Serving the Poorest - Profitably

Written by Marsha Shenk

At the Fall Equinox I wrote about inspiring examples of businesses finding innovative ways to profitably build a world we could feel OK about leaving to our grandchildren.

Since then the political front in the US has altered considerably; the public is demanding both accountability and responsibility in governing, addressing the needs of a much larger percentage of citizens. The solstice will arrive this year amidst growing recognition of global climate change, in which business may play a significant part.

Whether our human footprint on the planet is significantly impacting weather changes may be debatable, but there's little question about the role of commerce in shaping modern 'reality'. I am grateful to find more robust examples of enterprises and consumers stepping up to use the power of their choices on behalf of the larger human community. Below are a few of my favorite examples, which I hope will lift your spirits in these short days, as they have lifted mine.

Commerce may be turning back to True North: the timeless dynamic of people working together to enable both parties to thrive.

Until recently, serving the poorest people on the planet has appeared to be idealistic, philanthropic, and therefore impractical for all but the wealthiest among us. In the last three years there have been many examples of innovation - both technological and systemic - enabled by information - of profitably addressing these concerns. C.K. Prahalad, a leader and author I greatly admire, writes that it took impoverished farmers in India "fewer than 3 months to understand the strength of the Internet":

"... to use the system for a host of other, non-business related and socially beneficial tasks... they could print out the classroom grades of their children. They also became very sophisticated in tracking prices, not just at the local mandi or ITC prices, but also for futures at the Chicago Board of Trade. They were able to correlate intuitively the futures prices with the prices they should expect in selling to ITC or others. They were establishing a clear link between global price movements and the prices in remote villages of northern India . Just three months earlier, they were 'hostages' to the vagaries of the local merchants?"

C.K. Prahalad, The Fortune at the Bottom of the Pyramid

From the acceptance speech of the 2006 Nobel Peace Prize Laureate Muhammad Yunus, Founder, Grameen Bank of Bangladesh. Note that the bank is profitable and financially sound.

    "Today, Grameen Bank gives loans to nearly 7.0 million poor people, 97 per cent of whom are women, in 73,000 villages in Bangladesh . Grameen Bank gives collateral-free income generating, housing, student and micro-enterprise loans to the poor families and offers a host of attractive savings, pension funds and insurance products for its members... We focused on women because we found giving loans to women always brought more benefits to the family.

    "... the bank has given out loans totaling about US $ 6.0 billion. The repayment rate is 99%... Deposits and own resources of Grameen Bank today amount to 143 per cent of all outstanding loans. According to Grameen Bank's internal survey, 58 per cent of our borrowers have crossed the poverty line.

    "... In Bangladesh 80 percent of the poor families have already been reached with microcredit. We are hoping that by 2010, 100 percent of the poor families will be reached."

Closer to the world that you are likely inhabiting if you are reading this message, enterprises are listening more closely as empowered consumers consciously reward organizations who best address their concerns. Take a look at The Ultimate Question, by Fred Reichheld. There you'll find this simple principle applied to large complex systems like Enterprise Rent-A-Car, Costco, HomeBanc, and Harley-Davidson. Guess what? It turns out that it really is more profitable to do a good job of addressing your constituents'concerns. Vanguard has known this for quite some time, others are catching on.

Cause-related marketing is gaining power. Consumers are voting with their checkbooks and credit cards, buying more from companies who invest seriously in positive social change. Read more about this trend in the post-script, below.

There's plenty more territory to be taken, but I can't think of a more hopeful Holiday message. Perhaps each of you reading this will choose to increase the momentum: demand that your concerns - and the concerns of other constituents - be addressed. Use your voice and your purchasing power to recognize enterprises that are operating in ways that you believe are responsible.

As the solstice energy slows down your work, I invite you to take a golden pause to read the two books above and the links below. Allow them to spark your imagination, send them to your colleagues, and begin the New Year insisting that your organization apply its intelligence to more deeply understand and serve constituents.

I wish you a joyous, restful holiday, and look forward to what you will create in 2007.

Post Script:

Fast Company's 4th annual Social Capitalist awards (Dec/Jan), and their invitation to the '07 competition. The CEO on the cover, Paul Rice, won his bet that people would pay $2/lb more for Fair Trade coffee, "Critics said that people who eat Egg McMuffins for breakfast would never give a damn about fair trade. Well, it turns out they do."

The woman who wrote the article below, Kate Roberts, catalyzed consumers by making safe sex trendy. Condom use increased by 100% in Eastern Europe.

    "Coca-Cola wanted to get involved in AIDS prevention, but was concerned about using YouthAIDS branding on its products. So we suggested sharing the company?s distribution system. Coca-Cola has trucks going to villages in 200 countries all over the world. Why not tap into that transportation system and deliver condoms?

