Project Study on Social Marketing Campaign in the Dominican Republic

Description
Social marketing is the systematic application of marketing, along with other concepts and techniques, to achieve specific behavioral goals for a social good.

Evaluation of Population Services International P R Social Marketing Campaign in the Dominican Republic

Alexis Olans Stephen Spaulding Matthew Welch April 2007 Ross School of Business University of Michigan

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Acknowledgements The Michigan Team would like to thank the following organizations for their support and assistance during the completion of this project: The University of Michigan Ross School of Business, The University of Michigan Erb Institute for Global Sustainable Enterprise, Population Services International Dominican Republic and Proctor & Gamble.

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TABLE OF CONTENTS Executive Summary ...................................................................................................................... 5 Introduction ................................................................................................................................... 6 Project Scope ............................................................................................................................. 6 Organizational background ..................................................................................................... 6 P R Product History ............................................................................................................... 6 P R Product Partnerships ...................................................................................................... 7 P R Product Awards............................................................................................................... 8 Product Relevance .................................................................................................................... 9 Project Goals ............................................................................................................................... 11 Research Methodology ........................................................................................................... 11 Business Analysis ........................................................................................................................ 12 Product ..................................................................................................................................... 12 Historical View ..................................................................................................................... 12 Plans for 2007 ....................................................................................................................... 12 Michigan Team Findings ...................................................................................................... 12 Recommendations ................................................................................................................. 14 Channels................................................................................................................................... 14 Historical View ..................................................................................................................... 14 Plan for 2007 ........................................................................................................................ 15 Michigan Team Findings ...................................................................................................... 15 Recommendations ................................................................................................................. 16 Consumer ................................................................................................................................. 17 Promotion ................................................................................................................................ 22 Historical View ..................................................................................................................... 22 Plan for 2007 ........................................................................................................................ 22 Michigan Team Findings ...................................................................................................... 22 Price .......................................................................................................................................... 25 Historical View ..................................................................................................................... 25 Plans for 2007 ....................................................................................................................... 26 Michigan Team Findings ...................................................................................................... 26 Recommendations ................................................................................................................. 27 Financial Analysis ....................................................................................................................... 28 Final Recommendations and Next Steps................................................................................... 33 Conclusion ................................................................................................................................... 39

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APPENDIX I ............................................................................................................................... 40 APPENDIX II: ............................................................................................................................ 41 BIBLIOGRAPHY ....................................................................................................................... 45

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I.

Executive Summary

After conducting a three-month review of PSI’s marketing efforts for PUR in the DR, the Michigan Team found that, though PUR requires significant effort to market, full cost recovery can still be achieved while providing significant social benefits to communities where it is introduced. This evaluation examines PSI/DR’s PUR marketing strategy along the following five criteria: product, channel, consumer, promotion, and price. Within each section are included both relevant team findings as well as specific recommendations for how improvements might be made in that category. Additionally, the report includes a brief financial analysis of the sustainability of the sale and distribution of this product. Based on this analysis, the financial recommendations include: re-petitioning USAID to obtain tax-free import status for P R in to the Dominican Republic, reducing re-order quantity of P R through P&G to increase product turnover, reducing the overhead for the P R project through the elimination of specific budget line items, and, in the medium term, considering an alternative micro-enterprise model for selling and distributing P R. Lastly, the report concludes with overarching recommendations and next steps suggested by the team. Overall recommendations include: using the remaining time in fiscal year 2007 to utilize new health promoters as small scale test cases, creating a standardized entry plan for new communities based on this testing, performing an in-depth and nationally representative study on water use, exploring further expansion into new hyper/super markets, pursuing a micro-enterprise approach in the mid-term (2-3 years), and not pursuing an alternate safe water solution product as either a substitute or a compliment to PSI/DR’s current promotion of P R.

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II.

Introduction

Project Scope This paper presents results from an evaluation and analysis of the marketing efforts of Proctor and Gamble’s (P&G) water purification product, P R, in the Dominican Republic. The social marketing campaign for this product was launched in February 2006 by the nongovernmental organization (NGO), Population Services International (PSI) in the Dominican Republic. The Ross Team collected evaluation information in the Dominican Republic in March 2007. This project analysis does not include evaluation information on PSI’s P R emergency distribution location in Panama. Organizational background P R Product History P&G first began development of P R in 1995, and in late 1998 efforts intensified when Hurricane Mitch swept a path of destruction through Central America. In its wake the hurricane left communities without access to potable water; much of the original water purification infrastructure in the affected communities was left damaged or destroyed by the fury of Mitch. Cholera and Typhoid outbreaks followed the hurricane’s path. In response to the hurricane, P& G donated bleach to those impacted by the hurricane to assist them in disinfecting their water. However, shortly afterwards, P&G heard reports of citizens complaining the bleachtreated water tasted as though it was coming from “a swimming pool” (Ellison & Bellman, 2005). As a result of this feedback, P&G committed itself to finding a new method of water purification that would be more satisfactory to consumer preferences. Alternative solutions were explored by P&G in conjunction with the U.S. Center for Disease Control and the Johns Hopkins School of Public Health. After four years of R&D and $10 million dollars, the result of their efforts was the product P R (WBCSD, 2006). P R is a water purification powder that, upon being added to polluted water, reduces pathogenic bacteria, viruses, and parasites and results in safe, drinkable water.

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In 2001, P&G consolidated the clean water effort with other nutrition and health initiatives into one organization, The P&G Health Sciences Institute (P&GHSI, 2007). In its early years, much of the focus of the PGHSI was to test and launch P R as a profitable product. Between 2001 and 2003, P R was test launched in Guatemala, where it was shown to reduce the incidence of diarrhea by 40%. In 2002 P R was launched for commercial sale in Guatemala, the Philippines, Morocco and Pakistan. The results of these product launches fell well below expectations (WBCSD, 2006). By fall of 2003 P&G reconsidered its plan to sell P R as a forprofit product and the future of the product of P R remained in doubt (Ellison & Bellman, 2005). The tsunami that hit South-east Asia in December 2003 resurrected P R and in the aftermath of the widespread damage caused by the tsunami P R was sent to dozens of relief agencies, first being sold at cost (3.5 US cents per sachet), and then being given away because of the vast scope of the tragedy and necessity (Ellison & Bellman, 2005). The newfound use for P R as an emergency relief product resurrected P R within P&G. Currently, instead of selling P R commercially, P&G now works with other non-profits and NGOs who are willing to sell and distribute the product, especially in times of natural disaster. P R Product Partnerships P&G has developed several partnerships to distribute P R. In Haiti, P&G created a public/private partnership called the Safe Water Drinking Alliance. This Alliance was jointly funded by the Global Development Alliance of the United States Agency for International Development (USAID) and the UK Department for International Development (DFID), as well as P&G and the NGOs Population Services International (PSI), Johns Hopkins University Bloomberg School of Public Health' s Center for Communication Programs (CCP), and CARE International (Sosnowchik, 2005). In 2005 P&G teamed up with UNICEF to supply the UN agency with P R at cost in eight countries (Haiti, Mozambique, Ethiopia, Bangladesh and Vietnam, Uganda, Kenya and Pakistan). UNICEF focuses on making P R available at local schools, as well as the home in areas where potable water can not be easily found (Hajaj, 2005). P&G has also formed a number of relationships with other organizations as part of its response to global natural disasters. In the aftermath of the tsunami that hit Southeast Asia in 2004, P&G supplied several different relief agencies such as AmeriCares, UNICEF, and the International Federation of the Red Cross with over 15 million packets of P R. However,

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P&G’s response to natural disasters has extended beyond the 2004 tsunami. It also supplied P R to UNICEF after the earthquake in Bam, Iran in 2002 to the International Rescue Committee in Iraq in 2003, and to the people of Pakistan after the earthquake in 2005 (USAID, 2005). In response to the success of P R as an effective emergency relief product, P&G reignited a new effort to make the product available on a non-emergency basis. P&G sought to find a distribution and sales model that was cost-effective for all parties involved in its sale. P&G and PSI decided to initiate a joint collaboration to distribute and sell P R in the Dominican Republic as a potential first step in a wider distribution and sales agreement. PSI started distributing and selling P R in the Dominican republic in February 2006. P R Product Awards To date P R has won several prestigious awards. In 2004 P&G and P R won the International Chamber of Commerce World Business Awards, an award that is given to a product or business that supports the Millennium Development Goals, the United Nation’s goals of reducing poverty around the world by 2015 (P&GHSI, 2004). A year later in 2005 P R was awarded the 2005 Stockholm Industry Water Award, which is given to products or ideas that will provide sustainable water use around the world (Laumer, 2005). Most recently in February P R received a 2007 Grainger Challenge Prize for Sustainability. The Granger contest goal was to develop innovative solution for removing arsenic from drinking water (Gonzalez, 2007). P R winning these several major awards has provided P&G with great publicity in its efforts to sell and distribute P R around the world.

