f only it were as simple as merely pondering the great unmet needs for safe drinking water abroad, offering a comparatively low-priced system, and shipping it to be met with open arms and wallets. Even the real world has its share of myths, however, especially when the subject is the emerging markets for drinking water.
It starts like this, “If I capture even just one percent of the market…”and goes on to note that there are over a billion people in India, or in China, or the aggregate lacking daily access to safe drinking water (take your pick) “If I sell to just one percent that’s over one million people and I’ll have hit the big time!”
Certainly yours isn’t the first company to think this way, and it won’t be the last, but here are some realities. In the majority of places, the most affluent pinnacle of the population can afford a variety of choices, including better drinking water. There is a lot of competition for this small slice of the pie. The great opportunity is the relatively impoverished mass market in emerging countries, those between the affluent few and the poorest of the poor. Most companies haven’t figured out how to provide something affordable to that mass market without compromising on performance. Competition diminishes, but there are still plenty of hurdles.
For example, the population of India lives in more than a half-million villages. With less than 70 percent literacy, hundreds of television stations and more than 70 different languages and dialects, your company will be wise to forget mass communication. It’s unaffordable to any but the largest entities with deep pockets and staying power. Good luck finding an effective national distributor in China. More likely you’ll have to identify separate distribution partners in each major region, and you still won’t reach many of the outlying areas. Africa has a much higher percentage below the poverty level and unlike the two previous examples, it is a continent of many countries. Often forgotten is the fact that Africa’s land mass is larger than the United States, Europe and China combined.
The need is so great and the people are so desperate, that they’ll buy anything they can afford to at least marginally improve their water quality. Something is better than nothing.
Through advertising and other exposure, people naturally aspire to migrate upward, to modern products with greater convenience, benefits, or status. Once aware of alternatives, it becomes increasingly unlikely they will settle for what they can afford, especially if substantial user-intervention or time is required. An affordable product may provide better water than what they’ve been drinking, but consumers will unlikely change from present habits of sediment filtration or boiling without the true motivation of “wanting” the product you think they so badly need. What they want is convenient, safe, clear, good-tasting, odor-free water. Which is not the same as getting them to want yours.
Convincing the market of their need for a higher-performing product is not easy either. As a Mexican water treatment company explained, companies may compete with performance claims of removing cysts, bacteria, and viruses, but the general population does not know the difference. These pathogens are viewed simply as “germs” by the consumer satisfied with products that claim only bacteria reduction.
Slowly, various government agencies are raising minimum performance and certification requirements, but even the new Brazilian standard only specifies a 3-log reduction of E. coli in water, not nearly so challenging as specified in the USEPA Guide Standard and Protocol.
Those in greatest need have the least ability to pay, so there are no profits to be made in these emerging markets and companies should only focus on large affluent consumer markets in the U.S., Europe and Japan.
There is money to be made in serving populations below the wealthiest echelon. Margins may have to be compressed, depending on the costs of your offering, but with proper pricing, volumes can become substantial. Price can have an exponential impact on market access. Many companies miss the point by focusing solely on a low cost-per-liter. As a Vietnamese woman said, “All that matters is how much money I have in my pocket today that I can spare and still feed my family tonight.” Hers is a one-day-at-a-time existence with no place for annual expenditure planning. To put things into perspective, think about the minimum balance your bank requires to open an account. Now consider a recent report announcing the State Bank of India’s smashing of conservative taboos by attempting to serve a normally disenfranchised low-end niche of the population. They lowered the minimum initial deposit from an unreachable 1,000 rupees (U.S. $21.72) to only Rs 250 (U.S. $0.54). Realistically, how many in the market can afford your offering?
So how does a company succeed?
Branding is very important. The right partner with a strong, respected name can make all the difference in winning trust and bringing the masses to “want” your product. A powerful name can circumvent the need to educate consumers on microbiology and how your technology works.
Of course, with success comes knock-offs and even outright patent or trademark infringement. Strong partners will be invaluable in defending shared interests. Filing IP (International Patent) protection in markets with meaningful enforcement is only part of the answer. A “picket fence” strategy of more complete IP protection combines patents, publications to prevent certain areas of patenting, and judicious guarding of trade secrets.
Non-governmental organizations (NGOs) offer another possible channel through subsidized or charitable distribution into impoverished markets. This does not alleviate pressure on gross margins. NGOs will be very cautious with limited donor funds for which they are accountable. Beyond laboratory performance data, actual health impact studies of how your technology makes a measurable difference in sickness and school attendance may be requested. Such data gives NGOs a powerful argument to raise more money. A high hurdle, but once achieved, it can be leveraged for great credibility in selling into other markets.
Many NGOs turn to traditional dams, wells, central treatment facilities, and laying pipe. Economies of scale should make this the most cost-effective approach, right? Not necessarily. First is the issue of sustainability with regard to a major cultural change of metering, billing, and collections to fund chemicals and maintenance. Second, how much time and money are required before safe water begins to flow? And what about outlying areas? Sadly, without density of population, rural locations are often neglected. POU purification allows consumers acting responsibly in their own interest to maintain their own systems without these issues. The World Health Organization reports over 1.1 billion people lack daily access to safe drinking water and the number has remained practically the same throughout the last decade. No real net gain in reducing suffering in the world has been achieved in spite of $80 billion spent annually on infrastructure. The UN reports lagging progress on the Millennium Goal of cutting suffering in half by 2015. New approaches are required. Last year, the White House Water Action Plan was signed by the G8 to include point-of-use water treatment, combining filtration and chlorine, in order to meet the global need.
Six steps are necessary to take your dreams forward into the reality of emerging markets:
- Establish credibility. Develop, test, and certify or register reference devices with various third-party labs and agencies.
- Partner with capable companies in joint-product development and distribution to generate additional systems to provide great-tasting clear water, certified to meet USEPA and WHO standards for microbiologically purity.
- Focus on keeping the system price as low as possible.
- Keep the operating cost low, equivalent to centrally treated municipal water and the consumers will keep more money in their pockets.
- Make it convenient.
- Formulate plans to place trial units into various markets for consumer testing and initial health impact observation.
We believe these six steps will lead to success for committed, innovative companies. The markets are huge and the need is great. There is room enough for many companies to work together and individually in addressing safe drinking water for the world. May we each find rewarding business in meeting those challenges.
About the author
D. Duane Dunk’s experience includes over a decade in POU/POE drinking water. Prior to joining Vanson HaloSource, he worked with advanced iodinated resin and ceramic filter technologies. His major focus has been improving affordability of antimicrobial treatment without compromise of water quality. He holds business degrees in marketing and accounting, as well as being a licensed CPA. To contact him, write D. Duane Dunk, Vice President Drinking Water Systems, Vanson HaloSource Inc., 14716 NE 87th Street, Redmond WA 98052; telephone (425)974-1935; fax (425)882-2476; email [email protected]; website www.vanson.com and www.halopure.com