    ... Probably the best example is Aldo Shoes? We are now rounding out the second phase of our campaign. Aldo continues to sell an average of 20,000 empowerment tags per week, and the campaign has raised more than $2.5 million for YouthAIDS thus far. It has reached 20-plus countries and has accounted for more than 1.5 billion editorial impressions. And Aldo's increased sales and brand recognition are such that one could say the company's primary product is no longer a shoe, it is an idea: the combination of being healthy and being cool.

    This campaign, in short, is a tribute to the power that companies gain when they embark on cause-related marketing. They increase their sales. They change themselves. They change their customers. And they change the world."

In another article, we see new accounting practices recognizing new kinds of value.

    " ... wetlands and other ecologically sensitive habitats are increasingly recognized as assets. Restoration of a lake- or marsh-based ecosystem can potentially provide an airport, military base, mining operation, or large industrial plant with a buffer against encroachment or an alternative to building a wastewater treatment plant. A successful restoration can also help a business support its case for expanding activities elsewhere, both by "trading off" the wetlands site against other sites, and by demonstrating a level of trustworthiness and competence in environmental management. Finally, an emerging body of accounting standards now defines how organizations can recognize and claim environmental assets on their balance sheets.

    ... NIM has been a powerful force for change because it goes beyond merely gathering an Air Force installation's environmental experts to figure out better ways to use resources. It is designed to help decision makers move beyond a focus on compliance with regulations. The framework itself introduces creative problem solving and meaningful analysis about such issues as the value of wetlands for water filtration, flood control, and recreation in the region around each base.

    Whether used in the public or private sector, an EAA transforms organizational thinking by linking assessments of four areas that would otherwise be considered separately: the environmental liabilities and requirements mandated by law; the innate value of natural resources in contributing to the quality of life of the enterprise and the ecology of its surrounding area; the technical capabilities of the organization (and the value of improving those capabilities); and the corporate or mission goals of the enterprise.

    This holistic approach often makes people uncomfortable at first. Some worry about taking a businesslike approach to natural resource management. It can seem reductionist, even harsh, to place a monetary value or price on a waterfall or forest or eagle habitat. If natural resources are treated simply as assets or commodities, no matter how benignly, will their use for human beings overwhelm their innate ecological value?

    Those with such misgivings might be relieved to learn that the valuation approach has actually been shown to strengthen conservation efforts.

And from yet another sector, a different way of tuning in to customers and providing what they care about.

    "In 1988, a British mountain climber named Joe Simpson wrote a book called Touching the Void, a harrowing account of near death in the Peruvian Andes. It got good reviews but, only a modest success, it was soon forgotten. Then, a decade later, a strange thing happened. Jon Krakauer wrote Into Thin Air, another book about a mountain-climbing tragedy, which became a publishing sensation. Suddenly Touching the Void started to sell again.

    Random House rushed out a new edition to keep up with demand. Booksellers began to promote it next to their Into Thin Air displays, and sales rose further. A revised paperback edition, which came out in January, spent 14 weeks on the New York Times bestseller list. That same month, IFC Films released a docudrama of the story to critical acclaim. NowTouching the Void outsells Into Thin Air more than two to one.

    What happened? In short, Amazon.com recommendations. The online bookseller's software noted patterns in buying behavior and suggested that readers who liked Into Thin Air would also like Touching the Void. People took the suggestion, agreed wholeheartedly, wrote rhapsodic reviews. More sales, more algorithm-fueled recommendations, and the positive feedback loop kicked in...

    This is not just a virtue of online booksellers; it is an example of an entirely new economic model for the media and entertainment industries, one that is just beginning to show its power. Unlimited selection is revealing truths about what consumers want and how they want to get it in service after service...

    Rhapsody does this with a combination of human editors and genre guides. But Netflix, where 60 percent of rentals come from recommendations, and Amazon do this with collaborative filtering, which uses the browsing and purchasing patterns of users to guide those who follow them ("Customers who bought this also bought ..."). In each, the aim is the same: Use recommendations to drive demand down the Long Tail.

    This is the difference between push and pull, between broadcast and personalized taste. Long Tail business can treat consumers as individuals, offering mass customization as an alternative to mass-market fare.

    ... All this good news for consumers doesn't have to hurt the industry. When you lower prices, people tend to buy more. Last year, Rhapsody did an experiment in elastic demand that suggested it could be a lot more. For a brief period, the service offered tracks at 99 cents, 79 cents, and 49 cents. Although the 49-cent tracks were only half the price of the 99-cent tracks, Rhapsody sold three times as many of them.

Such is the power of the Long Tail. Its time has come...

 
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