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Product Relevance P R attempts to address a public health problem with significant repercussions. Water borne diseases pose significant public health problems for children, families and communities, leading to severe morbidity and mortality. Worldwide, 1.8 million people die per year due to diarrheal disease, 80% of which are children (WHO, 2004). The primary cause of diarrheal disease transmission and acquisition is a combination of unsafe water supply with inadequate sanitation and hygiene in 88% of cases (WHO, 2004). Sadly, water-borne disease most seriously affects those with developing or weakened immune stems, such as young children or those with compromised immune systems due to infections such as HIV/AIDS. This paradigm remains true globally, as well as in the Dominican Republic in particular. Diarrheal diseases and parasites alone were amongst the leading causes of infant morbidity for infants and for children 1-4 years old (PAHO, 2007) in the Dominican Republic. Yet diarrheal diseases are not the only public health problem caused as a result of lack of access to safe water. Public health issues also arise from arsenic and pesticide poisoning, as well as parasite infections which lead to malnutrition (WHO 2004). Additionally, unsafe water storage increases the risk of infection due to mosquito-borne diseases such as malaria and dengue. These disease most strongly affect children, with the most affected age groups in the Dominican Republic being infants and children 1-4 years old (PAHO 2006). Yet despite the fact that access to safe water is inherently connected to the most basic functions of human life, and that the lack of safe access leads directly to multiple health problems, it receives significantly less attention and funding than other public health issues such as HIV/AIDS. The Dominican Republic has admittedly improved in its access to water, as the Human Development Report reports that access to sustainable improved water source increased from 84% in 1990 to 95% in 20041 (HDR 2006). However, despite these improvements in access to improved water, the infant mortality rate remains high with a mortality rate of 40 per 1,000 in 2000 (PAHO 2006), compared to the United States with an infant mortality rate of 7.0 per 1,000 in 2000 (CDC, 2007). Previous projects in the DR have principally been sourced from the DR ministry of health. These projects have focused on promoting awareness as a vehicle for
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However, with the rural layout of the country is unclear how “improved water source” is defined in the HDR annual report that pertains to this statistic.

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disease transition. Although households may be increasing their access to improved water sources, the issue of creating safe and contamination-free water remains a problem (Guzmán, 2007; Poonawala & Beachy, 2006). Although people may have running water in their homes or access to wells, this alone does not guarantee that water is safe from contamination such as arsenic, pesticides or parasites. Furthermore, water can also become contaminated during the transportation process from the source to their homes. The P R product has entered the market at this point of necessity to address the basic issue of creating safe drinking water on demand for families and households. The P R product has placed its focus on water purification market in the Dominican Republic, offering people a decentralized solution they can individually take to address the side-effects of unsafe water in their communities and homes. This report highlights the current market integration of P R in the Dominican Republic and presents recommendations on how to increase their market share of sales.

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III.

Project Goals

The Ross Team defined the goals of the PSI P R Project as follows: 1. To validate/identify new target consumer for P R in the Dominican Republic 2. To assist with determining the appropriate marketing message and method of delivery of said marketing message 3. To analyze and develop recommendations on retail price and prices charged to different retailers 4. To analyze and develop recommendations on appropriate distribution channels and method for P R in the Dominican Republic

Research Methodology This project evaluation was conducted using in-depth semi-structured qualitative interviews with stakeholders, focus group discussions and extensive communication with PSI staff members. Relevant questionnaires were developed prior to conducting the interviews, which proceeded in a semi-structured format as the interview progressed. In-depth interviews were conducted with health promoters, non-governmental organization leaders, private business leaders and pharmacists. Focus group discussions were conducted with community members currently using the P R product. Interviews and discussions with PSI staff members working on the project were conducted at all points in the evaluation process. All individuals included in this analysis were directly involved in the design, implementation or in both aspects regarding the P R product launch and promotion. All observations from the Michigan Team in this report are drawn from the data collected during a visit to the Dominican Republic in March 2007 (Welch, Olans, & Spaulding, 2007).

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IV.

Business Analysis

This section breaks down the various pieces that make up P R' s marketing efforts. These pieces include analysis of the P R product, its price, the channels that PSI/Dominican Republic (PSI/DR) uses to distribute P R, the target consumer of P R in the DR and the promotion that PSI/DR uses to market P R. In each section the Ross Team (the team) considers the business results of P R in the DR in 2006, the plan for 2007, the team’s findings and the team’s recommendations for P R in the DR for the future.

Product Historical View PSI/DR generated no changes in the P R product since its initial launch in February 2006. According to the technical documentation, each sachet of P R contains iron sulphate, calcium hypochlorite, a buffer to maintain pH and a polymer to help with coagulation. One 4 gram sachet of P R treats 10 liters (2.5 gallons) of water and each case contains 240 sachets(P&GHSI, 2003). Additionally, PSI/DR has made no changes in the contents or in the packaging size of P R since its inception in the DR, it only changed the packaging to be in Spanish. P&G designated PSI/DR as the sole distributor for P R sachets with Spanish-language packaging (PSI, 2006). Plans for 2007 As in the launch of the product, PSI/DR projects to make no changes in the product for 2007. Michigan Team Findings Through the investigations, the team found that the major benefit of P R water purification was its ability to remove suspended material from even the most turbid of waters.

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During both demonstrations and home use, people can physically see the difference occur in the water. This produces a definite “Wow!” factor, and the change in water color and clarity delivers a large promotional benefit for the product. Part of this extreme color change can be attributed to the iron sulphate, which, conversely, can also be a liability to the product. One promoter of the product stated that a loss of confidence was observed in the product when consumers attempted to re-purify previously treated water. The consumer noted that the previously treated water turned darker when treated anew and that the coagulant still left particles at the bottom of the bucket after the "re-purifying" process. This caused the consumer to lose complete confidence in the product. This type of situation may need to be addressed through more detailed explanation of the P R process during demonstrations in the future, i.e. that this is a natural part of how the product functions. Despite this misperception, however, the team observed no major difficulties with the makeup of the product itself. The Michigan Team did notice a minor complication, in that there was a frequent complaint about the chlorine taste left from the P R purification process. This complaint seemed more predominant in communities that did not have access to municipal water, and thus were unaccustomed to a chlorine taste. An additional issue with taste is that the P R product does not "soften" the water (remove minerals that cause a "hard" water taste), and thus when families are choosing between water options, will often buy water from the water delivery trucks (softened, but not treated, water), and not be clear on why they still need to treat this water. That said, it was not completely clear to the Michigan Team how crucial of an issue this was to consumers in comparison to other factors. A more thorough, nationally representative consumer study is needed to ascertain what importance level consumers attribute to taste over water safety or other factors. Lastly, an issue with the size of the sachets, and the amount of water each purifies, may exist. A major competitor of P R is the purchase of 5 gallon botellones of water.2 As one P R sachet only purifies 2.5 gallons, two sachets are needed to purify the same amount as a botellon. PSI/DR needs take into account the size of botellones when considering promotional activities.

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Botellones are large jugs of purified water, similar those delivered for water coolers in the United States.

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Recommendations The team has few recommendations concerning altering the P R product. As a tested product throughout the world, PSI/DR does not have to make any changes with the product itself. However, to settle consumer concerns about the product' s safety, PSI/DR should consider administering official water quality tests to address the confidence consumers have in the product. These tests should be done by a local lab (instead of an international lab) so as to evaluate local community water treated with P R, and possibly include a seal of approval or the official results on the marketing materials. See the Promotion section for further recommendations on this promotional technique.

