night or in the early morning,
including household chores, reading and completing schoolwork, and conducting business. Given
the slow growth of electrification, due to the cost of extending the electrical grid, the global
lighting crisis increasingly separates those with reliable lighting from those who lack it, further
leaving a substantial proportion of the world’s population behind (Lighting Africa, 2012). But
can the presence of energy promore development? Can light bring oppurtnities for poor people to
develop themselves? Or is light mainly a practical and limited benefited that is not capabel of
making a real change in rural areas? This section looks at the role light can play in development
of rural areas.
It can be stated that affordable energy can play an important role in developing rural areas by
improving health and education, creating jobs, raising incomes and reducing the human labor
required to cook and meet other basic needs (Flavin, 2005). A few other general advantages of
bringing renewable energy to households without energy are mentioned below, based on the
report of Lighting Africa (Lighting Africa, 2010).
Impact on the Environment
The cumulative effect of people using kerosene and other biofuels for lighting contributes heavily
to global carbon emissions, although it is important to recognize that on a per capita basis, these
people remain at the bottom of the spectrum of CO2 emitters. Further research is needed on the
African off-grid household’s CO2 footprint, but what is beyond debate and more important than
the exact size of fuel-based CO2 emissions, is the fact that these CO2 emissions are absolutely
unnecessary in view of cheaper and safer renewable lighting alternatives. And although, from a
lifecycle perspective, the production and distribution phases of the product are source of
emissions, the operation of the renewable energy products does not produce greenhouse gas
emissions. Thereby, the emission of the production of the renewable energy balances out, when
looked at on a macro level, the pollution produced from conventional kerosene lamps (Dienst,
2013). However, what can become an environmental issue is the disposal of renewable energy
lantern components. In particular, establishing appropriate systems for the collection of used
batteries may be crucial in order to avoid negative environmental impact (Dienst, 2013).
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51
Impact on Health
The health implications of fuel-based lighting are two-fold: chronic illness due to indoor air
pollution and risk of injury due to its flammable nature. Burning a kerosene lamp indoors for just
four hours can result in concentrations of toxic particles several times higher than the World
Health Organization standard (Lighting Africa, 2010). Another study estimates that individuals
breathing particulate-laden kerosene fumes inhale the toxic equivalent of smoking two packs of
cigarettes a day (Rehfuess, 2006). Research suggests that kerosene fumes cause serious health
issues, including asthma, bronchitis, tuberculosis, heart disease and lung cancer. In addition to
toxic fumes from kerosene lamps, the danger of the hazard of fire and ensuing risk to life and
property is substantial (Lighting Africa, 2010).
Impact on income generating activity
Several studies in developing countries show that access to proper lighting (of high enough
illumination to enable reading and doing household and business-related activities) has
significant positive impact on productivity broadly and income-generating activity specifically
(Lighting Africa 2010; Pode, 2013). For many rural households, for instance, obtaining fuel for
lighting can be a time-consuming task that requires traveling long distances and is often
undertaken by women and children, reducing women’s available time for income generating
activities. Light can increase income by extending productive hours after nightfall and provide
expanded business opportunities by allowing more time to work at night and to stay open longer
if the insecurity and lack of customers is not a factor due to poor illumination (Lighting Africa,
2010).
Impact on Education
Children’s increased study time and the facilitation of reading are two of the major benefits of
better lighting. Children from newly solar powered homes remain awake longer each day and use
38% of their additional time for studying and reading (Lighting Africa, 2010). The introduction
of solar lighting can raise average study hours of students per household with a correlative effect
on school performance.
3.8.1 Development?
Can it be concluded that light brings development to the rural areas? The main thing light can
help the poor with and indirect alleviate poverty is to raise their real income (Karnani, 2007).
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There are two ways to do this: lower prices of the goods that the poor buy (which will in effect
raise their income). This can be done by offering renewable energy lamps, such as pico-solar, that
are cheaper to use on a daily basis than the kerosene lamps they use now, as they are not required
to replenish the feul. However, the up-front price of pico-solar products is very high for people in
rural areas. Purchasing a product can lead tolack of money, debts and liabilities. Another option
for poverty reduction is to raise the income that the poor earn. Light can have an impact on
income generating activity, by extending work and business hours, as discussed above. More
income can automatically lead to a developing of the rural economy (Karnani, 2007). This leads
to the inference that bringing light to rural areas eventually can lead to development.
3.9 Conceptual framework
A simple conceptual model for the delivery of pico-solar products to rural areas is provided in figure
20. The model is composed based on the theoretical discussion above. It provides a framework of the
process to improve the value chain for pico-solar products to the rural areas.
The activities of the value chain need to be adjusted to fit the characteristics of rural areas. The five
mentioned activities can lead to the creation of an affordable and functional value chain. This creates
business opportunities for companies to deliver the pico-solar products to rural areas. With a
functional value chain, light can be provided to rural areas. This in turn can support the development
of rural areas in Tanzania, the specific case study examined for this paper and a positive impact on
business opportunities for companies.
Figure 20 Conceptual framework
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4. Methodology
In this report a study is conducted to find options how an affordable and functional value chain
can be built to distribute pico-solar products and provide households with light and electricity in
rural areas in Tanzania. In the next section there will be a clarification of how the research is
performed. It will address the research design, the methods, and the participating respondents.
4.1 Research design
Figure 21 Map Research Areas.
Source: Google maps
This report is the result of research done both in the Netherlands and in Tanzania. The research
was part of the SNV IRES+ project, discussed above in the section on contextual background. In
the Netherlands, an extensive literature study was done. Thereafter, a four month long research
was completed at SNV to conduct the fieldwork. This fieldwork was done in three different
cities, Mwanza, Arusha and Dar es Salaam , in order to provide a complete as possible picture of
the solar sector in Tanzania (Figure 21). These three cities were identified to have the highest
activity level in the solar sector at the moment; most solar companies in the country were based
in these three cities. This research in the three different places provided a perfect opportunity to
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54
avoid potentially biased conclusion due to limited findings from respondents in one area.
Although informative, no significant difference was found between the perspectives of the
respondents in the different cities, and accordingly no distinction is made in the findings based on
geographical location.
Research questions
How can the value chain of pico-solar products be improved so as to increase access for off
grid households in rural Tanzania?
The main research question was constructed to fulfill the need to know more about the pico-solar
sector. Most households in the rural areas do not have electricity and although pico-solar products
are available in Tanzania and could be a good solution to this problem, the market adoption of the
products remains low. Not much research is done in this sector, especially not on this specific
problem, which made the research very challenging.
Following, the sub questions were constructed.
1.
What challenges and opportunities do companies face when doing business in the rural
areas of Tanzania?
2.
Which activities in the value chain can be distinguished to make the pico-solar products
more affordable and available in the rural areas?
3.
Which distinctive activities in the value chain are currently being applied in the picosolar sector?
4.
How can the distinctive activities of the pico-solar value chain contribute to the
development of the rural areas in Tanzania?
Question one is constructed to provide information on the business environment in the rural areas
and how difficult/different this is in comparison with urban areas. The second and third question
are both based on the value chain, however, they are separated into two questions. The second
question focuses on the theoretical background of the value chain while the third question focuses
on the current application of the value chain in Tanzania. Both are very important aspects in
providing a complete picture and understanding and therefore more useful when separated.
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Question four is constructed to find out if/how it is possible to bring development in the rural
areas of Tanzania through the pico-solar value chain. Can the value chain bring opportunities to
the rural population to develop themselves? This question will be answered. Concluding with the
question and answer how the pico-solar products themselves can develop rural areas.
4.2 Respondents
Based on the literature, the research design and -objective, respondents were chosen from the
supply side of the value chain, namely manufacturers, import-suppliers and retailers. In Figure 22
below, the difference between the terms of the respondents, are explained; solar companies is
used in this paper as an umbrella term, when referred to both import-suppliers and the retailers :
Figure 22 Terms respondents research
Term
respondent Characteristics
research
Manufacturer
Produce the pico-solar products in a factory
Import-supplier
Solar company that buys the products from the manufacturer and
sells and distributes the products to retailers and consumers.
Retailers
Solar company that buys the products from the manufacturer or
import supplier and sell the products to the consumer.
Solar company
An umbrella term when referred to both import-suppliers ánd
retailers. These companies sell the products to the consumers.
However, it became clear the majority of manufacturers of pico-solar were not located in
Tanzania, but often in Asia, Europe or other countries in Africa, and therefore not representable
to use in the research. Solar companies, that is both import suppliers and retailers, were identified
as the most important respondents. They often ‘control’ the entire value chain of their product by
both buying and (re-)selling the products. To put the findings in perspective, also companies
outside the sector and governmental institutions were interviewed. They could present their view
on the topics and put perspective on the views of the solar companies.
The respondents were identified in various ways. First, several companies who are partners and
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56
work together with SNV were selected based on their relevancy to this research. Second, an
internet review provided several other solar companies in the field that were useful for the
research. Third, after several interviews were conducted, the snowball method was used as well;
respondents advised and recommended other respondents that could be suitable for the research.
The choice to find respondents outside SNV’s network was deliberately done. This way the
research could also capture the perspectives of the solar companies in the sector that did not work
together with SNV. Possible bias from respondents towards SNV was thereby mitigated.
Twenty-five interviews were conducted in Dar es Salaam, Arusha and Mwanza, with the
following companies and institutions as respondents:
-
18 respondents from solar companies:
o 15 respondents from import suppliers
o 3 respondents from retailers
-
6 respondents from (governmental) institutions
-
1 respondent from a company outside the solar sector
Appendix I provide a complete overview of all the respondents that participated. Appendix II
provides an overview of the time planning of the research.
4.3 Methodology
In order to answer the research questions, a combination of quantitative and qualitative methods
was used. This choice of mixed methodology was used to get the most complete picture of the
situation and research area as possible. A quantitative part, a literature study, was combined with
a qualitative part, conducting structured and semi-structured interviews.
The literature study of this research include a wide variety of existing academic literature. This
study provide all the information needed to do an innovative and interesting research at the value
chain and existing activities in the field, both inside and outside the solar sector. The literature
review helps understand the current situation and different components of the value chain and
provided information to prepare for the field work and use the information as base for the
research.
The qualitative part, consisting of the field work, used semi-structured interviews with the
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respondents, identified in the next part. Three different interviews were constructed; one for
(governmental) institutions, one for solar companies and one for companies that were active
outside the solar sector. The interviews focused, beside the general information of the
company/institution, on seven spearheads, namely:
1.
Business in rural areas;
2.
Marketing;
3.
Inclusive business;
4.
