Why Aren’t Markets Working?

By Yasmin Madan, Global Marketing Director, PSI 

What do Amazon, Uber and Airbnb have in common with a non-profit? They do more than deliver products and services. They harness the power of market players and use consumer insights in innovative ways to deliver better products and services to their customers.

Not-for-profit organizations working in the developing world can learn from these organizations, which understand market failures and convert them into opportunities to do business in new ways. When markets perform well, they create value and meet consumer needs. To make markets work, we need to make the market players work effectively. We need to broaden behavior change from focusing on consumers alone to the behavior of all market players. That means aligning their incentives and capacities to create value at every step of the healthcare delivery process.

Progress in global health has been tremendous over the last few decades. But health markets in developing countries still fail those most in need. These failures come in many forms: limited access, lack of affordable and quality options, and inadequate innovations to improve consumer experience. Very often, those most in need pay for necessary healthcare, but don’t get value in return. Basic market forces don’t generate increased value for consumers, or increased value for the market in general.

From nascent markets for new medical technologies and innovations, like HIV self-testing, to mature markets, like oral rehydration salts and contraceptives, markets fail because demand and supply don’t come together efficiently. Much of the health need is not converted into demand at the consumer level, nor is demand met by efficient supply.

To solve serious health problems, emergency parallel markets have sprung up. Governments have taken on a large portion of the service delivery in developing countries, from primary healthcare for routine needs to more sophisticated treatments for increasingly complex issues. Sometimes government action results in trade-offs. Even as incidence of non-communicable diseases increases across developing countries, the public health infrastructure still caters to basic healthcare needs around child health illnesses like diarrhea and pneumonia, and routine health needs like family planning.

The private sector delivers services as well, but its work only benefits the entire market when it joins the public sector to align around a shared agenda of quality, accessible and affordable healthcare. All players in the private sector market must address market failures to make healthcare work for those in need. As long as the demand for quality health products and services exceeds their use, something must change. But what?

Do we invest more in supply and demand? Or should we encourage the public and private sector to drive supply and demand? Markets today are much more sophisticated than they were even a few decades ago. There are more players in the market, more types of technology and healthcare products and services and more purchasing power at the consumer level.

At PSI, to respond to this changing environment and increased number of market players, and to accommodate the growing needs of consumers across a range of health areas, we have transformed our approach. Instead of focusing on demand and supply alone, we understand markets as ecosystems. As a development organization that looks for sustainable solutions to make markets work at scale, we realize it is not enough to simply solve the immediate problems. We need a sophisticated understanding of why something is not working. Like those in for-profit industries, we need to design interventions to remedy market failures by addressing their root causes. To achieve scale and sustainability, we must work with market players across the board to improve delivery of health products and services.

To understand their capacities and incentives in the market, we must examine all direct market players in the value chain: manufacturers, importers, wholesalers, distributors, and different levels of healthcare providers, from clinics to pharmacies. To understand the enabling environment that supports or inhibits market performance, we must also take into consideration the indirect players: government partners, implementing organizations, donors, and regulatory bodies.

Like any health problem, much comes down to behavior change. But the focus can no longer rest with the consumers alone. We must consider the whole ecosystem of the market, and support the behavior of all players in the market. The analysis of failures begins with the consumers and uses consumer insights to better understand how to make these markets function more effectively in the long run.

As PSI evolves into a development enterprise of the future, we aim to create value by designing business models that address market failures. We have learned to better understand markets as a whole, so as to generate market-driven solutions for social enterprises. We are now investing in these models to make markets work in developing countries, and on a global scale.

With funding from the Bill and Melinda Gates Foundation, PSI recently partnered with Accenture Development Partners to analyze the markets for HIV self-testing to better understand current and potential obstacles to getting this new technology in the hands of those who need it. Our findings will inform recommendations to donors on appropriate market interventions for securing a global supply of quality-assured, appropriately-priced HIV self-testing kits.

Similarly, in large and mature markets like India, with funding from the Gates Foundation, PSI has partnered with FSG Consulting to understand why the family planning market is not on track to deliver on India’s FP2020 targets, even though India has some of the best domestic manufacturing and marketing capacity. The current market is failing women in all income classes and geographic areas. Based on our findings, we are adjusting our own strategy for PSI’s portfolio of family planning products, and recommending to donors and governments what areas of the market need further investment.

With funding support from UNITAID, PSI also worked with the Malaria Consortium, FIND, and the World Health Organization to provide much-needed evidence on how to safely introduce malaria rapid diagnostic tests to the private sector in five countries where malaria is endemic: Kenya, Madagascar, Nigeria, Tanzania, and Uganda. In addition to increasing access to and demand for diagnostic kits, PSI’s research has contributed to a WHO roadmap for public-private engagement that will inform other countries seeking to develop markets for correct febrile case management.

These initiatives have demonstrated the need to prioritize consumers’ insights, understand how market players see their work, and take our analysis to deeper levels, nationally and globally. Only then can we identify the best levers to pull to make markets work for those in need.

This article is part of an ongoing conversation about #MakingMarketsWork in Impact Magazine No. 22 “Are We Thinking Big Enough” issue. Join in the conversation with @PSIImpact.


Artwork credit: Sophia Greenbaum