Channels Historical View PSI/DR began the distribution of P R through four principal channels. The largest distributor of P R is Distribuidora Corripio, which is also the largest distributor of consumer products in the Dominican Republic. Corripio is the primary representative of P&G products in the Dominican Republic, and because P R is a P&G product Corripio donated their services to distribute P R to colmados. Corripio also donated air time on both radio and television in order to increase public awareness of P R. Another distribution channel was through Daniel Espinal C. por A, the second major representative of P&G in the Dominican Republic. Daniel Espinal serves the pharmacy chain Farmax and agreed to position P R in the pharmacies and to cooperate in a donation program. PSI/DR also distributed through international and local nongovernmental organizations (NGOs). In the NGO sector, PSI/DR primarily worked with Insitituto de Desarrollo Dominicano Integral (IDDI), Mujeres en Dearrollo (MUDE), World Vision, ADOLPLAFAM, MOSCHTA, and other NGOs (Poonawala & Beachy, 2006). PSI/DR sold the product to these NGOs and the community health promoters (promotoras) of these NGOs then sold P R to the communities in which they worked. These NGOs made a margin on the sale of the product, with some taking a percentage for administrative costs and others giving the margin to the promoters. Finally, another distribution channel consisted of the supermarket Carrefour, which agreed to sell P R in the produce section of their Santo Domingo store. These

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sales occurred primarily on the days in which Carrefour has promotional days (on fresh fruits and vegetables) for the lower income population near to the supermarket. Plan for 2007 PSI/DR plans to continue working with Corripio, Daniel Espinal, and Carrefour. They also plan to continue working with NGOs, primarily focusing on those NGOs that will waive the percentage of sales for administrative fees, giving more of the margin to the promoters.3 PSI/DR also plans on expanding the number of NGO partnerships and explore the possibility of selling to larger NGOs, such as UNICEF, that work in disaster relief. PSI/DR also will attempt to increase the number of colmados and pharmacies that carry P R. This would be done both through Corripio and Daniel Espinal and through hiring four new promoters to reach the colmados and pharmacies not serviced by these distributors. PSI/DR will also attempt to continue with the donation program, possibly with other private enterprises (Guzmán, 2007). Michigan Team Findings The team found that a major obstacle to the sale of P R was the practice of selling through NGOs that take a portion of the sales for administrative expenses. This is a major issue as the margins are already quite low, and they become less so with more middlemen involved in sales. With little profit to be made compared to other products they may be selling, the promoters have little incentive to spend their time and money promoting P R specifically. This is also a challenge since the P R product tends to be more time intensive (i.e. requiring multiple demonstrations before sales start to increase) than other products (i.e. condoms) which also decreases the incentive of the promoter to promote it. However, the team found that the promoters that PSI/DR is currently hiring and training that will work directly for PSI should go far in addressing the previous challenges they have had working with community health promoters. PSI’s promoters will be able to assist PSI in experimenting in different communities and in monitoring the success of P R promotion and sales. The promoters will be a great

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PSI has benefited from their relationships with NGOs both from sales of P R and Pante condoms. The sales through NGOs for P R, however, have not been as strong as expected. It remains to be seen, therefore, how much time will continue to be invested in building these relationships regarding P R. Currently, P R is distributed to NGOs in small amounts on a non-regular basis.

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resource for PSI/DR and can provide a process which avoids targeting communities for which there is little information about what might work to promote P R in that community, a situation PSI has encountered quite frequently up to this point. The team also found that working with Farmax may damage the P R brand and take a lot of administration time. These pharmacies often do not have adequate training on the use of P R and the average customer of these pharmacies may not be the target consumer for P R. The distribution through pharmacies might work for other PSI/DR products, such as VitalDia, but it appears to take a substantial amount of time and effort from PSI/DR promoters for little return. This is not the case for Carrefour, which has high sales and reaches the target consumers with little effort from administrative staff. The placement of P R in Carrefour is also relevant and promotes the product well. With Corripio, the team was impressed with the enthusiasm for the product, but realized that more training was necessary, especially with the colmados served by Corripio. Another problem with Corripio could occur with the new promoters and their overlap with serving the same colmados. A clear distinction might be necessary between who services which colmados in certain areas. Overall, the partnership with Corripio is very important because of the links with P&G and the ability to monitor the sale of the products. Recommendations There are many recommendations in respect to distribution channels. The first is to experiment with the distribution through a controlled test in rural versus urban communities. This can be achieved through the PSI/DR promoters by having each promoter concentrate on two communities while monitoring the reactions they witness. This process will allow PSI/DR to get a better idea of the perception of P R in different markets. Another recommendation would be to target consumers based on perceived need rather than real need. This entails looking at the needs of community members instead of concentrating of communities with the exceptionally low water quality and lower incomes. This is a delicate distinction that requires understanding how a community perceives their water quality. This may entail focusing on communities with exceptionally turbid waters or a clear understanding of water contamination. Another recommendation would be to scale back involvement with Daniel Espinal and Farmax, as this is not a good investment of time on the part of PSI/DR. If Farmax agrees to promote the product through person to person or video demonstrations, then this might be a viable option. Otherwise,

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Farmax could require a dedication of PSI/DR staff time which is not commensurate with the sales potential. The example of Carrefour shows that partnerships with supermarkets can be an excellent investment of time and energy. There exists a large lower to middle class consumer base at supermarkets and a potential to attract a broader market base. Therefore, the team recommends expanding the sale of P R into more supermarkets. Another recommendation is to continue working with NGOs that agree to waive the administration fee on the sale of P R and to explore partnerships with more NGOs that act in a similar manner. If these NGOs could also distribute P R with little interaction with PSI/DR, then this would be an even greater benefit. Finally, concerning Corripio, the team recommends first to attempt to facilitate the training of the colmados serviced by Corripio through associations of colmados such as FENECODODEP. In addition, it is important to target the communities serviced by Corripio. Instead of simply wasting the good will of Corripio and distributing to all communities regardless of interest and need for P R, it is necessary to place P R in those communities receptive to the product. Also, in these communities, it is crucial to have P R in all of the colmados. If Corripio does not service all of the colmados, then PSI/DR will need to send the promoters to those colmados not under distribution form Corripio.

Consumer Historical View The 2006 PSI/DR marketing plan defines the target audience for P R as all Dominicans with unsafe access to water. Specifically, this is broken into two tiers: the primary target audience being “mothers of children under 5 years old, SES class D & E in urban and rural zones” (Poonawala & Beachy, 2006) and two secondary target audiences – persons living with HIV/AIDS and people living in densely populated communities called bateyes4. The primary audience, if restricted to mothers with 4+ children, is expected to be 200,000 households.5 The

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A batey is a traditional company town for sugar processing plants. Originally formed to house migrant workers, they are now populated year round and are some of the lowest income areas in the Dominican Republic. Assumptions are made that this population is actively concerned with the health of their children (it is top of mind) and are aware of consequences of poor water quality and risks of diarrheal disease. The difficulty of locating this

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secondary audience is composed of approximately 184,000 persons living with HIV/AIDS (approximately 2% of the population) and 500,000-750,000 people living in bateyes. Individuals in the secondary audiences are assumed to have less disposable income due to other pressing financial needs. For both tiers, target audiences were selected based on having the greatest needs for safe water access, even though that need may not be currently recognized by the consumer. For ease of distribution, an urban to rural roll out of the product was selected by PSI/DR. This would begin in the capital of Santo Domingo, and move subsequently to the East (the region of highest need), then North, then South and West through the rest of the year (Poonawala & Beachy, 2006). Plan for 2007 Although the communications plan lists only mothers with children under the age of five in their outreach, PSI/DR’s 2007 P R Marketing plan continues to focus on the same three target audience groups (Guzmán, 2007). Michigan Team Findings The Michigan Team found that, though in the 2006 and 2007 Marketing Plans specify C and D-class mothers with children under 5 as the primary target audience, PSI/DR is also effectively targeting marketing efforts towards both A and B classes, as well as the E-class in the bateyes, through the Farmax donation programs.6 The Michigan Team also found that PSI/DR is working under the very real limitation of possessing little specific consumer behavior and consumer psychographics data. Thus, PSI/DR’s description of P R’s primary and secondary target audiences is necessarily vague. A comprehensive, in-depth, and nationally representative consumer study is strongly needed to achieve the following: more specifically segment the Dominican population, to further understand these segments’ use of water in the home, and to parse the nuances in the Dominican

group due to its heterogeneity is recognized.
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The Dominican government uses an income classification system of A through E, with A being the wealthiest and E having the lowest income. The target audience for PSI/DR is the C and D classification, but there have also been sales at all income levels.