Finance;
5.
Distribution;
6.
After sales and warranty; and
7.
Development perspectives.
These spearheads were identified through the literature study and selected to form the basis of the
subsequent field work and questionnaires. Therefore, these activities are maintained as the
guiding thread in the structure of this report. In the theoretical framework the concepts and
characteristics of the activities have been presented. In the findings, the occurrence of the
spearheads in the field will be enlightened.
4.4 Limitations
Time limits were a significant limitation for the research. Although a significant part of the
supply side of the solar sector could be interviewed, more time could have provided more
opportunities to interview, and include more respondents. This could have provided different or
supporting perspectives and outcomes on the subject.
Subsequent to the aforementioned more and diverse respondents is the limitation of the
geographical set up of the research. The major solar companies and highest activity in the solar
sector was found in the cities Mwanza, Arusha and Dar es Salaam, however, these cities mainly
cover the north-eastern part of Tanzania. Other, southern, western or more rural, cities with less
(upcoming?) solar activity could have been informative as well. Although the three cities were
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carefully selected, companies in other cities/areas could have provided useful insights in their
business models for this research and create a more diverse perspective on the subject.
The biggest limitation is that, although intentional, only the supply side was researched. For
further research it could be very interesting to do research at the demand side of the value chain.
This way, it can be made possible to research and gather perspectives of both the supply side and
the demand side and compare the findings of the two sides with each other.
Further limitations of the research will be discussed at the end of this report, in the paragraph
Discussion.
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5. Findings
To find answers for the aforementioned research questions, data analysis was done on the
conducted interviews. The data and findings of the interviews are mentioned in this section and
will be discussed below according to seven focus points. First, experienced challenges and
opportunities in doing business with rural areas will be discussed, including an analysis of the
principle Creating Shared Value is given. Second, the promotion of the products will be
discussed in the section ‘Marketing’. Third, in the section on ‘Inclusive business’, the local
involvement of the rural population in the pico-solar sector will be examined. The concept
Creating Shared Value will come in here as well. Fourth, an overview will be presented of the
financial aspects of the pico-solar value chain. Fifth, the different distribution models that are
currently used by companies will be analysed. Sixth, the section on after sales and warranty will
discuss the importance of services and tasks for a company after the product is purchased.
Finally, the chapter will end with a discussion on the development perspectives of pico-solar
products for the rural areas.
Summarizing, the structure of the findings in this chapter will have the following order:
1.
Business in rural areas
2.
Marketing
3.
Inclusive business
4.
Finance
5.
Distribution
6.
After sales and warranty
7.
Development perspectives
The sub-questions one, three and four will be answered in this part:
1. What challenges and opportunities do companies face when doing business in the rural
areas of Tanzania?
3. Which distinctive activities in the value chain are currently being applied in the pico-solar
sector?
4. How can the distinctive activities of the pico-solar value chain contribute to the
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development of the rural areas in Tanzania?
5.1 Doing business in rural areas
1.
What challenges and opportunities do companies face when doing business in the rural
areas of Tanzania?
In the literature, there are several challenges and opportunities identified for companies doing
business in rural areas. Opportunities include potential growth, the relatively still untapped rural
market and the huge population base with a large number of potential new customers. Challenges
include the difficulty posed in reaching potential customers in dispersed rural areas, the bad road
infrastructure that leads to the rural areas and the difficulty to setting up a functional, affordable
distribution model. In the next part several opportunities and challenges will be discussed that are
currently experienced by the companies in the field.
5.1.2 Opportunities solar- companies
As stated in the ‘Geographical Context’ earlier, rural areas in Tanzania contain two-third of the
population, approximately thirty million people. This large population has not gone unnoticed by
the solar companies in Tanzania. Fourteen out of the sixteen import-suppliers and retailers have
a positive opinion regarding the business opportunities in the rural market. The rural areas are
seen as new markets with a lot of new, potential customers. To avoid the busy, competitive urban
areas where companies must fight for every consumer, the rural areas provide enough space to
gather new consumers. The big potential consumer base and the untapped rural areas are seen, by
six out of the fourteen respondents, as a major opportunity.
Moreover, the respondents expressed the view that there is a pressing need for pico-solar
products among the rural population. This brings significant potential business opportunities.
Although urban people also buy pico-solar products due to the frequent power cuts in the
country, rural people are potentially much more eager to buy them. The majority of the rural
population does not have electricity at the moment and thus can really use the pico-solar products
to provide light for their basic household needs. Fifteen out of the sixteen respondents were
convinced that rural areas are good markets for their products, because of the general lack of
electricity there.
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Other opportunities of doing business in rural areas that are mentioned are the space to do
demonstrations of the products, sometimes even dance shows to promote the products, and the
calmer lifestyle of the rural population. It was stated that urban people in general are more
stressed and spend less time listening to marketers than rural people.
5.1.3 Challenges experienced by solar companies
“Everybody is just doing something … it is a jungle out there” (Respondent SIDA, 2014).
Nine out of the sixteen respondents acknowledged that they have problems with their distribution
and/or sales of their pico-solar products. The problems they encountered are mainly general
problems that occur in other sectors as well, and are not particularly related to the solar business.
For example, respondents stated that the business environment in Tanzania is relatively difficult,
and a hard place to start and grow a business. First of all, it is very expensive in Tanzania to set
up a business; capital investment costs are really high and there is no access to credit for
companies, or the available credits have extremely high interest rates (Karekezi & Kithyoma,
2003). Besides, it can take a lot of time and money to get the right papers that are needed to start
a business and get them signed by the right people of the government. As one respondent stated:
“It takes a lot of time, bribing and logistical problems” (Respondent SIDA, 2014).
Regarding the products, respondents stated that it is difficult to come up with the needed start-up
capital to buy the products before they even sell their first products. Both import-suppliers and
retailers explained that they have to come up with money in advance in order to purchase stock
from the manufacturer or the import-supplier. Therefore they often only purchase small quantities
in order to keep the price low and affordable, which is especially true for retailers who are
smaller. This results in low selling volumes for the import-suppliers, who in turn only have the
money to purchase small quantities from their manufacturer. This vicious cycle results in the
maintenance of the high prices and low uptake of the pico-solar products.
Another related challenge, for retailers, is that it is seems impossible to sell enough pico-solar
products to make a profit and sustain themselves. The import-suppliers often find that retailers
who only sell pico-solar products in their store have a very difficult time. As one respondent
stated: “It is impossible for them to make profit with only solar products because they often only
sell one or two products per month.” (Respondent Solargrid, 2014). This challenge is one of the
reasons that most retailers currently offer other products in their store beside the pico-solar
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Figure 23 Display Mona Solar; example diversity of products in a shop;
solar lamps mixed with other technical products.
products, such as food, drinks
or other technical equipment
(Figure 23).
Other examples of problems
that are mentioned are mainly
logistical problems such as the
breakdown
of
transport
vehicles, fluctuations in petrol
prices, bad infrastructure and
the dirt roads that lead to most
rural
villages
and
that
sometimes are washed away
during the rainy season. These challenges are seen as the most difficult in doing business in the
rural areas instead of the urban areas. Figure 24 gives an overview of all the experienced
problems, mentioned by the respondents; most of these problems will be addressed later in this
chapter.
Figure 24 Experienced challenges by the companies implementing pico-solar
Experienced challenges pico-solar PV
General challenges:
o
Difficult business climate
o
Long term benefits (rural areas=short term thinking)
o
No particular knowledge/interest/appreciation in energy
products
Financial challenges:
Geographical challenges:
Trust/Awareness challenges:
o
High initial/capital cost
o
High transport costs
o
Products too expensive for rural costumers
o
Low density population
o
Difficult to reach remote, scattered area
o
Low awareness among rural population
o
Limited trust because of fake products and unfamiliarity
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After-sales challenges
o
High cost to provide after sales
o
Very hard to manage after sales services all over the
rural areas
These above mentioned problems make the distribution of products to rural areas difficult and
costly. This results in companies being restrained in doing business in rural areas or even backing
out. Three respondents mentioned during the interviews that they are doubtful, for the
aforementioned reasons, if they will continue their business in rural areas in the future.
The seven companies that do not experience any problems explained that they adjusted their
business practices to local, rural circumstances that prevent them from having problems. They do
this mainly by streamlining their distribution with clear agreements and adapting to different
(weather) circumstances. For example, these companies use off-road capable trucks that do not
get stuck on the dirt roads leading to rural areas. Or they make agreements with retailers that they
pick up their own products and thereby avoid transportation problems in general.
3.
Which distinctive activities in the value chain are currently being applied in the pico-
solar sector?
5.2 Marketing
Marketing is a very important component in the process of selling new products to new areas.
Marketing is described as all activities that are aimed at identifying and satisfying the needs of a
market. In the next part, awareness creation will be addressed first, as well as trust and the impact
of fake products in the market. Following, a description of the different marketing strategies used
in the field will be provided.
5.2.1 Awareness creation
Pico-solar products are relatively new on the market. It is often stated that, as a part of marketing,
awareness creation among the rural population can play an important role to satisfy the needs of
the local population. At the moment, awareness creation is one of the major key points hindering
the development of a sustainable market for pico-solar PV systems. Immerzeel (2013) points out
that, at the current rate, low awareness is hurting sales and thereby demotivating new players
entering the market. A systematic, adequate approach is needed to fulfill the desires of potential
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customers for pico-solar products. Awareness creation among the local population and marketing
strategies are identified by the respondents to help hereby.
Awareness creation
Without exception, all respondents acknowledge that awareness is one of the most important
focus points when it comes to selling their relatively new pico-solar products in the field. It can
be concluded that the interviewed companies have a top-down perspective when it comes to the
awareness of the rural population towards pico-solar products. They emphasize that rural people
in the first place need to be educated about the opportunities and advantages of pico-solar
products, in order for them to buy them. A common refrain is that the rural population ‘needs to
learn’ about the financial, health and environmental benefits as well as made aware of products,
quality and pricing. As one expert put it: “It is important to teach people about the importance of
utilizing renewable energy, the dangers of using fossil fuels such as kerosene and showing them
the benefits of using pico-solar products” (Azadian, 2013). This perspective of the companies
may be viewed as condescending. The fact that most people in rural areas are poor does not mean
that they are not smart and need to be educated about products. Of course awareness creation can
be good to get people familiar with a product, but it seems that people are already familiair with
the concept of solar products. As one respondent argued: “The population in Tanzania is getting
more and more aware of pico-solar; let’s say there is a healthy awareness out there”
(Respondent SolarAid, 2014). It can even be said that rural people are aware of the products but
are still not tempted to buy the products.
