The Challenges of Social Franchising

By Michael H. Seid, Joyce Mazero

For social franchises to be part of the solution, they need to be scalable, affordable, effective, sustainable, and accessible to the poor. The most common methods employed by NGOs in delivering services to the extreme poor too often fall short.

You should remember that given the enormous population at the BOP, even with extreme poverty, it should be a significant consumer market for companies to sell their products to. However, according to “Reality Check at the Bottom of the Pyramid” by Erik Simanis (Harvard Business Review), it is not because the “low price, low margin, high volume” requires “an impractical penetration rate of the target market — 30 percent or more of all consumers in an area.”

However according to the same report, “The model works well if two conditions are met: One, the company can leverage an existing infrastructure that serves wealthier customers to offer a product or service to poor consumers; and, two, the consumer already knows how to buy and use the offering.”

The goal of social franchising is to target an underserved population living in extreme poverty by increasing access to products and services that “consumers already know how to buy and use.”

The products and services currently offered through social franchising now are focused on safe drinking water, food, sanitation, healthcare, education, and clean energy — the products and services the consumer needs to survive. Ultimately, the products and services that become available through franchising will expand as the economic conditions in the markets improve, and will then include those the consumer may simply want.

Social franchising has the potential for solving the first hurdle identified by Erik Simanis — the lack of an existing infrastructure by effectively creating that infrastructure through supported local ownership and management. In effectively addressing this concern, franchising’s inherent advantage over other methods of downstream distribution used currently at the BOP is its ability to effectively develop, scale, and support a local infrastructure necessary to distribute the products and services at a lower cost at higher consumer standards, while also leveraging alternative methods of distribution.

Franchising must always be viewed, whether in a commercial or social setting, as part of the mix of available methods of expansion and downstream distribution of products and services. Franchising works best for enterprises when it is viewed as an alternative method of distribution and not viewed as the sole method of distribution a company employs.

Social franchising provides opportunities for local franchisees that have limited access to capital and other resources and provides them with the support needed to create local businesses and succeed. Because of the methods and techniques used in commercial franchising, social franchising’s business model is capable of low cost and rapid growth while at the same time maintaining consistent standards and achieving economies of scale.

What social franchising is, is the use of the methodologies found in commercial franchising to scale businesses and solve both the economic and social problems for those that live at the Base of the Pyramid (BOP).