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consumer’s sensitivity to and understanding of water health issues.7 As of yet, PSI/DR has not been able to locate a partner or possible source of funding for this study. This translates in to a situation by which PSI/DR has not been able to fully identify the obstacles to behavior change that this product incurs, such as lack of perceived susceptibility and the confidence that may or may not exist to be able to make these somewhat drastic changes to their care of water. Recommendations The Michigan team strongly recommends that PSI/DR conduct a consumer study of Dominicans attitudes and usages of water. With no detailed data existing on consumer behavior around these issues, all recommendations delineated below reflect the Michigan Team’s observations on the ground and group impressions. Regarding consumer targeting, the Michigan team has three recommendations: 1. Target a single consumer group As PSI staff resources for P R are quite limited, this targeting of multiple consumer groups dilutes the effectiveness of reaching any one consumer group fully. Instead, targeting a single consumer group – specifically mothers with children under 5 from the C and D economic classes – and solidifying demand through consecutively building of community by community starting at the grassroots level will most likely to translate into long-term P R sales. C and D-class mothers with children under five living in communities without access to clean municipal water are the recommended target audience at this time for the P R product. Mothers in these economic brackets should be targeted for the following reasons: they are more likely to be preoccupied with their children’s health, C and D consumers are the right income bracket – neither wealthy enough to consistently buy bottled water (botellones) at 35 pesos as do A and B consumers - nor too poor to afford 15 pesos a week (3 packets of P R), and C and D consumers are more likely to have higher levels of education than E consumers (including batey dwellers) and are therefore are more likely understand the nuances of the effectiveness of the product. Specifically, those with municipal water sources should be targeted for the following
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Such a study might include 1) perceived susceptibility to water, 2) position on the spectrum of water as disease vehicle, 3) psychographic information, and 4) actual purchasing habits to date and competitive products.

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reasons: it is more readily apparent to consumers that water not from municipal sources (well water, streams, and water trucks) more than likely is not treated, and this income bracket is more likely to have experience in treating water owing to more disposable income available for such purposes than poverty-level E class consumers. 2. Postpone targeting secondary target groups until primary consumer demand is established While other communities, such as E class consumers, batey dwellers, and HIV positive individuals would likely derive great benefit from the product, these consumers are more costly to pursue and retain because they possessing less disposable income and have a more urgent demands on their finances. As such, their the cost/benefit ratio is wider. Additionally, cost may not even be the main barrier to adoption of this product with this target group, but rather due to an aversion to the chlorine taste, an insecurity about one’s ability to administer it properly, or a conscious decision that the diseases it averts are not life threatening and not worth expending effort on. As this is primarily a life enhancing product and, in the majority of cases, not a life-saving product (with the exception of HIV consumers), it will be a tough sell to those consumers with other financial needs they must prioritize. These consumers should only be targeted once P R DR has established a firm financial base from which to subsidize the extra costs of introduction of this product into these communities. At that time, introduction into these communities must still be based on a for-sale model (not a donations model), and the product should be introduced at a sustainable, regular price level. Targeting of A and B consumers, even for the Farmax donations program, is inadvisable since the main benefit P R brings in comparison to their likely substitute (bottled water) is cost, and cost does not appear to be a major issue for this consumer group in relation to P R. Additionally, any fringe status benefits that would be connoted to the product based on its adoption by the wealthier classes are minimal, and more than outweighed by the financial and human capital cost of marketing P R to these consumer groups. 3. Reevaluate assumptions about target consumer’s priorities P R is a difficult product to introduce to a market since it requires a great deal of behavior change on the part of the consumer (see also Promotion, Recommendations). As this behavior change is a very time intensive and interpersonal process, focused efforts based around solidifying demand in one community at a time through local demonstrations are

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most likely to produce long term sustained demand. Prior to fashioning messaging for C and D class mothers as the target, a few assumptions must be reevaluated. Though the 2007 marketing report elaborates that “80% of the population consumes either bottled water or water trucked in to the community, considering it safer… with the remaining 20% being either chlorine users or non-treated water users,” this 80% is more likely to reflect the percentage of users which have from time to time used bottled water, and not those who regularly buy botellones.(Guzmán, 2007) Additionally, though these users did choose either bottled water or trucked water, availability (not disease) was likely a much higher decision factor in whether water was bought vs. acquired from a well source. Again, cleanliness (water free from particulate matter), and not disease avoidance, was more likely to affect the decision process. Thus, we cannot assume (as described in the 2006 marketing report) that buying bottled or trucked water implies either a cognizance of or a high degree of importance given to avoiding water born diseases on the part of our consumer. Activities need to be conducted not just to convince the consumer that using P R is easy (“how to” demos), but also to raise the importance of averting water born illnesses in the home.8 Additionally, as the behaviors that need to be changed for the adoption of P R are more habitual than cognitive, multiple demonstrations and multiple presentation formats need to be used within the same community. The C and D class mothers’ beliefs regarding the necessity of clean water are unknown to us, but even should this consumer value disease reduction highly, P R is a credence product,9 and the exact disease-reduction attributable to the use of P R is not discernable by the consumer. As the consumer could get sick from untreated water even though P R was used in the home (for example, in the case of children drinking water at school), P R cannot promise diseasereduction results. Thus, the consumer must accept on faith that P R is indeed removing disease agents from that community’s water. Individual community water testing (before and after using P R) might be a necessary activity to truly convince consumers that P R is effective, however, this activity will not necessarily increase or prioritize the importance of having clean water in the home.
8 9

Messaging that simply informs mothers about which diseases are present in water is not likely to motivate action. A credence product means that consumers must believe in its efficacy, such as in its ability to reduce disease, since they are not directly able to view its effects with the naked eye.

21

Promotion Historical View The 2006 PSI Marketing plan emphasizes a mass media approach, complementing this communication with community activities in collaboration with grassroots NGOs to drive demand. The mass media campaign currently included television promotion broadcast nationally starting in March 2006 on Distribuidora Corripio´s 4 TV channels (free of charge to PSI) including a 15-second TV spot, a 30-second TV spot and a promotional banner (cintillo). It also included radio promotion on seven radio stations paid for by PSI that included two different 15second radio spots. The supporting materials that were developed for distribution in the community included Spanish-language brochures and posters for the population, demonstration kits (including branded buckets, spoons, cloth strainers), demonstration flip charts, and buttons for the demonstration facilitator (Poonawala & Beachy, 2006). Demonstration kits were given to local NGO partners responsible for conducting educational and promotional activities in both rural and urban locales. These kits were also planned to be sold to international organizations requesting product for overseas. Plan for 2007 In contrast to 2006, PSI’s 2007 P R Marketing plan has modified its grassroots outreach to be handled through 4 PSI promotoras employed directly through PSI. These target communities will be located in Santo Domingo barrios, with Corripio-affiliated colmado support. With regards to mass media, the free television spots will continue to be aired, with P R’s slogan will remaining “P R purifica de verdad” (It Truly Purifies). Demonstration supplies and brochures will continue, with the addition of a three-sided hanging “talker” to be distributed to colmados (Guzmán, 2007). Michigan Team Findings The Michigan Team found that P R is a difficult product to introduce to a market since it requires a great deal of behavior change on the part of the consumer. If the consumer is not

22

already educated as to the need for purified water, an urgency needs to be created with the consumer such that they change their mental paradigm and now believe that safe drinking water is a necessity for their family. If the consumer already accepts that safe drinking water is necessary, they need to shift from their current purification efforts to a (likely) more complex, multi-step P R purification process. Changing both of these behaviors is likely to be a slow and effortful process on the part of PSI/DR, and (as it implies changing habits) will require a great deal of interpersonal communication and repetition to solidify. Recommendations The most successful introduction of P R over the long haul will be through repeated inperson demonstrations (e.g. through repeated promotora demonstrations) due to the visual “wow” factor described earlier in the paper and due to the somewhat detailed knowledge needed to use the product correctly. These demonstrations should accomplish multiple objectives: 1. Consumers need verification that the product is effective. As mentioned in the Recommendations (Consumer), the exact disease-reduction attributable to the use of P R is not discernable by the consumer. A substitute to prove efficacy amongst consumers could be individual community testing.10 Water taken from the community could be tested in a lab, and compared with that community’s water treated with P R – the results would then be compared during the presentation, and the implications discussed. 2. Consumers need to relate water purification to aspirational goals. Disease reduction is a relatively abstract goal for many C and D class consumers. These utilitarian goals – such as that P R will remove bacteria from your water and keep your children healthy – need to be translated into higher order value judgments, such as “P R water is the highest quality water,” or “a mother who uses P R is a good mother,” in order to make an emotional impression on the consumer. 3. Consumers need to feel that this is an easy product to use. Consumers could bring their own water to the talk, and promotoras could give a free sample to them such that they could make their own 5 liters and bring it home. This would empower the consumers to learn through doing, and this experiential learning could avert some

10

Inexpensive methods for testing may exist through personal contacts of Lic. Engels Gúzman in San Pedro de Sula.