The rural population owns radios, mobile phones and other modern technology, so can it be
assumed that the rural population prefers to spend their money on those, or other, products, just
not on lamps? Can it be concluded that solar companies see a clear need for pico-PV products but
rural customers may not? It appears that the rural population is aware of pico-solar products and
its benefits, but that they simply do not find pico-solar products important, necessary or worth
enough to purchase them. Of course solar companies should promote their new products, and
awareness creation can help thereby. Respondents indicate that the awareness of solar has slowly
increased over the last years in rural Tanzania, which helped their sales. This has been especially
true since 2008, due to awareness creation projects in rural areas, held by big companies (for
example: SolarAid) and organizations (for example: UNDP).
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However, companies have to get rid of the perspective that they have to ‘educate’ the rural people
about their products. Marketing, for example, is different than the awareness creation that is done
now by most companies, but just as effective. It can be recommended for companies to switch
from the top-down educating and learning process to the creating awareness that entails more
suitable marketing strategies, elaborated in the section on ‘Marketing’, further below.
Visibility in the stores
An essential component to create awareness of available, new products such as pico-solar is
visibility in the stores. It is commonly known in the marketing world that visibility at the point of
purchase is crucial; as the maxim states, unseen is unsold (Young, 2012). Most new product
failures are not a result of shoppers actively considering (and rejecting) a new product
proposition. Instead, they are a function of new
Figure 25 Example disorganized storage pico
solar company
brands getting “lost on the shelf” and never
being considered by most shoppers. Young
(2012) notes that the most decisive driver of
new product success is shelf visibility; the
likelihood that a product will be actively
considered by shoppers. At the moment, a lot
of retailers in rural Tanzania stock their
products in a cluttered, disorganized and dusty
way in their stores (Figure 25). This untidiness
in the stores leads to doubts and resistance at
the consumer side to purchase a solar product.
Therefore, it is important for shop owners and
retailers of pico-solar products to make the
brands and products visible on the rural retail
shelves and display the products on proper
racks, display boxes and stands.
Trust and Fake products
“The fake imitation products are a big problem and mess with the trust that people have in solar
technologies” (Respondent REA, 2014)
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Besides the above mentioned points of awareness creation, it is essential to earn the trust of
customers for new products. The rural population needs to have the guarantee that they can trust
this new brand and product when they decide to make the purchase. A possibility for new
companies to win this trust is to link with existing brands, called ‘piggybacking’ (Neuwirth,
2012). Hereby, an existing company brings the pico-solar products to market in association with
their already familiar brand and thereby creates trust among the rural population for the new
brand. People will more easily trust a pico solar product that is linked to a brand they already
know and trust than a completely new brand. The brand they partner up with does not have to be
associated directly with pico-solar products; a pico-solar company can also partner up with a
company that sells, for example, detergent, soap or food products to rural areas.
In the pico-solar market, there are a lot of cheap, fake solar products circulating on the market.
Fake pico-solar products that are available on the market can be harmful in this process to win the
populations trust. There are a lot of fake products from uncertified factories in China, India or
Tanzania itself that produce nearly identical products to the real products (Figure 26). The fake
products are often not even that much cheaper than the real ones, which makes it that much more
confusing for people. For example, in Figure 26, both products are around 15.000 TZS.
Figure 26 Example of a real Dlight S2 (left) and a fake Stepsolar lamp (right)
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Potential rural customers can be deceived by the price and assume it must be an original product.
This would not automatically be a bad thing, because a lot of fake brands can produce functional
products. However, the fake products in the pico-solar sector are known to be of inferior quality.
This is especially true of the bulbs and frames of fake lamps, which are of much worse quality
than the real products. They break down more easily and the batteries can be toxic. On top of
that, when the product breaks, they appear to have fake or non-existent warranties. This leaves
the customer stranded with a broken product and nowhere to turn to for assistance or service. For
the customers who decided to buy a pico-solar lamp and make the investment, this ends in a very
bad experience and they lose trust when the product appears not be working properly: “People
buy fake products because they are cheaper; then they break and people say that solar does not
work” (Hirmer & Cruickshank, 2014). These fake products make the sales for the existing
companies, with certified products, very difficult and it is seen as a big problem in the market. As
a respondent reports: “The main challenge actually is that retailers and customers leave us to buy
cheaper, fake products. The fake products have a much shorter lifespan and stop working after a
short time. People who buy those fake products do not want to buy solar products ever again.
This really harms our solar industry” (Respondent Zara Solar, 2014).
Respondents frequently mention their strong brand as a key component in their struggle against
fake products: “Our brand is well known because we were the first solar company in Mwanza, we
were pioneers and so if people think of Solar they think of Zara. They trust us and our products”
(Respondent Zara Solar, 2014).
Finally, further certification of products can help distinguish fake products from real ones. The
creation of such certification standards is an integral part of the Lighting Africa agenda (Lighting
Africa, 2010). Involving the government to check the standards of pico-solar products is also an
option. As one respondent states: “The government needs to check all the imported solar products
that come into the country and make checks at solar companies regularly, to avoid fake products
on the market” (Respondent REA, 2014).
5.2.2 Rural marketing strategies
Most respondents do not mention the basic, conventional marketing strategies when asked how
people know their products or what their most successful marketing strategy is. They start by
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mentioning the prestige factor of solar, the word of mouth among a population and personal
contacts, as more effective drivers than any other marketing strategy they use. These factors will
be explained in the next part.
First of all, it has been shown that solar has a prestige factor in rural areas, especially among the
youth. It creates competitiveness and some sort of status; it is ‘cool’ and modern to have a solar
light instead of candles, kerosene or no light. As one respondent stated: “People see solar lamps
at their neighbors house and want the same: they are educating their neighbors who become
jealous, see the benefits and want it as well” (Respondent Global Cycle Solutions, 2014). This
automatically creates need and desire for the pico-solar products.
Second, it is striking that almost all respondents, fifteen out of sixteen, mention the strength and
importance for their company of so-called ‘word of mouth’. Word of mouth means the passing of
information from person to person. Respondents see this way as their most important driver to
attract new customers in the rural areas.
Another way to promote their products that is seen as very important by the companies is
personal contact with the customer. As one respondent states: “Contacts are very important for
trust branding and marketing; go to retailers, approach people, let them get to know you, your
products and your company.”(Respondent Voltzon, 2014). Personal contacts result in a high
selling volume for the companies.
5.2.3 Direct and indirect marketing strategies
After the methods of marketing described above, the companies express a distinction between
direct and indirect marketing, displayed in Figure 27.
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Figure 27 Different indirect and direct marketing strategies solar companies
Direct marketing
Indirect marketing
 Village demonstrations  T-shirts
 Exhibitions
 Posters
 Schools
 Television
 Door to Door
 Newspaper
 Village leaders
 Billboards
 Village demonstrations  Radio
 Magazine
 Exhibitions
 Bulk Text
 Flyers
The interviews with the import-suppliers and retailers show that they use a lot of diverse
marketing channels to try and reach their rural costumers (Figure 28).
Figure 28 Different marketing strategies used by the import suppliers and retailers to reach their rural
consumers.
10
9
8
7
6
5
4
3
2
1
0
9
8
Companies
4
4
4
3
2
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1
1
1
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1
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Most companies see direct and personal marketing strategies, such as visiting villages, giving
road shows, speaking at village meetings, going door-to-door and performing local
demonstrations as the most effective way to promote their products. It is the clearest, simplest
and most effective way to get the attention of the rural population and get a chance to explain to
them personally about the solar products being sold. Other possible, indirect, channels include
mass media initiatives through television, radio and newspaper. Some respondents had
reservations with the latter, however. As one respondent state: “Forget TV, radio or social media
for promotion. Most poor people don’t have mass media anyway” (Respondent Kakute 2014).
This argument is supported by the respondents who emphasize the time consuming aspect of
rural marketing. They state that marketing strategies should not be massive or media centered;
small, simple and personal reaches the rural customer the best.
Furthermore, it appears that the content of the marketing message a company sends is crucial.
The respondent of Voltzon explains it as follows: “When we started selling our products we
explained to the people all the health benefits and the money they would save if they didn’t had to
buy kerosene anymore every day. That didn’t sell at all. So we changed the message. Education is
very important to people in Tanzania so the moment we started telling the people that the lights
could help to achieve better school results, we sold literally thousands and thousands of lamps. It
is as simply as finding out what the people find important and adjust your marketing message to
that vision and I guarantee you will sell your products” (Respondent Voltzon Interview, 2014).
Originality in marketing strategies, such as painting houses in rural villages with the color and
name of their company, was indicated by the respondents as an important component of
successful marketing. Original marketing stunts at rural festivities, gatherings, village
celebrations or festivals can have a positive impact. This view is supported in the literature:
“Creative content that is different, emotionally engaging and relevant, is at the heart of effective
advertising. Advertising will have very little effect unless it captures attention and a place in
people’s memories.”(Elms & Pincott, 2009)
Another recommendation by a respondent, for a new and innovative manner of marketing, was to
send bulk texts to the rural population. The messages can inform and keep the rural population
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updated about offers and selling points of the products. Almost all rural residents have a phone,
even in the rural areas, and it is a cheap, effective way to reach a large target group.
5.3 Inclusive business
“Work with local people who know the market and the field and make that knowledge your advantage.”
(Respondent Voltzon 2014).
The significance of inclusive business is that it involves doing business with low- income
populations anywhere along a company’s value chain: they are incorporated into the supply,
production, distribution, and/or marketing of goods and services. This generates new jobs,
incomes, technical skills and local capacity (Gradl, 2009), which is also one of the priorities of
the aforementioned Creating Shared Value approach.
Most respondents indicate that working with local people and providing rural areas with jobs in
their supply chain is important. The importance and effectiveness of local, rural involvement is
emphasized by almost every respondent. As one stated: “It has shown that previous projects
including local people were more successful than projects that only included foreign workers. We
have done several projects, not only in the solar sector but in different sectors, where we
included local people and they all turned out very successful. Mainly because local people know
the market and the area. Foreigners can never know the knowledge the way local people know
this. This gives local people an enormous advantage when it comes to working in their own land”
(Respondent MEM, 2014). The solar companies see the local knowledge of rural people as
greatly beneficial to getting to know a market and the needs and desires of customers. Especially
when companies include local people on every level of the supply chain in the business, on
manufacture, import-suppliers and retailer’s level, local involvement is experienced as very
influential.
Although, the respondents from the Swedish Embassy and the Ministry of Energy and Minerals
(MEM) do not support local involvement per se. They both strongly encourage involvement of
foreigners and emphasize the importance of the technological knowledge and expertise foreigners
can bring to the Tanzanian population.
