Flushing Out Sanitation Market Failures

by Aprajita Singh, John Sauer and Bikas Sinha

A third of the world’s population — 2.4 billion people — live without sanitation facilities. Not having access to even a basic toilet exposes millions of men, women, and children to risks of morbidity and mortality. During World Toilet Week, PSI is excited to announce its participation as a member of the Toilet Board Coalition, in large part because we see solutions to this overwhelming problem in the sanitation economy itself.

PSI has begun looking at market-based solutions in Benin, Cote D’Ivoire, Ethiopia, Ghana, Senegal, and India. In India, alone, 524 million people lack access to any kind of toilet. A problem of this scale necessitates a market system response with the government and the private sector complementing each other to address market failures preventing sanitation access.

Through the Supporting Sustainable Sanitation Improvements (3SI) project, launched by the Bill & Melinda Gates Foundation (BMGF) and Unilever in 2012, PSI and partners found that 84% of households without toilets wanted to own one.

Here’s an insight into how the project identified and addressed critical market failures as well as provided solutions that worked in the state of Bihar.

Addressing a Fragmented Supply Chain

After conducting market research, the 3SI team learned that people wanted to purchase a toilet, but the components were too expensive. They found that 13-15 different actors existed in the sanitation value chain. Maneuvering this supply chain meant that a customer interested in purchasing a toilet was required to separately transact with multiple players. This made toilet construction a difficult and more expensive than necessary process. It meant a dramatically long wait times for customers to ultimately have functional toilets.

Landscape 2012 vs Landscape 2017

In testing different business models, the 3SI team gathered evidence that the consumer wanted to interact and purchase from someone they knew and trusted. The consumer also wanted flexibility. For example, if the consumer had left over building materials from housing construction they wanted to be able to use those materials to cut costs in toilet installation.

It was for these reasons the one-stop-shop model didn’t work; it was too inflexible in that the consumer had to buy a set product and also the one-stop-shop owner was often not known to the local communities. What did work was a larger, more decentralized network of local businesses with existing ties to the community and with the ability to do some customization in the product delivery. These local businesses were coached to keep all toilet components in stock (cement rings, doors, roofs, etc.) to be able to deliver a quality toilet quickly.

Days to Toilet Construction_Final

Quality Toilets at Affordable Prices

3SI found that affordable toilets for the consumers that sought to own them didn’t exist in the Bihar market. To address this, the team worked with consortium partners PATH and Water For People to bring products that combined affordability with quality and aspirational design. The project initially designed three toilet models — basic, middle, and premium — across price points.

The three models were launched in 2013, however, soon it became clear that presenting the customer with choice of three variants was hurting, not helping, sales — as people sought to own the most expensive product, without the ability to afford it.

Product Innovations_Product Choices_Final

3SI then shifted to promoting an unbranded basic model that could be upgraded to with more add-ons. We learned that it is better to offer a low-cost model of a basic toilet to which refinements can be added rather than a range of models, as people aspire to the most expensive products and might prefer not to purchase at all if they couldn’t buy the model that conveyed status.

Arranging Sanitation Financing

In Bihar, 3SI analyzed household income levels and savings practices to find that only 6-8% of households had the cash on hand to purchase a sanitation solution. This meant that approximately 88% of households in rural Bihar would require loans for purchasing toilets

To solve the financing problem, PSI and its funders, the Unilever Foundation and the BMGF, came up with a solution to engage microfinance institutions through the fund manager, Friends of Women World Banking (FWWB).

Sanitation Financing_11.16.17 UPDATE (002)

 

Addressing these challenges, the 3SI project attempted to change the behavior and practices of different sanitation marketplace players in the state. As a result, Sarita’s journey now looks like this.

For more details on the 3SI project, click here.

Sarita's Journey_Final crop