23

common misconceptions – for example, by the promotora bringing water that was prepared a day earlier, attendees could sample their recently prepared water and compare it to the water from the day before in order to see that the chlorine taste fades over time. 4. Consumers need trusted endorsement. Very few methods exist for increasing the importance of water issues in the consumer’s mind, however, peer endorsements may contribute. If, during every charla , the promotora could invite a trusted community member who has started to use P R to endorse the product – attesting to its safety, simplicity, and efficacy – other community members will likely value the product higher as it is valued by their neighbors. 5. Consumers need reinforcement and repetition. The challenge in introducing P R is that it requires both an intellectual as well as a habitual acceptance on the part of consumers. The latter objective will only be achieved through multiple demonstrations administered in multiple formats. Achieving the former goal may complement the latter if promotoras re-gather groups after a period of time to re-teach the process and answer any product questions that have arisen in the interim. All promotional activities should assume that consumers are not purifying their water until proven otherwise, since this shift from not being a water-borne disease conscious consumer to one that purifies their water is the most critical. Once consumers regularly purify, convincing them that P R is the superior product is an easier transition. To maximize the effectiveness of P R’s marketing efforts in a new community; the promotora should visit several of the households in the community, ascertain the household’s water source and storage facilities, and try to learn the family’s beliefs and priorities regarding drinking water. This information would be used to best tailor the promotional activities to address the specific needs and beliefs of the community. If water purification is not already a habitual behavior for the consumer, P R will not be a recall product at launch – in other words, simply giving consumers materials with information about the product will not induce them to buy at the next visit to the store because the information will not be kept as top of mind. As such, television spots, flyers, and other handouts are unlikely to greatly impact consumer behavior. Instead, trial will most likely be induced through point of use advertising – e.g. demos in the community on the day the water truck comes to town, or demonstrations given while consumers are waiting in line during a sale day at

24

Carrefour – as this enables the consumer to understand urgency of problem, the ease of use of application, and to have chance to purchase P R or consume their trial sachet immediately. Advertising at point of purchase should be reinforced in the early months of introduction through additional demonstrations, television loops advertising P R while in line at Carrefour (like that done during the Farmax campaign), or hanging mobiles advertising P R at colmados (PSI/DR, 2007a). In any case, mass marketing will not have the desired level of influence on consumer’s beliefs, since selling this product requires a more experiential understanding of P R. Since P R is not connected with any well known or respected brand in the DR (e.g. it is not advertised as “from the makers of…”), consumers have no reason to trust the product or believe in its efficacy based on a 30 second television spot. Thus, mass marketing may eventually be used as an advanced tool to reinforce the product as top of mind once the consumer has already begun using P R, but it is too limited an interaction to bridge the consumer’s initial mental hurdles and convince a consumer that eliminating diarrheal illness should be their priority. Additionally, though the airtime for these ads is currently supported by Corripio, this resource should not be considered worth taking advantage of since it is currently “free.” In reality, this airtime is not free: 1) staff time is dedicated to producing the TV spots and lobbying Corripio, 2) placement of the ads is not targeted enough to ensure reaching the selected consumer group (C and D mothers with children under 5 in the demonstration communities), and 3) consumer backlash may develop against the brand from being incited to seek out the product and not finding it in their local retailer.

Price Historical View PSI/DR chose the price of RD$5 for P R water sachets based on a 42% margin for PSI/DR, a 25% margin for the distributors, and a 33% margin for the end retailer (PSI/DR, 2007b). This price was set relying on a tax free status with the importation of P R through USAID. This tax-free importation, however, did not occur due to political and policy changes

25

within USAID, and PSI/DR was required to pay over 20% in taxes on P R.11 With the addition of taxes, the margins for PSI/DR were cut to only 33%, as little possibility existed to transfer this cost on to the consumers. According to PSI/DR, the price of RD$5 would be difficult to change, as the majority of the small store owners prefer to work in RD$5 increments, and an increasing the retail price to RD$10 would effectively price P R out of the market. Currently, P R sachets are priced below the competition, with the botellones priced between RD$30 and RD$40 (RD$15-$20 per 2.5 gallon), Purísima, used to disinfect water and vegetables priced at RD$90 for a 4 oz. bottle, and powdered chlorine priced at RD$10 for 150 ml (Poonawala & Beachy, 2006). PSI/DR also implemented, with the cooperation of the Pharmacy Farmax, a donation program where customers in the Pharmacy can buy P R to give to communities where there is a great need for water purification. Thus, certain communities were introduced to P R through this donation program (PSI/DR, 2006). Plans for 2007 PSI/DR planned for no changes in the pricing structure for P R in 2007. They do, however, plan on continuing to petition USAID to reconsider the importation of P R in order to avoid the taxes on P R and bring the margins back up to 42%. Please see the Financial Analysis section to see how this would rebalance P R/DR' s profitability and break-even points. Michigan Team Findings One of the major findings concerns the price of average products in the small stores (colmados). It appears that many products are sold at odd increments, including snack chips at RD$18 and bread at RD$2. This could open up the possibility of charging a higher price for P R. The team also found that the price charged for P R was not a major deterrent for the majority of consumers. Many consumers believed that the price was fair and realized that the price of P R was below any of the competitors.

11

Although the regional director of USAID ruled against the cooperation with PSI/DR despite the precedent set in other countries, it is possible that this tax-free import status may be able to be attained in 2008 when policy priorities for USAID DR are rebalanced.

26

Recommendations The first recommendation involves experimenting with charging a higher price for P R and suggesting that the colmados sell the product at RD$6 or RD$7. Although PSI/DR does not have direct control over the price of P R sold at the colmados, this could increase the margin for PSI/DR and the promoters, distributors, and store owners. This would give each group involved more incentive to sell the product in order to gain the financial benefits of higher margins. Another recommendation concerns differential pricing for different groups. Supermarkets and pharmacies can easily charge prices at RD$1 increments and fractions thereof, thus making it easier to sell to them at a higher price than the colmados. PSI/DR can also sell P R at the distributor price, which is currently RD$3.0, instead of the wholesale price, RD$2.5, and thus obtain a better margin.

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V.

Financial Analysis

Historical plans PSI Dominican Republic had ambitious sales and financial targets for the first two years of sales. PSI Dominican Republic had an ambitious target of making P R financially selfsustainable in two years. PSI/DR’s target was to sell approximately 1.1 Million sachets the first year (Poonawala & Beachy, 2006). After the initial sales of P R became apparent, PSI/DR reduced their first year goal down to 750,000 sachets. Ultimately in its first year, PSI/DR was able to sell 180,240 sachets of P R between the commercial sector and the NGOs. The shortfall in sales led to a large short-fall of revenue for the project and has put the P R project on a very tenuous financial footing for the future. 2007 Plan PSI/DR’s 2007 P R marketing plan calls for a significantly reduced sales target of 350,000 sachets that would bring in over $26,000 Dominican Pesos (Guzmán, 2007). While this target appears achievable, it would still not lead to full cost recovery for the P R project and lead to the need for outside funding to sustain the P R project. Michigan Team Findings The Michigan team findings focused on looking at ways to improve the financial performance of the P R project. The team distilled three principal findings from PSI/DR’s budget reports: 1) that current margins for the sale of P R are too small 2) that certain PSI/DR’s overhead costs are currently too high, and through the elimination of NGO partnership payments (in 2007) may be able to be reduced, and 3) that reorder quantities are currently overwhelming to a product that has a slow initial demand curve. Recommendations It is the recommendation of the Michigan team that PSI explore three major areas in the short-term to improve P R’s financial performance, and one opportunity in the medium term. 1. USAID importation of P R into the Dominican Republic (short term)

28

If USAID imports the P R project for Dominican Republic this would significantly improve PSI margins and lead to greater self-sustainability. Removing the 17% import tariff would increase PSI’s gross margin 29% to $.031 USD per sachet and would have yielded an additional $1200 USD in revenue for PSI in 2007. The ability to import P R without having to pay import duties/tariffs will significantly help move P R to full-cost recovery. Though efforts to secure this import status ultimately failed in 2005, follow-up should be maintained with USAID, as it appears likely that the Mission re-evaluation process the agency was undertaking (and that impeded P R’s tax waiver) will be resolved in 2008. 2. Reduce re-order quantity of P R to increase product turnover (short term) Currently P&G smallest order quantity is approximately 1.1 million sachets of P R (equivalent to one container). For a market the size of Dominican Republic, a re-order quantity of approximately 300,000 to 400,000 is preferred. Assuming that eventual demand of P R in the Dominican Republic could reach 600,000 sachets, a re-order quantity of approximately 300-400k sachets would increase annual turnover in the Dominican Republic to 1-2 times per annum, in line with many larger consumer products. (See Table 1) Negotiating with P&G to order quantities of even as much as a halfcontainer would significantly increase product turnover, reduce warehousing costs, and ensure that that consumers receive product with a longer shelf life. Container consolidation services do exist, and are regularly used by firms by large retailers such as P&G and WalMart. Though these services may cost incrementally more, it is likely to offset the cost of warehousing a rapidly expiring product in-country.