However, it is debatable how big the impact of pico-solar sector on the rural involvement actually
is. At the moment, products are imported from other countries were they are manufactured and
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assembled. After that, the solar companies, that are often originated in foreign countries or big
cities, like Dar es Salaam, go into the rural areas and sell the products there. This does not reflect
much inclusive business in the rural areas. Most respondents acknowledge that it is best to create
entrepreneurship and economic advantages in the rural villages themselves. But practice shows
that the way business is currently done can be seen as a form of exploitation by just “bringing the
products in and taking the money from the local people out” (Respondent X, 2014). Solar
companies in Tanzania have, as mentioned before, a business perspective rather than a social or
developing perspective when it comes to selling their products. It sounds good on paper that they
include local people and offer jobs and incomes, but in practice it turns out that this often does
not exceed more than ten people in total along the whole value chain. Most solar companies are
rather small and have one or two retailers and/or transport drivers. The bigger companies often do
not need more than ten people to sell, distribute and market their products.
On top of that, as mentioned earlier, it is not sufficient for retailers to only sell a pico-solar
product; that is not profitable enough to make a living. It can be concluded from the interviews
that only a small group in the rural areas will profit from the solar sector in the form of a job and
income and then only as an on the side job. Those people that profit, mainly have a higher
function in the company/organization, such as company directors, managers or head of
departments. The numbers from the interviews shatter the illusion of local involvement and
creating wealth by showing that sixty percent of the companies interviewed had foreigners in the
managing positions. The rest of the jobs, lower down the supply chain, are filled with local, rural
staff but these individuals are not able to make a full living out of their jobs, as stated above.
A reason mentioned for the absence of local people in the value chain is trust. Some respondents
acknowledged that it was difficult to build trustworthy relationships with people from all remote
corners in the country. One respondent states that a contract could be a solution for this problem:
“In the past we had problems with local staff where both we as them ended up disappointed. We
were disappointed after we invested in training and support and then they turned out not so
motivated to work as we hoped. Our staff ended up being disappointed when they expected
different work tasks or payment. But we learned to set up contracts and make clear agreements in
order not to be let down anymore” (Respondent Global Cycle Solutions, 2014). Of course,
contracts can be broken as well, but it is perceived as a good starting point for a balanced
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business relation.
Concluding, every change is good in the process of development and every person and household
that can develop itself due to employment in the pico-solar sector is one more than none.
However, the overall impact on the local, rural population due to local involvement is not as big
as some companies like to belief. Despite the relatively small number of jobs and involvement
that is offered to rural people, it can still be a good opportunity for people to work in the picosolar sector. This is especially true for the future, as the pico-solar sector continues to grow and
more jobs become available. Therefore, the principle of Creating Shared Value should be
implemented in the core business of the companies in order to expand the involvement of the
local communities and provide them with different work opportunities.
5.3.1 Creating Shared Value
As mentioned in the theoretical framework, Creating Shared Value (CSV) involves creating
economic value and profit for a company but in a way that it also creates value for a society by
addressing its needs and challenges (Porter, 2011). In practice, it can be stated that the companies
currently mainly have a profit making perspective. The majority of the respondents, thirteen out
of the sixteen solar companies, mention the importance of having a business perspective in their
work: “We have a business perspective, not a social or developing perspective. We are doing
pure business; we deliver products for money” (Respondent X, 2014).
As discussed in the theoretical framework, in most academic literature and research, an important
goal behind the distribution of pico-solar lamps to rural areas is to bring light and thereby
stimulate the development of rural areas. This essentially profit motivated approach among the
respondents to distributing pico-solar products can therefore be considered as a missed
opportunity, as none include the CSV in their business perspective. If may be asked: if pico-solar
products are so good for the development of rural areas, should there not be more organizations
or companies involved in this sector to act out for more altruistic reasons to support that
development? Furthermore, one may ask why take money from rural people that they often do
not even have, or sell products only so as to make a profit? Of course it can be stated that the
individuals purchasing pico-solar products are able to develop themselves after making the
purchase, one may still wonder whether the development perspective should not come in earlier
in the process? Why are there not more companies concerned with developing CSV, and not only
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with making profit?
It has been established that CSV can help both companies make a profit while simultaneously
facilitate local societies and rural populations as they develop on their own. There are three
distinct ways to do this: by reconceiving products and markets, redefining productivity in the
value chain and building supportive industry clusters at the company’s locations (Porter, 2011).
Only the first requirement is met at the moment by the solar companies; the second and third
requirement not (yet). Pico-solar companies meet the first requirement by offering small products
that are suitable for the small, rural households and by tapping a new market, namely the rural
markets. Pico-solar companies can meet the second requirement by offering jobs to local people,
providing incomes, using local resources to assemble the products, and manufacturing the
products in rural areas of Tanzania. At the moment, most products are manufactured and
imported from countries abroad, mainly Europe or Asia, which denies job opportunities for rural
Tanzanians. The last requirement, building supportive industry clusters at the company’s
locations, can be met by building a so-called supportive infrastructure. This can entail replacing
bad roads leading to rural areas, for instance, as this inhibits the distribution of products and
hinders general development. Building better infrastructure can benefit the local people in the
form of jobs and incomes as well as companies in the form of a more reliable, cost-effective way
to distribute their products. The biggest concern of companies is that CSV will not be beneficial
to them. However, we have seen from previous research that business can still be of economic
value in a way that it also creates value for society (Porter, 2011; Karnani, 2007). The relatively
low labor costs in rural areas of a developing country and the local knowledge of the rural people
can help a business to make profit while doing good.
In conclusion, it can be recommended that companies adopt the principle of CSV to not only
make profit but create benefits for the society and help develop the rural areas.
5.4 Finance
Finance plays an important role in purchasing pico-solar products. According to the respondents
interviewed as part of this research, solar products are, at the moment, too expensive. However,
due to increased private sector involvement and competition in recent years, the prices of picosolar products have come down significantly. Nevertheless, the high cost of the pico-solar
products was one of the most mentioned and experienced problems by the respondents. Both for
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the supply side and the end-consumer side, financial obstacles play a role in purchasing a picosolar product. In the next section, both sides will be explained more.
5.4.1Price products
Thirteen out of the sixteen respondents acknowledge the fact that the products are expensive and
that price remains a challenge for solar companies selling pico-solar products to the endconsumer, generally without the up-front capital to afford such an investment. It is less expensive
for people to buy kerosene everyday than to come up with money for the investment to buy a
pico-solar product. For rural people in Tanzania, whose daily average income is only 2.0005.000TZS, even the cheapest pico-solar product5 of 10.000-15.000 Tanzanian Shilling (TZS) is
too expensive to buy at once (Figure 29).
Figure 29 Example daily expenditure rural household.
Example daily
expenditure of an
average rural
household:
+ 3.000 TZS (daily income)
-2.000TZS food (2/3 of income)
-1.000 TZS non-food
(housing, transport, education,
kerosene/matches/candles, clothes etc.)
= 0.00TZS left
(->Cheapestpico-solar lamp: 15.000TZS)
Source: “Trends in food insecurity in mainland Tanzania,” 2010, and Beegle, Weerdt, Friedman, &
Gibson, 2010
Despite this, most of the respondents are convinced that the poor end-consumer would make a
purchase is she or he get to know, through awareness creation and promotion, how much money
could be saved with a solar product. As one stated: “You have to explain the benefits of a solar
product and then they will see that the price is worth it to make a long term investment”
(Respondent Mobisol, 2014). It is debatable if this is true for the rural population of Tanzania. As
stated before in the section on ‘Awareness creation’, there is a good chance that the rural
The lowest priced pico-solar product that the import-suppliers sell is called the Dlight S2 and costs 15.000 TZS (≈€6, 50). Based on data interviews
done, research, 2014.
5
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population already knows about pico-solar products and their accompanying benefits, but still
chooses not to buy the products. Moreover, as Figure 29 shows, for a lot of rural people it is
simply not possible to save or spend extra money on a pico-solar product, regardless of what the
benefits may be.
Three respondents refuted the proposition that pico-solar products are too expensive for rural
people. They argue that the rural population could buy them if they wanted to. One stated, for
instance, that: “It is not too expensive. People in the rural areas also have motorbikes and
sometimes televisions, so they have the money. They just rather spend it on other things than
lamps” (Respondent Arti, 2014). This argument has come up earlier discussing awareness
creation in the section on ‘Awareness and marketing’. In that section it was argued that the reason
why the majority of the rural population does not use pico-solar products is due to the fact that
they would rather spend their money on other products than on pico-solar.
Can it be safely concluded that pico-solar products are simply too expensive for the rural
population? It appears that rural people deliberately choose to buy small amounts of kerosene
everyday instead of making an investment in a pico-solar product. As stated above, solar
companies have a business perspective and mainly want to make profit of their products. Can this
lead to the conclusion that the pico-solar products are more attractive to sellers than for the
buyers? Or are the products too expensive for consumers but are they eager to buy them? If this
latter assumption is true, as currently perceived by the companies, loans and credit schemes can
offer help and promote sales.
5.4.2 Loans/credit?
One of the proposed solutions to the problem of the high up-front costs of pico-solar products is
granting loans to rural customers. Loan schemes raise possibility of giving loans either at the
beginning of the supply chain, whether to the manufacturers and import-suppliers, or at the end of
the supply chain, to retailers and end-consumers.
In the interviews, the focus was only on finance schemes for the end of the supply chain, in the
form of loans or grants from import-suppliers to retailers and/or end-consumers. It turned out that
none of the respondents offer loans to end-users or retailers at the moment. Most of the
respondents find it debatable if end-user loans or finance schemes for retailers should be used for
pico-solar products. The relatively low price of pico-solar products mean that the loan scheme
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would require extra administrative work, effort, time and up-front investment, with risk of
default, for only a small profit.
Credit systems are set up more and more and companies indicate that they are willing to
increasingly work with credit cooperatives. However, the respondents were very sceptical about
the credit risk entailed in creating a credit system, which is much bigger in the rural areas than in
the urban areas. There is no credit history upon which to base loans, and people move around
more easily and can therefore get away without repaying their loan (Martinot, Cabraal, & Mathur,
2001). Credit cooperatives are restrained as well, mainly because of the high interest and fees for
the relatively small amounts of money, and the novelty of pico-solar products which makes risks
unknown. It can be indicated that credit is a bit of a puzzle; there need to be credit to sell more
products but to get credit there need to be more products in the community. Therefore, it can be
stated that credit systems are a promising financial opportunity for the pico-solar sector, but
mainly in the future if the products and risks are more familiar.
