One tenth of the world’s population has no access to electricity — and eighty percent of that population lives in Africa, where half the continent is still unelectrified. Wharton’s Serguei Netessine together with co-authors recently published a paper studying an innovative new approach to bringing electricity to off-grid Rwandans via rechargeable lamps.
Netessine spoke to us about the “fascinating” business model created by a former student, the challenges of conducting research in remote locations, and how his findings challenge conventional wisdom about so-called “bottom of pyramid” countries.
Q: You and your fellow researchers studied communities in Rwanda, which are not on the electrical grid. What challenges do rural Africans face in accessing lighting?
In very poor countries like those in sub-Saharan Africa—the so-called “bottom of pyramid” countries where people live on less than a dollar a day—lighting is a major challenge. They are completely off-grid, so people either use battery-powered torches or kerosene, which cause all kinds of problems.
Kerosene, in particular, is dangerous. Many children get burns from tipping over the lamps, and it produces fumes which are toxic to humans and bad for the environment. And kerosene is expensive. In Rwanda, it’s sold on the black market for ten times what you would pay in a store.
When it comes to bringing safer forms of lighting to these countries, cost is a major limiting factor. If you look at, for example, solar, it’s unaffordable for most Rwandans. The simplest solar panel would cost 2-3 months of income for the average person. And these people are typically unbanked, meaning they don’t have credit cards or even bank accounts. They cannot borrow easily.
But, of course, if you think about how much the average person spends on kerosene over their lifetime, they could buy many lamps. The problem is liquidity constraints. People just don’t have the money in their pockets. At any point in time, they might have fifty cents, and the largest amount of money they’ve ever had would be two or three dollars.
Q: You partnered with a company called Nuru Energy that is addressing this problem in a very inventive way. Tell us about that.
Sameer Hajee, a former student from INSEAD, came up with this absolutely fascinating business model. He gave people in Rwanda rechargeable lights for free, or for a very small fee. Obviously, people couldn’t recharge the lights on their own because there is no electrical grid, so he hired local entrepreneurs—usually people who ran little grocery stores—and set them up with charging stations. He’d give them stationary bicycles chargers and they would pedal to recharge the lamps.
The idea is that, while you are not paying for the lamp itself, you pay about ten cents for each recharge, with five cents going to the local entrepreneur and five cents going to Nuru Energy. It’s like the razor and razor blade model. You deeply discount the razor and then sell the blades at a profit (hopefully!).
Q: Studying the efficacy of this model required you to conduct fieldwork in remote areas of Rwanda. What was that like?
Surveying people was really difficult. Even getting basic information, like how many people live in a household and how far they are from a recharging station was difficult. In most countries, you have a population census and homes have recorded addresses. None of that exists in Rwanda. The only way to differentiate one family from another is to physically go there and look at GPS coordinates. Even getting there is a challenge. There are no roads and you have to drive far distances through mountainous terrain. Rwanda is called the “land of a thousand hills.” We ended up partnering with a company created by a fellow academic who ran into the same problems while conducting research in Africa and now provides it as a service.
Q: How did the results of your research challenge conventional wisdom about “bottom of pyramid” countries?
Conventional wisdom says that, when it comes to the bottom of pyramid, it’s all about the price. You must make products cheap, and you must make them available in small quantities. As a result, a lot of the research at the bottom of pyramid is focused on how to make things more affordable.
But we found that assumption is not entirely true. In our case, reducing the price somewhat improved adoption but the biggest issue by far was what we called convenience. When people didn’t go to get their lamps recharged, it more often had to do with the inconvenience of taking the lamp to the charging station, rather than the cost of charging.
Through experiments, we figured out if you simply increased the number of recharge centers, it would drastically increase the number of recharges. And the best thing you can do is offer door-to-door recharging, so people don’t have to leave their house at all. This almost doubled the number of recharges.
Our biggest recommendation is that we have to stop thinking that time is free for people at the bottom of the pyramid. We have to stop thinking, “They’ll stand in line for hours because they’re so poor.” This is completely untrue. Time is money, even if you are very poor.
Read Professor Netessine’s full paper, Design of Off-Grid Lighting Business Models to Serve the Poor: Field Experiments and Structural Analysis, here.