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Table 1: Product Turnover Matrix based on various sales and re-order quantitites

Annual Product Turnover Matrix
Annual Sales 150K 400K 800K 1.1M Re-Order Quantity 1.1M 650K 400K 0.14 0.23 0.375 0.36 0.62 1 0.73 1.23 2 1 1.69 2.75

Turnover = Sales/Inventory

3. Reduce the overhead for the P R project (short term) Currently the overhead for the P R project is quite high, and it is our belief that in order to survive, the P R project must significantly reduce the overhead of this project. . The project spends a significant amount of time and money on selling the project through NGO' s, as well as promoting this product in non-core locations. For instance, PSI spent 146,000 Dominican Pesos, or approximately $4,500 USD, on a program with MUDE, monies which have not appeared to establish a sustainable demand. The elimination of these expenses – including monies spent on NGO partner’s overhead, their program manager costs, and subsidies paid to less-supervised NGO promoters – and their redirection into PSI-supervised on-sight promotions by a select group of highly effective PSI promoters, we feel that PSI can both operate more effectively plus reduce its overhead to $27,000 USD per annum. (Please see pro-forma budgets in Appendix.) 4. Consider other business models for selling and distributing P R (medium term) There is the opportunity for a different business model for selling and distributing the P R product in the Dominican Republic. With the current price of a 5 gallon bottle of water between 30-40 pesos, there is an opportunity for small independent businesses to purify water using the P R product and selling their own bottled water for less than the current price of a botellon of bottled water. Potentially there is an NGO or funding source that has the opportunity for micro-enterprise development that would be interested in training and funding individuals to start up a small business where an individual

30

purchase a packet of 10 P R sachets and can thus make 5 botellones of purified water. The businessperson could then sell this water door to door for 20 pesos, earning 10 pesos per botellon after paying for the P R product. This method would have the advantage of tapping into existing consumer behavior which is conditioned to favor bottled water, but to sell this resource at a highly costs-competitive price. Naturally, any entrepreneur interested in starting this business would have to be explicitly instructed as to the proper use of P R, and not allowed to brand the water under that trademark. Break-even analysis Scenario: Current situation Looking at the current scenario, if undertaking our recommended course of action, the Michigan team estimated that PSI P R could drastically reduce expenses to about $27,000.12 Additionally, based on PSI/DR’s estimations, we assumed that PSI/DR would also be able to sell approximately 50,000 sachets per year for emergency need. Based on these assumptions, P R would need to sell over 1 million sachets under the current conditions to break even. This figure is dramatically reduced if PSI achieves tax-exempt import status through USAID and/or if the price of P R is raised to 6 or 7 pesos (see differential retailer pricing argument, Pricing section, Recommendations). This breakeven calculation is detailed below in Table . Please see Figures 1 through 4 for a full report on financial projections.

12

The figures used in the Michigan Team’s analysis come from PSI DR’s 2006 and 2007 budget reports. Reductions listed are based on line items as described in those reports. These assumptions need to be independently validated.

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Table 2. Break Even Scenarios

Break Even Scenarios Sachets sold needed to break even Current Situation No taxes No taxes and price increase to 6 pesos No taxes and price increase to 7 pesos 1,035,000 800,600 527,000 386,000

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VI.

Final Recommendations and Next Steps

In conclusion, the Michigan Team would like to propose the following recommendations for the future of the P R product in the Dominican Republic: 1. Use the remaining time in fiscal year 2007 to utilize new health promoters as small scale test cases. With the launch of four primary health promoters dedicated to working with P R that will be supervised directly by PSI, the organization has a unique opportunity to direct the work of these four promoters as small test cases. To begin with, we recommend that PSI emphasize in their training from the beginning the importance of accurate reporting from the promoters, explaining to them that they must truly only put down in their reports the work they do so that PSI can more realistically determine the variables that lead to successful sales. PSI may also want to give additional training on recording feedback and anecdotes that promoters witness while working in order to help PSI gain insight in to how word of mouth promotion affects the sales of P R. In addition, PSI may want to consider guiding the work of the promoters differently to determine exactly who, what, when and where presentations produce the most sales. It can utilize the work of the promoters to determine what number of promotions are absolutely necessary for word of mouth promotion to occur, where these presentations should happen (i.e. demonstrations in the schools, health posts, community meetings, home visits, etc.), to whom these presentations should be given (i.e. community elders, local business people, local government officials, doctors, nurses, teachers, children, etc.), how often samples (if any) should be given out, and what feedback have the promoters received on how to better promote the product (i.e. painting the side of a colmado, etc.). The work of these promoters could also be utilized to determine how many communities might be ideal for launching P R and at what rate. In addition, they can be utilized to determine how the involvement of NGOs might be changed to be more productive to selling to product. 2. Create a solid entry plan for new communities. In order to successfully enter a new community, a succinct plan needs to be in

33

place. Certain criteria need to be met concerning the promoters, availability of P R for purchase, amount of charlas given in the community, and the type and frequency of promotion focused on the community. The Michigan team suggests the following as a basis for this entry plan: One promoter per community. The promoter should focus their demonstrations concurrently on both the women’s groups and the schools in the community. Also, demonstrations should be given to all of the colmados in order to educate those who will be selling the product on a daily basis All colmados in that community be stocked simultaneously. At the time of the first demonstrations, each of the colmados in the community needs to be stocked with P R. Each potential consumer attending the demonstrations must be able to purchase the product in their respective colmados. Preferably, all P R product would be distributed through Corripio, however if this is not possible the promoters or some other agent of PSI should ensure that all colmados are fully stocked with product. Not being able to do so will do possible irreparable damage to the image of the P R. Delivering P R product charlas at a regular interval. As recommended in a previous section of this paper, we feel that PSI needs to use the next year to determine the ideal number and frequency of charlas that need to be given to each community in order for P R to be successfully adapted. After this number and frequency is identified, each new community should be presented with the requisite number of charlas. These are necessary to keep the issue of water quality and P R fresh in the minds of the people. The promoters, possibly collaborating with local NGOs, should give these charlas. Initiate additional awareness vehicles once demand warrants. Once the optimum demand for P R is reached in the town (to be determined by looking at costs of painting colmado vs. revenue generated in a specific town), then the wall of the local colmado can be painted in order to promote the product and keep it fresh in the minds of the community. When regional use of P R is reached, mass media campaigns should be launched. Once P R reaches the optimal regional penetration, then a mass

34

media campaign can begin in order to reinforce the message both of the product and of water quality. 3. Perform an in-depth and nationally representative study on water use. Integral to the success of marketing a product such as P R will be to understand the key issues surrounding water and waterborne diseases amongst people in the Dominican Republic and the team recommends that a nationally representative survey be completed on these issues. Ideally this survey would include information on water beliefs and habits (i.e. sources, storage, usage, etc), target audiences and appropriate ways that P R might be marketed more effectively to those in need of water purification systems. 4. Explore further expansion into new hyper/super markets. Due to the success of P R in Carrefour with the relative small amount of work, we feel that PSI should pursue new supermarkets if they meet similar criteria to the success factors at Carrefour. These success factors include: Close proximity to working/class poor neighborhoods Promotions or sales that attract working class/poor to shop at hypermarket Willingness to put P R in prominent location Willingness to allow in-store promotion of P R product, either through video, signage and or live demonstrations New supermarkets similar to Carrefour will allow a significant increase in distribution and sales with minimal efforts expended. 5. Pursue a micro-enterprise approach in the mid-term (2-3 years). As noted in the financial section of this paper, we feel that this method could attract additional funds to help support the sale of P R while also creating local employment. Under this method of delivery consumers of P R are not required to make the substantial behavior change that is required if they personally make the water. We consider this an intermediary project in 2-3 years step once P R has achieved a near break-even financial performance.