However, one of the respondents expressed interest in a ‘Lay away program’ and wants to
implement this in the future. Using a so called lay away program, the customer commits to
purchasing a pico-solar product, and pays small installments over time and receives the product
in the end when the total purchase price has been paid. With this option, there is no upfront
investment and no loans/credit required for the costumer. The company has the guarantee that the
customer pays the product before he receives the product, which makes it very trustworthy
(Neuwirth, 2012).
5.4.3 Possible solutions
It is difficult for solar companies to lower the prices of the pico-solar products due to production
and distribution costs, and accordingly it will remain a significant capital investment for rural
people due to the lack of effective loan schemes. The overall opinion of the import suppliers and
retailers interviewed was not to lower their prices, as this would not be possible in their eyes
without incurring losses, or offer loans or finance schemes. Instead, the most popular view among
the respondents was to promote their products more effectively and thereby convince rural
customers to invest in their products. Although this is the dominant opinion in the field, it is
debatable whether this awareness creation would indeed help the sales of pico-solar products, as
it can be believed consumers to be already aware of their benefits but consciously choose not to
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buy them. In that case, companies have to come up with other solutions in order to make picosolar products more affordable.
One such solution is to build central charging centers in communities and villages. As one
respondent stated: “Charging centers are very promising in villages. People can get charged
lights and pay a small amount for the time they use the lamp and then they bring it back once it
ran out of light. Or they can come to a charging point to just charge their phones and pay a small
amount without having to come up with the whole price for the product which they most of the
time can’t afford.” (Respondent REA, 2014). This solution was also mentioned by the Rural
Electrification Association (REA), but none of the respondents from solar companies are
currently engaged in renting or leasing their products for such an initiative. Central charging
centers could be a good solution and overcome the price-obstacle while avoiding the
disadvantages of finance schemes or loans. It should be noted that there are also disadvantages to
this system, including determining responsibility and coverage for when a product breaks,
products not being brought back and up-front costs for the retailers in the local villages.
5.5 Distribution
“Product is King, distribution is God” (Respondent SolarAid, 2014)
The parts about distribution in the interviews focused on the construction of the supply chain, the
different stakeholders that were involved and how the distribution model was constructed, from
the manufacturer to the end consumer. In this paragraph, the distribution models that are
currently used in the field will be discussed.
5.5.1 Distribution models
Lighting Africa distinguishes five distribution models, as described in the theoretical section, for
companies to distribute their products to the rural areas: 1) The traditional network, 2) the directto-consumer network, 3) the micro-franchise network, 4) the institutional partnership model, and
5) the rental/leasing model.
In this section, four out of the five distribution models will be discussed; the rental/leasing
distribution model that is mentioned in the theoretical section is not used by any of the
interviewed companies. Therefore, the focus will solely be on the following four models that
were identified from the interviews with the import-suppliers and retailers:
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1.
The traditional network
2.
The direct-to-consumer network
3.
The micro-franchise network
4.
The institutional partnership model
1. Traditional network
The first option to distribute pico-solar products is the traditional network, which is used by six
out of the fourteen import-suppliers and one of the two retailers. Under the traditional network
model, the supply chain is constructed from the start with the manufacturer who delivers the
products to the import-supplier, who in turn delivers the products to the retailer, who then sells
the products to the end-consumer. In this type of distribution model,
Figure 30 Example
the import-supplier stays in charge and is responsible for all Traditional network
recruitment, marketing, distribution and after-sales related matters;
the retailer ‘just’ has to sell the products, but is not concerned with
any other issues relating the selling (Figure 30). Eight companies use
the traditional network as their distribution model. These companies
are overall the larger companies that build a name in the solar sector.
It can be recommended for companies that start to use this model to
grow.
The hub-and-spoke model (Figure 31) is part of the traditional
network, and is used by several respondents. Under the hub-andspoke model, retailers come to central places/cities (hubs) to buy the
products and distribute products from there to rural areas (spokes).
Source: Sollatek interview,
From the spokes the products are further distributed to small rural 2014
villages. As one respondent stated: “We do our distribution
according to a hub-and-spoke model. We distribute all over the country. First our porducts are
shipped to Dar es Salaam. From there on. They are distributed with vans to central points all
over the country, the bigger central cities so to say. After that the distribution is locally arranged,
with bicycles, bajaj6 or dala dalas7, to transport the products from there to the little
villages.”(Respondent MekOne, 2014).
6
7
Word in Tanzania used for a small three wheeled motor taxis.
Word in Tanzania used for Minibuses (Mari, 1997)
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Figure 31 Scheme Hub-and-spoke model rural areas
2. Direct-to-consumer model
The second distribution model, the ‘direct-to-consumer’ model,
Figure 32 Example Direct-
constitutes of a supply chain where the import-supplier receives the to-consumer model
product from the manufacturer and sells it directly from its own shops
to the end-consumer. One of the advantages of this model is that there
are as few people as possible within the supply chain and in that way it
keeps the price low. As one respondent stated: “We have an extremely
small margin between buying the product from the manufacturer and
selling it to the consumer. The most margin we have is on our most
expensive product and even that is only 5000TZS (€2, 20). The rest is
even less than that; we really have small margins” (Respondent Zara,
2014). Eight out of the sixteen respondents use this model and provide
the distribution for the products themselves (Figure 32). Eight
Source: Zara Solar interview, 2014
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companies use the direct-to-consumer method. These companies are usually the smaller
companies that do not have enough capacity to set up a complete distribution model.
3.Institutional partnerships
The third distribution model is distribution of the products using so-called institutional
partnerships. In this model, pico-solar manufacturers and
import-suppliers partner with other organizations such as Figure 33 Example Institutional
Micro Finance Institutions, NGO’s or financial cooperatives
partnership model.
such as Savings and Credit Co-operatives (SACCO’s). The
supply chain begins with the manufacturer, who delivers the
products to the import-supplier, who in turn delivers to a
MFI, NGO or SACCO, who sells it to the end-consumer. The
import-supplier is responsible for the recruitment of the staff,
the distribution of the products to the institutional partner and
the marketing of the product, but the NGO/MFI/SACCO
becomes responsible for the selling of the products and aftersales. (Figure 33) . This model is only used by two out of the
sixteen respondents, but is encouraged by Tanzanian
governmental
institutions.
As
stated
by
REA:
‘We
recommend solar companies to link with existing companies,
Source: Arti interview, 2014
form a partnership. This can either be with already existing
companies in the field but also with village banks, credit cooperatives or other financial
institutions’ (Respondent REA, 2014). The two respondents that had formed a partnership had
only partnered with SACCOs; none of the respondents had partnered up with an NGO or MFI.
These two companies both use the traditional network as well and indicated that they use the
institutional partnership model mainly as side network for their company, not as their main
distribution model.
4.Micro-franchise model
The last model is used by three out of the sixteen import-suppliers and retailers and is
constructed on the concept of micro-franchise. In this model, the manufacturer distributes the
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products to the import-supplier, who micro-franchises
the products to another shop. In effect, they give the Figure 34 Example micro-franchise model
product to a shop in return for a percentage of every sold
SolarAid.
product. An example of this micro-franchise distribution
model in Tanzania is the entrepreneur model of SolarAid
Aid’s
entrepreneur: “We developed a
entrepreneurship project seems to work very well in
low cost business start-up, called
practice. For instance, a lot of students cannot afford to
business-in-a-box. A student who
go to university or pay for a follow-up training after they
finishes his school can buy this box,
graduate from secondary school and end up working
which consists of 13 lights and
(Figure
35).
The
example
of
Solar
Project Sunnymoney
below their level or they cannot find work at all. That is
a waste of the investment put in
Figure 35 Example
Micro-Franchise
model.
the education of the youth, both
by the student and by society.
promotional supplies, for
200.000TZS and they can keep
25%margin for all the products that
they sell. 200 entrepreneurs get
chosen after an application process
The entrepreneur project gives
and then they get trained. After they
the youth a job and an
have been trained they train 10
opportunity to earn money
entrepreneurs in turn. It is our
after they finish school. It
micro-franchisemodel.”
already involves over 2000
entrepreneurs at the moment
and can be of great value and Source: Respondent SolarAid, 2014
influence for the development of the youth in rural areas.
The oil company Total is another example that uses the microfranchise model. Total is an oil company with gas stations all over
Tanzania that have shops attached to them. The attached shops sell
small, basic things for cars, as well as food and drinks, and are micro
Source:Total interview, 2014
franchised by local owners. Since 2013, Total has sold pico-solar
lamps by using their existing distribution model to deliver the products for their existing shops.
Total micro-franchises the pico-solar products to the local owners of all the Total shops. The
local owners will sell the pico-solar products and give a margin back to Total for every sold item
(Figure 34). Three companies use the micro-franchsing network. These three companies are all
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companies that allready have a business in another sector, such as dvd stores or fuel stations,
which they can use for the distribution of pico-solar products. For companies that allready have a
distribution network, this network is the most effective.
Piggybacking
Besides these four models, companies were asked if they had joined a successful distribution
network to distribute their products to the rural areas, either those that had already been built by
companies or that already existed in rural areas. This phenomenon is called piggybacking. Only a
respondent from the company working outside the solar sector used this distribution model; none
of the solar companies had joined another company to enter a rural market.
Analysis different distribution models
Figure 36 Overview distribution models currently applied in the pico-solar sector
As discussed above, four distribution models are currently used in the pico-solar sector (Figure
36).
The question remains: why do solar companies choose different distribution models?
Furthermore, how do these different models compare with each other? An analysis of the
different models is discussed below. Appendix III provides an overview of the different models
used by the companies that were interviewed.
Most solar companies employ multiple distribution models in order to reach a large target group
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in rural areas. All distribution models have their disadvantages and advantages, some already
mentioned above. Regarding pico-solar, the low cost for the products and a functional
distribution channel for the rural areas can be viewed as the main features of a good distribution
model. That is why the different models will be compared on these two aspects.
First of all, as mentioned before, it is important that the pico-solar product be affordable for the
target consumer, and thus it is necessary to keep
Figure 37 Example applied margins supply chain
the price low. Therefore, it can be useful to
involve as few stakeholders along the supply
chain as possible. Every level adds a margin
for themselves on every product they sell,
Manufacturer
• $20
sometimes up to twenty-twenty-five percent on
every level, which makes the price of a product
Supplier
• +25%
• =$25
only higher.
An example of this is shown in Figure 37.
Here, the manufacturer makes the products for
Retailer
• +25%
• =$32
twenty dollar. They add a margin of twentythirty percent and sell the product to a solar
company8 for twenty-five dollar. The company
adds a twenty-five percent margin on the
End consumer
• +25%
• =$40
product and sells it for thirty-two dollar to a
retailer. The retailer sells it with an added
margin of twenty-five percent for forty dollar
to the end-consumer. This way the price of the
product almost doubles from the moment the manufacturer assmbles it untill it reaches the endconsumer due to added margins along the supply chain. Thus, the more levels a distribution
model has, the higher the price of the pico-solar product will be in the end. Going direct can cut
significant costs from the system because there is no need to provide a profit or margin for
intermediaries such as retailers. The direct-to-consumer model can there for financially seen as a
very favourable option. Also, for logistical reasons, this model can be a good choice. After all,
logistical problems, miscommunication and wrong arrangements can occur more frequently when
8
This interviewed company wants to keep their name confidential.
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more people are involved that can make mistakes. The direct-to-consumer, where the product
goes directly from the manufacturer, via the retailer, to the end-consumer, is comprehensible to
manage.
The other three distribution models all have three levels before the product reaches the endconsumer: manufacturer, supplier and retailer. It is more difficult to keep the overview and make
arrangements when more stakeholders are involved and working together can multiply work, and
complicate reliance, trust and organizing within the value chain. Therefore, these models are
more appropriate, in terms of profit, for solar home systems than for pico-solar products, as solar
home systems have a higher profitiability than the relatively cheap pico-solar products.
There are clear drawbacks to having a single organizational principle, however. For instance,
under the direct-to-consumer system responsibility rests solely with one entity; under the other
three, ultimate responsibility is shared and work distributed between the retailers, microfranchisers or institutions. The companies also can share responsibilities regarding the selling of
the products, marketing, transportation and after sales.
Besides, the scope of these three
distribution models is much bigger than the model where the company only sells the products
from one place, their own store. The other three can set up endless distributionmodels in different
areas, with different partners and thereby reach a much bigger consumer base.
It is debatable if there is one distribution model that is the right one for the distribution of picosolar products in Tanzania, allthough the intermediaires negates the direct-to-consumer model in
favor of the low pricing perspective. However, all four models have their advantages and
disadvantages, and companies need to choose the one that fits its working model best. For new
companies or companies that are still establishing themselves, it can be recommended to use
either the direct-to-consumer or tradtitional network; these are relative simple models to
implement. For larger companies the recommendation can be to set up an institutional partnership
or a micro-franchise concept. These models will provide them with options to implement a
supply chain covering local, and even national, area.
5.6 After Sales
After sales consists of the honoring of a product’s warranty, either through its repair or
replacement when it breaks down.
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Most respondents have limited after sales services, do not include it as part of their value chain,
and/or have limited capacity to provide such services. A lot of organization, time and effort are
needed to set up this aspect of the value chain, and this problem is compounded by the narrow
margins on pico-solar products in the first place. Not all of the respondents have an after sales
system, and among those that do have an after sales system there are significant difference in the
quality of the service provided. In short, there are some that “go the extra mile” for their
customers when their product breaks down, but many let their consumers deal with and pay for
the repair of broken products themselves.
The three aspects of an after sales service, warranty, repair and/or replacement, will be discussed
in the next part.
Almost all pico-solar import-suppliers give a one, two or three year warranty with their products
(Figure 21). During the warranty period, the customer can bring the broken product back to the
store and either have it repaired or replaced. Repair or replacement of products is only offered as
after sales services during the warranty period itself; after the warranty period ends, it is not the
responsibility of the solar company/supplier and the customer has to pay for the repairs herself or
himself, or buy a new product.
As mentioned above, the after sales process is expensive. Retrieving, repairing and returning a
damaged or broken product comes with relative high costs. It costs the manufacturer or importsupplier both the costs of a new product and the sending costs for a product, which can become
prohibitive for some companies, especially due to the narrow margins in the sector.
Furthermore, it is difficult to determine whether the damage is the fault of the customer or a
normal failure of the product. Most respondents complained about the careless handling of their
products by the customers, leading to damage. These complaints included dropping the product,
pulling out wires or handling them harshly. Each can cause a product to break and prompt
consumers to return to the store seeking the repair of their pico-solar product. Those respondents
that have implemented an after sales service treat all broken products the same, no matter the
cause, to avoid disagreements and problems with customers. However, some respondents stated
that they find it difficult to deal with after sales and warranties because they do not see it as their
responsibility to fix any or all damage, whether caused by the customer or not. As one respondent
stated simply: “We just give the people a pricelist that says how much it costs to repair what and
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they have to pay a small amount if a product breaks. It costs us as a company too much money to
deal and repair with all broken products that people bring back” (Respondent Voltzon, 2014).
Other respondents that do not provide an after sales service or warranty their products, including
Zara Solar and Mona Solar, are very skeptical about warranties. They explained that they test
their products before they sell them, to ensure quality and that each works properly, and thus no
warranty is needed if the product is used properly. As one stated: “When we had a warranty in
the beginning, people just come back with their products because they broke it constantly or they
broke it on purpose a couple of weeks before the warranty ended to get a new one. Now that we
don’t give warranties, people seldom come back and the products miraculously never break
anymore” (Respondent Zara Solar, 2014). Those respondents that do not provide a warranty refer
customers to the manufacturer’s warranty and the services it provides. However, the price for
customers to send their product all the way back to the manufacturer is often more expensive than
the price to buy a new product.
This begs the question: are warranties good for both the company and the consumer? Without
after sales service, it saves a lot of money for companies and eliminates a lot of extra work for
them after a product is already sold. Despite these disadvantages for a solar company, for a
customer, it can be very disappointing if they are not assisted when the product they bought
breaks through no fault of their own. They often buy a pico-solar product with their meager
incomes, and the purchase constitutes a significant investment. It can be argued that it is the right
of a consumer to return a broken product and have it serviced, no matter how it breaks.
Despite the misgivings of several respondents, the majority do perceive it as an obligation to
offer an extensive, functional after sales system as a service for their consumers, and provide
such services to their customers.
5.7 Pico-solar and development
“Solar will help rural areas to develop themselves and help Tanzania not to stay behind other
countries in the world.” (Respondent X, 2014)
4. How can the distinctive activities of the pico-solar value chain contribute to the
development of the rural areas in Tanzania?
Access to energy can significantly contribute to social and economic development, and can be
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used to provide clean water, primary health care, education and new income generation
opportunities for businesses (Tracy, 2012). As stated by UN-Energy: “A lack of clean access
energy entrenches poverty, constrains the delivery of social services, limits opportunities for
women, and erodes environmental sustainability at the local, national, and global levels. Much
greater access to energy services is essential to address this situation and to support the
achievement of the Millennium Development Goals”(Karlsson, 2004).
The overall perspective of the respondents in this study is that pico-solar can and will help
Tanzania develop. They expressed the view that Tanzania has to adopt solar energy if it wants to
develop and not fall behind other, developed, countries that are using renewable energy on a
larger scale.
In this chapter the link will be made between pico-solar products and the development of rural
Tanzania. First, the general impact and advantages of bringing light to rural areas will be
discussed. After that the specific impact of pico-solar products on rural areas will be elaborated.
5.7.1 Development through light
All the respondents see rural areas as a significant potential market and think that the population
can benefit from the light pico-solar products provide. Light in general can assist development in
rural areas for a variety of reasons. These general advantages of the light that pico-solar products
produces that can help the rural population to develop are discussed below.
The main, obvious, way in which pico-solar can help development is through bringing light to
rural areas. As one respondent put it bluntly: “Light changes everybody’s life” (Respondent
Sollatek, 2014). Among other things, light provides more time at night to complete activities that
could otherwise not be done in the dark. For instance, it allows adults to earn more money
because there is more time to work and children get better school results because they read and
study longer in the evening. As one respondent stated: “Children have more hours in the
evenings to make their schoolwork, in comparison with having no opportunity to do so from 6pm
onwards when it gets dark” (Respondent SolarAid, 2014).
Second, pico-solar products can help the rural population deal with health related issues. The
majority of poor people in rural areas rely on inefficient and environmentally hazardous
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unprocessed biomass fuel, such as kerosene. Kerosene is the most used source for lighting in
rural Tanzania, but releases gases that causes several health problems (Martinot et al., 2001).
Pico-solar products, on the other hand, provide clean energy that does not produce gases and thus
improves the health situation indoors. As one respondent stated: “Pico-solar will contribute to a
better life and better health of the poor people because they will stop inhaling polluted gasses
from the kerosene” (Respondent SunnRgy, 2014).
Besides health and work benefits, light can also have a social impact and indirectly improve the
quality of life of rural people. As one respondent stated: “After we distributed the pico-solar
lamps to people who did not have light at all, they reported back that, besides the functional
benefits of light, their overall happiness had increased a lot” (Respondent Mobisol, 2014).
Respondents stated that sitting in darkness has a depressing outcome on rural Tanzanians,
whereas light causes a positive influence on people’s happiness and improves their social life. To
that end, light causes people to come together in the evening and have more social interaction
than before, when everybody went to sleep when it became dark.
5.7.2 Development through pico-solar?
As mentioned above, there are health, work and social benefits that come with the provision of
light. These advantages of course also apply to pico-solar products. However, it is important to
look further than the obvious advantages of light, and look at the specific impact of pico-solar
products in rural Tanzania. In the next part, a specific perspective will be given on the pico-solar
products and the possible development for rural areas.
Before going further, it should be noted that this discussion presumes that it is necessary and
desirable wanted to let solar companies interfere with the natural course of business in rural
areas. It is unclear whether this presumption is warranted. One respondent noted that businesses
and individuals who sell kerosene, candles and other energy sources in rural areas lose their daily
income when pico-solar lights are introduced into the market. This respondent claimed that picosolar products distort the natural, rural market order where people pay and earn small money for
energy sources among each other. The population will stop paying a small amount of money
every day and instead will be provided with free light for several years after an initial, more
substantial expenditure. This can lead to the loss of daily incomes for some individuals due to the
decline in purchasing daily energy sources such as kerosene.
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On this point, another respondent speculated that a lot of new jobs would become available
should solar businesses adopt CSV and inclusive business practices throughout the value chain.
To that end, it was stated that the people who first sold small energy sources such as candles and
kerosene could try to get a job in the new pico-solar sector. As mentioned before, at the moment
there are not that many jobs available in this area due to the small size of the pico-solar market,
but that as the pico-solar sector grows it can become a good opportunity for employment for rural
Tanzanians. As one respondent put it, the expansion of pico-solar products in rural areas would
therefore mean “an employment switch, not an employment stop” (Respondent X, 2014).