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6. Do not pursue alternate safe water solution products as a substitute for P R. PSI/DR has informed the Michigan Team that it is considering promoting two products to meet its Safe Water Campaign goals in the DR by starting a PSI-branded chlorine-based water purification solution (cloro). This product would yield higher margins for sale to the C, D, and potentially E consumers, and allow PSI to scale back promotion of P R to only specific populations, such as persons living with HIV/AIDS or others. Though it is true that the difficulties in promoting P R are quite major and a significant lag time is needed to develop local demand for P R, the Michigan team recommends that PSI/DR does not look to other products – specifically a PSI-branded cloro – to partially or totally replace the P R product as the agent for its Safe Water campaign. Though alternative products, specifically cloro, may offer a higher margin to PSI, the Michigan Team believes there are significant downsides that should rule out pursuing this business model. They are as follows: Development and marketing costs. Naturally, as the PSI Cloro product is not already developed, any initial start up costs, such as product development, producer costs, packaging design and sourcing, and distribution and storage will be incurred. Additionally, entirely new sets of marketing materials will have to be both designed and distributed. Though the product development costs will not be large as the basic cloro product formula is widely known, development of new marketing materials may have relatively large costs. These costs will directly compete with (and likely supersede) the funds allocated towards promotional activities for P R, and as such the development costs with both eat into the PSI-branded cloro’s profitability as well as hindering its capacity to promote P R to other consumer segments. Additionally, this will also mean that PSI/DR will not be able to capitalize on any of the initial investment in promoting P R, since some of the same consumers it was persuading to buy P R will now have to be educated as to why the PSI-branded cloro is just as good. Behavior change issues persist. It is the opinion of the Michigan Team that a large portion of the (C & D) consumer population is not in the habit of

36

regularly purifying13 their water,14 and thus in marketing a water purification product in the DR, PSI will both have to 1) educate the consumer as to why purifying their water should be a family priority, and 2) educate the consumer as to how to use the product. This effort and expense will be the same for both a cloro product, as well as P R product, and yet the health benefit to the consumer in using a cloro product is considerably less. Perception of cloro in the DR. Perceptions of cloro in the DR will likely also make this a hard product to sell. The Michigan Team often heard during its community visits that “cloro is for washing clothes,” not for purifying water, and that people “didn’t like P R because of the cloro taste.” Combating these ingrained perceptions will take significant marketing dollars and effort, and the taste preference simply may not be able to be overcome. Additionally, the chlorine taste of a PSI-branded cloro product will be even stronger than the taste of chlorine with the P R product. This, in turn, begs the question: why spend the additional money and effort to overcome these perceptions, when instead you could be spending the money on building the market for P R? Forfeit of Corripio relationship and distribution channel. Presently, PSI/DR benefits greatly from promoting a safe water solution product that is tied to P&G, as it opens up connections for them to P&G distributors such as Corripio. The Michigan Team believes, however, that this relationship will not be as open to them should they greatly scale back or discontinue their promotion of P R in the DR, as Corripio’s main incentive in participating in this relationship is to be seen as helping their image in the eyes of P&G. Loosing that fundamental tie to Corripio will close that distribution channel down to PSI for distribution of other products, such as the Vital Día snack bar.

13

Note:: “purifying” in this context is meant to indicate “going through the process of purification in the home;” this is not to indicate that these consumers do not buy purified water, just that they are unaccustomed to performing the actions, and are neither as actively conscious of nor even aware of why they should be purifying their family’s drinking water. Only results from a large, nationally representative consumer study focused on consumer water habits and perceptions would enable us to assert this claim definitively. Realizing such a study should be a priority for both PSI/DR and PSI/DC, as without this information, valuable marketing dollars are likely to be misspent.

14

37

Promoting PSI-Cloro does not bridge easily to P R. Even if PSI/DR uses a PSI-branded cloro to create the behavior change necessary in the consumer for them to prioritize water purification in the home, if PSI/DR ever wanted to then transfer this demand onto a superior water purification product like P R, this would not be an easy transition. Significant marketing dollars and effort would be required to persuade consumers that this purification method was better, and what that degree of difference in safety was worth paying for. In other words, using a PSI-branded Cloro as an introductory product to bring consumers into the market is not an efficient use of resources. PSI/DR would not be able to capitalize significantly on its previous marketing expenses for the cloro product, as the issues in selling P R (why it is a better product, why they should care about the difference) are sufficiently distinct to require an additional hefty expenditure of marketing dollars. Due to these five reasons, the Michigan team believes that an exclusively P R-focused strategy is not only the best way to address PSI/DR’s Safe Water campaign goals within the Dominican Republic, but also outweighs any cost considerations that might influence PSI/DR to look towards developing a PSI cloro product. Instead, efforts should be directed 1) towards furthering the relationship with USAID DR so to effectively lobby for importation allowances for P R to be awarded once the USAID strategic plan is completed in 2008, and 2) towards lobbying P&G as to the necessity of being able to purchase only half-containers at a time.

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VII. Conclusion In conclusion, the Michigan Team wishes to commend the hard work that PSI/DR has put in to socially marketing the P R product in the DR and to strongly recommend that these efforts continue, with some noted changes. Please note that the aforementioned recommendations are expected to be implemented over both the short and medium term. As not all of the recommendations will be possible to implement immediately, and several suggestions will require slow and steady work to produce sustainable demand, the team does envision a multiyear horizon before PSI/DR can fully recover costs from the sale and promotion of P R. Though this grassroots marketing effort will require continued funding and logistical support from PSI/DR in the interim, and will likely need additional funding support from PSI DC to conduct an adequate consumer study, it is the belief of the Michigan Team that the composite of these suggestions will ultimately lead to a successful business venture in the sale of P R and the direct improvement of health in the lives of many Dominicans.

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APPENDIX I

List of organizations interviewed for evaluation: Michigan Team Dominican Republic Visit (February/March 2007)

• • • • • • • • •

INDRI (DR Water Systems Engineering Ministry) Community members from Rincon Largo MUDE (Women in Development NGO) ADOPLAFAM (Reproductive health NGO) Pharmax pharmacist Carefour store manager Community members from Monte Cristi PSI staff members PSI Health Promoters

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APPENDIX II: PSI/DR PUR Financials

PuR Financials: Current Scenario
Product Costs & Margins - Production to point of Retail
1USD= All prices for 1 sachet of PUR FOB Price Shipping Customs Harbor Office Taxes Total Cost of Goods Sold (COGS) COGS Gross Margin $ PSI Sls Price to Merchants/Distributor PSI Margin PSI/W - Gross Margin PSI/DR = Gross Margin RD$ 1.16 0.22 0.04 0.02 0.24 1.68 1.68 0.82 2.50 33% 0.06 0.76 $ $ $ $ $ $ USD$ 0.034 0.007 0.001 0.001 0.007 0.050 $0.050 $0.024 $0.074 33.7 DOP

$0.002 $0.023

Distributor Revenue
Price to Distributor Gross Margin to Distributor Price to Retailer Distributor Margin 2.50 0.83 3.33 25% $ $ $ 0.074 0.025 0.099

Retailer Revenue
Price to Retailer Gross Margin to Retailer Price to Consumer Retailer Margin 3.33 1.67 5 33% $ $ $ 0.099 0.050 0.148

PSI DR PUR DIVISION ANNUAL BUDGET*
Revenue from PUR
Annual Sales Goal Revenue to PSI Dominican Repub Revenue to PSI Washington PUR Emergency Sales Revenue from PUR Sales Total PSI Dominican Republic Revenue RD$ 1,035,000 785047.5 63652.5 50,000 125,000.00 $ 910,047.50 $ USD$ $23,295.18 $1,888.80 3,709.20 27,004.38

PUR Expenses
Overhead and Associated Costs PUR Manager Sales Force On-sight Promotions Other Promotion Materials Total Expenses RD$ 101100 505500 101100 101100 101100 909900 $ $ $ $ $ $ USD$ 3,000.00 15,000.00 3,000.00 3,000.00 3,000.00 27,000.00

Net Income

148

$4

*All numbers are assumptions and should be independently varified

41

PuR Financials: Assuming no Taxes
Product Costs & Margins-Production to point of Retail
1USD= All prices for 1 sachet of PUR FOB Price Shipping Customs Harbor Office Taxes Total Cost of Goods Sold (COGS) COGS Gross Margin $ PSI Sls Price to Merchants/Distributor PSI Margin PSI/W - Gross Margin PSI/DR = Gross Margin RD$ 1.16 0.22 0.04 0.02 0 1.44 1.44 1.06 2.50 42% 0.08 0.98 $0.002 $0.029 USD$ $ $ $ $ $ $ 0.034 0.007 0.001 0.001 0.043 $0.043 $0.031 $0.074 33.7 DOP