Beyond this, both solar companies and SNV view the cost-effectiveness of the products as a
means for development. Pico-solar can replace all other expensive, hazardous light sources, for
example kerosene, which is the main source of lighting in rural areas at the moment. At present,
kerosene costs around 2.500 TZS per liter, and has grown since the government removed a state
subsidy. This makes it really expensive for people in the rural areas, where an average household
earns around 3.000TZS a day and uses several liters of kerosone each week. As one respondent
stated: “People spend, for their standards, a fortune on kerosene every day” (Respondent
SolarAid, 2014). On the other hand, a pico-solar product only has to be bought once and no
further expenses are necessary to use it. In this way, rural Tanzanians are able to save a
considerable amount of money every day, which eventually can contribute significantly to the
development of the rural population by freeing up new capital for investment in other areas. As
one respondent stated: “With the money the people have left every day, they can start saving
money, use it to buy more important things or instead of two meals buy three meals every day.”
(Respondent SolarAid 2014).
Looking at the abovementioned facts, it can be stated that pico-solar can help rural Tanzanians
save money and eventually lead to the development of rural areas by allowing investment in other
areas. However, as stated above, pico-solar products are often prohibitively expensive, and many
rural Tanzanians cannot afford them. Thus, it can be concluded that while pico-solar products
definitely would save money if they could be purchased and adopted widely, this recapitulates a
big part of the problem. Respondents paint a perfect picture of the life the rural population would
have after they purchase a pico-solar product but they more or less ignore the serious obstacles to
their adoption. For the consumers this is the hardest part. They have to come up with money they
do not actually have in order to afford pico-solar products.
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Therefore, solar companies need to come up with a solution to make products more affordable for
rural people to purchase. One alternative is to rent out pico-solar products for a small amount of
money, which can benefit the rural population through improved health, social and work benefits.
Another solution can be to start working with credit schemes, which can provide money to the
rural population and let them start to profit from the benefits the products actually have. All in all,
the financial benefits of a pico-solar are definitely worthwhile, but only after the purchase of a
product. The price of the product for the end consumer is still a bottleneck in the supply chain of
the companies.
5.8 Concluding overview
The framework below (Figure 38) provides a schematic overview of the findings mentioned
above. It gives an overview of the different problems, solutions and results found in the field.
Figure 38 overview problems, solutions and results of findings
Problems
•Off grid households
•low uptake pico-solar products
•difficult business barriers rural areas
•High cost pico-solar products
Solution
•Reliable , affordable and improved value chain:
•Easy and safe product
•Financial access importer, distributor, retailer and consumer
•Affordable product
•Rural marketing strategies
•Appropriate distribution model
•functional after sales service
•warranty
Results
Charlotte Elink Schuurman/Utrecht University/2014
•Development rural areas
•Inclusive business
•Competitive Businessmarket
•Increase economic growth
•Reduce poverty
•Reduced pressure on Natural resources
•Affordable and accessible energy for off grid households
•increasing business opportunities
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6.0 Conclusion and discussion
6.1 Conclusion
This study has attempted to find an complete as possible answer for the research question through
extensive literature research, twenty-five interviews with different stakeholders in three different
cities in Tanzania and a comprehensive analysis in the end. As no research has ever been done
before on the supply side of pico-solar products by SNV, the findings can benefit the current
course of business in the field.
In this concluding section, the results of this study will be discussed. First, the research question
of this master thesis will be discussed. After that, the sub questions will be answered. In the
discussion the limitations of the research will be discussed. Finally, recommendations for further
research are provided.
The main goal of this research was to find an answer to the problem statement:
How can the value chain of pico-solar products be improved so as to increase access for off grid
households in rural Tanzania?
A very brief answer to this question is that several activities of the value chain need to be
adjusted in a way that they fit the rural areas. Pico-solar products need to be affordable and
available in the rural markets so as to increase access for off grid households in Tanzania. A
more extensive answer and explanation will be given below, based on the results of the four sub
questions.
1. What challenges and opportunities do companies face when doing business in the rural
areas of Tanzania?
If a company decides to do business in the rural areas of Tanzania, several challenges and
opportunities occur. These challenges and opportunities are mainly general and not particular
linked to the pico-solar sector; they occur in other sectors as well. Rural challenges arise mainly
from logistical problems. The rural areas are much dispersed and the bad road infrastructure
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makes the transportation of the products long and difficult. This leads to a time consuming and
expensive distribution of the products and causes companies to be hesitant or even backing out of
doing business in the rural areas. Luckily, opportunities for companies are present in rural areas
as well. The main opportunity is the big, relatively untapped, rural market that captures a lot of
potential consumers. In the urban cities, a lot of competiveness is experienced, whereas the rural
market provides opportunities to expand a company’s activities.
2. Which activities in the value chain can be distinguished to make the pico-solar products
more affordable and available in the rural areas?
Due to the value chain, these opportunities can be used and the challenges can be overcome. The
value chain, consisting of nine primary and supportive activities, can help a company to create
value for its customers. Four activities of the value chain were concerned with the production
and/or technical side of the products and thus not relevant to use in this research. The other five
activities in the value chain are concerned with the delivering of the product from the
manufacturer to the end-consumer and thus relevant for this research, namely: marketing,
inclusive business, finance, distribution and after sales. The terms of the activities are adjusted to
fit this research best.
3. How are these distinctive activities of the value chain currently being applied in the picosolar sector?
The five activities are currently being applied by solar companies in Tanzania to reach rural
areas.
First of all, marketing is an important component in the process of selling new products to a
market and is aimed to satisfy the needs of a market. It can be concluded that a good marketing
strategy in the rural areas needs to take place in the field. Having personal contacts,
demonstrating the products and going door-to-door is seen as the most effective way to promote
products. Although time and cost consuming, these direct marketing strategies can increase the
selling volumes of companies by creating awareness for the product they sell. Therefore,
awareness creation among the population for the products is perceived as very important, where
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after word of mouth among the population can do the rest.
Inclusive business in the pico-solar sector, where the rural population is included in the value
chain, is not large. Companies indicate that there is some involvement in the pico-solar value
chain although the scale impact remains small. Adapting Creating Shared Value as business
principle would help solar companies to include local communities by their businesses and
therewith help to create jobs, income and wealth among the local population. Recommended is to
work less from the outside and more inside the local, rural communities. Possibilities can be to
offer jobs as retailer or as a distributor for import-suppliers, or even train local people and
manufacture the products in the rural villages themselves.
The financial activities do also play an important role in the value chain of the pico-solar
products. The price of the products is the main problem in the selling of pico-solar products. The
products are considered expensive for rural consumers. Loans and finance schemes can be of
significance help to come up with the relative high upfront cost to buy a pico-solar product.
However, it has been shown that the use of loans is not supported by the companies due to high
credit risk and the small amount of loans.
The ‘Lay away program’ can offer good opportunities for both the supply side as for the
consumer side in the future. Credit systems can also be a good option. However, at the moment,
the relatively newness of the pico-solar products, and the unfamiliarity of success or risk factors
for credit cooperatives, makes credit a more suitable option for the future.
Distribution is, besides the high price of the product, seen as the second major problem in the
pico-solar value chain. Four models to distribute the products are currently being identified in the
pico-solar sector; the traditional network, the direct-to-consumer network, the micro-franchise
network and the institutional partnership model. All four have advantages and disadvantages to
use for rural areas. It depends on the business model, size and location of a company which
network they choose that fits best. An option that is not used at the moment by any of the
companies but offers a time and money saving option to bring the products to the rural areas of
Tanzania is piggybacking. This is a strategy where a company, with their product, joins an
existing distribution model of an already established company.
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After sales service is, despite the fact that a product already has been purchased, an important
component of the value chain. The after sales service consists of the provision of a warranty
when the product is purchased and the repair or replacement of a broken product. Companies are
reluctant when it comes to after sales and warranties. It can bring more costs, tasks and
responsibility to offer this service. However, the trust, loyalty and satisfaction they experience in
return from a customer makes it worth their effort. After sales service can be seen as a
complimentary service of the company for the rural consumer after investing, saving and
purchasing their pico-solar product.
4. How can these distinctive activities of the pico-solar value chain contribute to the
development of the rural areas in Tanzania?
The pico-solar value chain can contribute to the development of the rural areas in two different
ways; with the provision of light and by creating jobs and incomes.
The first one is that pico-solar products can help develop the rural areas by bringing light in areas
where there is no light at the moment. With the light the products produce, more (work) activities
are possible to complete, the health becomes better and it has a positive impact on the social lives
and happiness of the rural population.
The second way that pico-solar products provide development is by creating jobs and incomes
along the value chain. It is strongly recommended for solar companies to implement the Creating
Shared Value principle and therewith create a big job market, income opportunity and good
infrastructure in the rural areas. Therewith, the pico-solar value chain indirectly develops the
market.
However, the prices of the products are too expensive for the people at the moment. A suitable
solution for this problem needs to be created by the solar companies, in order to let the rural
population benefit from the many advantages pico-solar products can offer.
Concluding, pico-solar products can have a significance contribution to the lives of the
population in rural areas. If the five activities of the value chain are improved and adapted, as
described in this paper, by the solar companies in Tanzania, the pico-solar sector can become
grow and eventually can contribute to the development in rural areas. After all, Martin Luther
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King was right: only light can drive out darkness. Therefore, driving out the darkness of rural
areas with pico-solar products can offer great opportunities in the future, both for the companies
as for the rural population.
6.2 Discussion
In this research, the focus was on pico-solar products for the rural areas in Tanzania. Due to the
opportunity to research directly in the field, in Tanzania, it was possible to get in depth
information and insight in the situation. The direct personal interviews with the different
respondents provided information of the several aspects of the pico solar sector in Tanzania.
However, although this research is carefully conducted, several limitations and shortcomings
have occured. In this section these limitations will be discussed and suggestions for further
research will be presented.
First of all, in this research the value chain was the main component. The focus here is on the
supply side of pico solar products; it does not cover the consumer side. All the respondents are
from the supply side and the research therefor does not capture the whishes, needs and desires of
the rural consumer. Because this research was not extended enough to pay attention to the
consumer side, the complete picture about the value chain is not there. In the future, researchers
can focus more on the end consumer side of the value chain.
Second, there could be a social desirability bias in the interviews with the respondents because of
SNV. SNV has tight relationships with the governmental institutions and works together with
some of the interviewed solar companies. The respondents see SNV as a valuable partner and
were aware that the research was partially done through and for SNV. This may have resulted in
social desirable answers to maintain a good relationship with SNV.
A third limitation is the external validity of the research. The external validity is focused on the
generalizability of a study. This research solely focuses on pico-solar products. This is done
because SNV wants to improve the value chain for the rural markets in Tanzania. The general
Charlotte Elink Schuurman/Utrecht University/2014
97
characteristics of the outcomes for the rural value chain can partly be extended to other brands or
other product categories. However, a limited amount of respondents are interviewed who are all
familiar and involved with pico-solar products for rural areas in Tanzania. This is a very specific
target group, subject and area. Besides, most respondents were eager to present a positive image
of their company and the pico-solar products and might have withheld information about negative
aspects of their value chain. Direct questions about problems, constraints and barriers were asked
to avoid this image but it should be kept in mind that the outcomes may not be representative for
other products or companies.
Finally, the ratio among the respondents is not equal. There are sixteen respondents from
companies dealing with (pico-) solar products, fourteen import suppliers and two retailers, and
only seven respondents from outside the solar sector; six governmental institutions and one retail
company. Because of the limited amount of time to accomplish this research, it was not possible
to balance these two groups more. The focus was mainly on the supply side in this research and
the respondents outside the solar sector were mainly interviewed for additional information and
perspectives on the sector. They were not the main objective of the research, which makes the
imbalance not very harmful. However, for further research it is better if there is less difference
between the two groups.
6.3 Recommendations
In this final section, recommendations for businesses, the government and SNV will be provided,
based on the conducted research and findings.
Businesses
First of all, it can be concluded that, despite all the disadvantages mentioned earlier, pico-solar
companies can be good for rural areas. If the outcomes in the conclusion, mentioned earlier, is
taken into account by companies, they can set up a fair, sustainable value chain that is also
profitable.
The most important recommendation for companies is to offer their product as affordable as they
can to rural areas. They should adopt a distribution model that has as less intermediaries as
possible in order to avoid high margins added on each level. An ideal distribution model would
Charlotte Elink Schuurman/Utrecht University/2014
98
be where they distribute their products directly to little shops or consumers in rural areas. To
gather knowledge about rural areas and their potential consumers, businesses can work together
with NGO’s that know the rural areas where they want to do business. They can profit from the
knowledge that NGO’s already have about a certain area and save a lot of time and money to
figure it out all by themselves. A financial recommendation for companies is to discuss with local
banks, MFI’s and SACCO’s how they can stimulate credit for the consumers. Despite the
disadvantages of loans and credit, mentioned earlier in the paper, it can be lucrative to work
together with a local finance institution. These institutions already know the rural consumer and
can help provide small loans to consumers that otherwise would not have access to the purchase
of a pico-solar product. Recommended is that companies consult with each other, finance
institutions and NGO’s about possible credit services or other financial schemes for their rural
consumers.
Government
The Tanzanian government play a relative passive role in the solar business at the moment. This
is partly because (pico-) solar is a relatively new product and the government time need to get to
know a new sector and set up policies accordingly. However, it can be recommended that the
government starts helping the solar sector by implementing support activities. This can be done
in three different areas, namely by offering technical trainings, regulation and financial help.
First, the government can set up professional, technical trainings to local people in rural areas to
become experts in solar products. Herewith, knowledge, expertise and jobs can be generated
among the local population. Second, there is a need for strict certification of the products.
Companies identified the desire for strict regulation of the government on pico-solar products in
order to separate the fake products from the real ones. The government can play a role in the
monitoring of products that are imported into Tanzania and check for certified, real products.
Third, financially governments can offer start subsidies for companies or implement subsidies on
the products to make them more affordable. Although, interference of the government in general
is perceived as the less the better, so as to not disturb natural processes and dynamics among the
population in the field. However, the government can take a guiding role in these three areas to
support the pico-solar sector.
Charlotte Elink Schuurman/Utrecht University/2014
99
SNV
SNV can take several roles in the value chain of the pico-solar products for rural areas in
Tanzania. Recommended is that they both monitor and manage solar companies and act upon the
needs and desires of the rural population. They can help evolve the value chain by identifying
suitable local retailers and provide for them a job and income. SNV can set up trainings for local
retailers and technicians to teach them specifically about all the details of pico-solar products.
Moreover, they can help solar companies with their marketing and sales strategy and give courses
in business administration for example. This is not widely known among solar companies and
thus can be of great value. SNV can help expand solar companies to sell their products to rural
areas and make sure that the rural population receives light. In the future, SNV can respond to the
opportunities light provides and start sewing, cooking or craftsmanship courses to offer
possibilities for the rural population at night when they now have light.
Charlotte Elink Schuurman/Utrecht University/2014
100
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Appendices
Appendix I: Overview of the interviews with the companies and organizations participating
in the research9
Company
Date
1.
2.
3.
Solargrid
Kakute
Kakute
3-3-2014
6-3-2014
6-6-2014
Place
interview
Arusha
Arusha
Arusha
4.
13-3-2014
Arusha
5.
Global
Cycle
Solutions
Mobisol
13-3-2014
Arusha
6.
7.
8.
SunShine Solar
Davis& Shirtliff
Zara Solar
20-3-2014
20-3-2014
20-3-2014
Mwanza
Mwanza
Mwanza
9. Mona Mwanza
10. Ministry
of
Foreign Affairs
11. Ministry
of
Energy
and Minerals
12. Swedish
Embassy
13. Sollatek
14. Sollatek
20-3-2014
10-4-2014
14-4-2014
Mwanza
The Hague, NL
via Skype
Dar es Salaam
14-4-2014
Dar es Salaam
15-4-2014
15-4-2014
Dar es Salaam
Dar es Salaam
15. SolarAid
15-4-2014
Dar es Salaam
16. Arti Energy
17. SunNRgy
18. UNIDO
15-4-2014
15-4-2014
15-4-2014
Dar es Salaam
Dar es Salaam
Dar es Salaam
19. Mek One
16-4-2014
Dar es Salaam
20. Power Technics
21. Stepsolar
16-4-2014
16-4-2014
Dar es Salaam
Dar es Salaam
22. Total
16-4-2014
Dar es Salaam
23. Voltzon
24. Envotec
17-4-2014
17-4-2014
Dar es Salaam
Dar es Salaam
25. REA
17-4-2014
Dar es Salaam
of
Respondent
Position
Daniel Uphaus
Lucy Elmos
Livinus
Manyanga
Pascal Peter
Director
Marketing officer
Managing Director
Tamara
Neriman
Denis Nyambita
Ellison Malyi
Mohammed
Parpia
Nizar Parpia
Koen Peters
Isdory
Fitwangile
Samer
AlFayadh
Monica Gianola
Nicholaus
Kizengi
Malcolm
Wigmore
Nachiket Potnis
Erick Mmhema
Victor Akim
Bhaudin
Jainuddin
Ravi Kurup
Dhananjay
Damodaran
Marsha Msuya
Pepijn Steemers
Sylvester
Mwambije
Lutengano
Mwakahesya
Business Development
Manager
Head Marketing and
Sales
Director
Branch Manager
Managing Director
~ 35 min
Director
Advisor
Renewable
Energy
Energy Engineer
~ 50 min
~ 45 min
First Secretary Energy
~40 min
Global Partners Manager
Dlight Account Manager
~ 30 min
~ 30 min
Operations Director
~ 90 min
Executive Director
Engineer
National
Programme
Officer
General Manager
~ 45 min
~ 40 min
~ 40 min
General Manager
Director manager
~ 40 min
~ 45 min
Head
of
Corporate
Affairs
Commercial Director
Director
~ 45 min
Director General
~ 30 min
Average time interview:
9
Duration
Approx.
~ 45 min
~ 40 min
~ 50 min
~ 40 min
~ 30 min
~ 35 min
~ 50 min
~ 90 min
~ 50 min
~ 45 min
~ 50 min
~ 45 min
Companies that did not want to be cited in this paper are referred to as ‘Respondent X’
Charlotte Elink Schuurman/Utrecht University/2014
107
Appendix II: Overview of the time planning of the research
Time planning Internship SNV pico-solar PV Research
What
Where
When
February
Literature research
Arusha
13-21
Collect existing data, findings and cases
Summary, report and overview secondary data
Literature research
Arusha
24-28
Construct Interviews
Arusha
Contact Companies/Respondents
Arusha
Send
Emails/Call
Companies
March
Interviewing Solar Companies
Arusha
3-7.
Literature research
Arusha
Interviewing Solar Companies
Arusha
10-14.
Coding+Analyzing interviews
Arusha
Interviews Solar Companies
Mwanza
16-23
Field research
Mwanza
Meeting Intern team Columbia University
Mwanza
17
Meeting SNV Team Mwanza
Mwanza
19
Coding+analyzing interviews
Arusha
24-31
April
1-7.
13-18
Preparing interviews companies Dar
Conducting Interviews companies Dar
25-30
Transcribing, coding and analysing interviews
Arusha
Dar
es
Salaam
Arusha
22-24
31
Coding+analyzing fieldwork
Finalize Interim Report+ Journalistic Article
Finalize research
Making overview presentation
Give final presentation
Last day Internship SNV
Arusha
Arusha
Arusha
Arusha
Mwanza
Arusha
June
1
6
1-30.
Back in the Netherlands
Return Day IDS University Utrecht
Write thesis
Utrecht
Utrecht
Hand in Concept version Thesis
Utrecht
Hand in Final version Thesis
Utrecht
May
1-10.
10-15.
15-31
July
18
August
10
Charlotte Elink Schuurman/Utrecht University/2014
108
Appendix III: Overview of
fieldwork, Tanzania, 2014.
Company
Arti Energy
Traditional
distribution
network
distribution models solar companies respondents. Source:
Own distribution/ Institutional
direct-to-consumer Partnership
X
Davis&Shirtliff
Micro-Franchising Rental/Leasing
X (SACCO's)
X
Envotec
X
Global Cycle
Solutions
X
Kakute
Mobisol
X
X
X
Mona Mwanza
X
Power Technics
X
SolarAid
X
X
Solargrid
X (SACCO's,
MFI's, NGO's)
Sollatek
X
Stepsolar
X(to their own
shops)
X
SunNRgy
X
SunShine Solar
X
Total
X(to their own
Total shops)
Voltzon
X
Zara Solar
X
8
8
Charlotte Elink Schuurman/Utrecht University/2014
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3
0
109
Appendix IV: Overview of data solar companies. Source: interviews, 2014
Charlotte Elink Schuurman/Utrecht University/2014
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Charlotte Elink Schuurman/Utrecht University/2014
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