Distributor Revenue
Price to Distributor Gross Margin to Distributor Price to Retailer Distributor Margin 2.50 0.83 3.33 25% $ $ $ 0.074 0.025 0.099

Price to Retailer Gross Margin to Retailer Price to Consumer

Retailer Revenue

Retailer Margin

3.33 1.67 5 33%

$ $ $

0.099 0.050 0.148

PSI DR PUR DIVISION ANNUAL BUDGET*
Revenue from PUR
Annual Sales Goal Revenue to PSI Dominican Repub Revenue to PSI Washington PUR Emergency Sales Revenue from PUR Sales Total PSI Dominican Republic Revenue RD$ 800,600 784988.3 63647.7 50,000 125,000.00 909,988.30 $ $ USD$ $23,293.42 $1,888.66 3,709.20 27,002.62

PUR Expenses
Overhead and Associated Costs PUR Manager Sales Force On-sight Promotions Other Promotion Materials Total Expenses RD$ 101100 505500 101100 101100 101100 909900 $ $ $ $ $ $ USD$ 3,000.00 15,000.00 3,000.00 3,000.00 3,000.00 27,000.00

Net Income

88

$3

*All numbers are assumptions and should be independently varified

42

PuR Financials: Assuming no Taxes and Retail change to 6 pesos
Product Costs & Margins - Production to point of Retail
1USD= All prices for 1 sachet of PUR FOB Price Shipping Customs Harbor Office Taxes Total Cost of Goods Sold (COGS) COGS Gross Margin $ PSI Sls Price to Merchants/Distributor PSI Margin PSI/W - Gross Margin PSI/DR = Gross Margin RD$ 1.16 0.22 0.04 0.02 0 1.44 1.44 1.56 3.00 52% 0.12 1.44 USD$ $ $ $ $ $ $ 0.034 0.007 0.001 0.001 0.043 $0.043 $0.046 $0.089 33.7 DOP

$0.003 $0.043

Distributor Revenue
Price to Distributor Gross Margin to Distributor Price to Retailer Distributor Margin 3.00 1 4 25% $ $ $ 0.089 0.030 0.119

Retailer Revenue
Price to Retailer Gross Margin to Retailer Price to Consumer Retailer Margin 4 2 6 33% $ $ $ 0.119 0.059 0.178

PSI DR PUR DIVISION ANNUAL BUDGET*
Revenue from PUR
Annual Sales Goal Revenue to PSI Dominican Repub Revenue to PSI Washington PUR Emergency Sales Revenue from PUR Sales Total PSI Dominican Republic Revenue RD$ 527000 760461 61659 50,000 150,000.00 $ 910,461.00 $ USD$ $22,565.61 $1,829.64 4,451.04 27,016.65

PUR Expenses
Overhead and Associated Costs PUR Manager Sales Force On-sight Promotions Other Promotion Materials Total Expenses RD$ 101100 505500 101100 101100 101100 909900 $ $ $ $ $ $ USD$ 3,000.00 15,000.00 3,000.00 3,000.00 3,000.00 27,000.00

Net Income

561

$17

*All numbers are assumptions and should be independently varified

43

PuR Financials: Assuming no Taxes and Retail change to 7 pesos
Product Costs & Margins - Production to point of Retail
1USD= All prices for 1 sachet of PUR FOB Price Shipping Customs Harbor Office Taxes Total Cost of Goods Sold (COGS) COGS Gross Margin $ PSI Sls Price to Merchants/Distributor PSI Margin PSI/W - Gross Margin PSI/DR = Gross Margin RD$ 1.16 0.22 0.04 0.02 0 1.44 1.44 2.06 3.50 59% 0.15 1.91 USD$ $ $ $ $ $ $ 0.034 0.007 0.001 0.001 0.043 $0.043 $0.061 $0.104 33.7 DOP

$0.005 $0.057

Distributor Revenue
Price to Distributor Gross Margin to Distributor Price to Retailer Distributor Margin 3.50 1.2 4.7 26% $ $ $ 0.104 0.036 0.139

Retailer Revenue
Price to Retailer Gross Margin to Retailer Price to Consumer Retailer Margin 4.7 2.3 7 33% $ $ $ 0.139 0.068 0.208

PSI DR PUR FINANCIALS*
Revenue from PUR
Annual Sales Goal Revenue to PSI Dominican Repub Revenue to PSI Washington PUR Emergency Sales Revenue from PUR Sales Total PSI Dominican Republic Revenue RD$ 386000 735523 59637 50,000 175,000.00 $ 910,523.00 $ USD$ $21,825.61 $1,769.64 5,192.88 27,018.49

PUR Expenses
Overhead and Associated Costs PUR Manager Sales Force On-sight Promotions Other Promotion Materials Total Expenses RD$ 101100 505500 101100 101100 101100 909900 $ $ $ $ $ $ USD$ 3,000.00 15,000.00 3,000.00 3,000.00 3,000.00 27,000.00

Net Income

623

$18

*All numbers are assumptions and should be independently varified

44

BIBLIOGRAPHY

CDC. (2007). Centers for Disease Control Supplemental Analyses of Recent Trends in Infant Mortality. Retrieved 20 March, 2007, from http://www.cdc.gov/nchs/products/pubs/pubd/hestats/infantmort/infantmort.htm Ellison, S., & Bellman, E. (2005). Success Without Profits: After Tsunami, a Failed P&G Product Gets a Second Chance to Prove Itself. Retrieved February 12, 2007, from http://www.wsjclassroomedition.com/archive/05may/mktg_pur.htm Gonzalez, C. (2007). National Academy of Engineering Announces Winners of $1 Million Challenge to Provide Safe Drinking Water. Retrieved February 25, 2007, from http://www8.nationalacademies.org/onpinews/newsitem.aspx?RecordID=02012007 Guzmán, E. (2007). Plan de Mercadeo PUR República Dominicana 2007. Sta. Domingo, DR: PSI/DR. Hajaj, C. (2005). UNICEF and Procter & Gamble join forces on safe drinking water for children. Retrieved January 28, 2007, from http://www.unicef.org/media/media_27124.html Laumer, J. (2005). Proctor & Gamble (Pur) Gets Green Award. treehugger.com Retrieved January 5, 2007, from http://www.treehugger.com/files/2005/07/proctor_gamble_1.php P&GHSI. (2003). PuR Technical Report. Retrieved March 5, 2007, from http://www.psi.org/pur-emergencyrelief/resources/PUR_Tech2.pdf P&GHSI. (2004). P&G’s water purification technology wins ICC / UNDP World Business Award in support of the Millennium Development Goals. Retrieved February 22, 2007, from http://www.pghsi.com/safewater/pdf/PR_ICC_Award.pdf P&GHSI. (2007). P&G Health Sciences Institute: Mission. Retrieved February 2, 2007, from http://www.pghsi.com/mission/ PAHO. (2007). PAHO Basic Health Indicator Data Base. Retrieved 20 March, 2007, from http://www.paho.org/English/DD/AIS/cp_214.htm Poonawala, A., & Beachy, E. (2006). PuR Marketing Plan Dominican Republic. PSI/DR. PSI. (2006). Enhancing PUR-Related Activities in the Dominican Republic A Proposal to the Procter & Gamble Fund (Vol. $50,000, pp. 3). Dominican Republic: Population Services International. PSI/DR. (2006). Plan de Entrega Donación FARMAX PUR Purificador de Agua. Sta. Domingo, DR: PSI/DR. PSI/DR. (2007a). Hablador Triangular. PSI/DR. (2007b). Volume and revenue projections Jun 06.xls. PSI/DR. Sosnowchik, K. (2005). WRI Report: Eradicating Poverty Through Profit. Green@ work(Spring 2005), 14-20. USAID. (2005). USAID Announces Partnership with Procter & Gamble for Pakistan Earthquake Survivors. Retrieved January 22, 2007, from http://www.usaid.gov/press/releases/2005/pr051020.html WBCSD. (2006). Proctor & Gamble: Treating water at its point of use. from http://www.wbcsd.ch/web/publications/case/png-pur.pdf Welch, M., Olans, A., & Spaulding, S. (2007). Interview with PuR Promoters, February 26, 2007. Sta. Domingo, DR. WHO. (2004). Water, Sanitation and Hygiene Links to Health: Facts and Figures. . Retrieved 20 March, 2007, from http://www.who.int/water_sanitation_health/publications/facts2004/en/index.html

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