business models in global health: LivingGoods

by admin on May 10, 2011

Health-business-in-a-bag
Student observations on LivingGoods’ model and future strategies

by Vishal Gupta, Jenny Hu, Kevin Kung, and Awilda Mendez

In late 2010, a small team of MIT students took a look at the organization from the outside and, as a course assignment, prepared an executive summary aimed at its board of directors. This article presents their overview and assessment of the organization, and their thoughts on challenges and opportunities. Keep in mind that this a class assignment drawing largely on publicly-available materials and in some cases direct, though limited, interaction with the organization. We share the student’s work in the hopes that others will build on it in keeping with the creative commons license.

Overview of the organization

Living Goods (LG) is a US non-profit organization started by Chris Slaughter in 2008 that seeks to provide affordable health products to the poor in a sustainable manner. LG has a specific focus, targeting high-burden diseases of poverty – malaria, diarrhea, and TB – all of which admit low cost treatments and/or preventative measures.

LG’s business model is built upwards from their network of door-to-door Community Health Promoters (CHPs), many of whom are women. By partnering with micro-financing organizations (like BRAC), LG empowers these women to purchase the medicines and other products that they then sell locally for a small profit. By obtaining inventory at the lowest possible cost, monitoring routinely for quality control, and training CHPs, LG addresses two missions: on the one hand, their products and personnel combat the non-availability of basic health care, frequent stock-outs and counterfeit medicines in resource constrained environments such as rural Uganda. On the other hand, LG’s scalable business model helps women generate income.

What it does

Living Goods promotes and distributes four categories of products targeting vital health and household needs. Categories include prevention, treatment, personal hygiene and what they term “Save Money – Make Money”. While the first two categories concentrate on promoting health and wellness, LG’s decision to incorporate personal hygiene in ts business model is meant to provide CHPs with further financial incentives as they can sell these products in bulk and receive a higher mark-up. The final category of the LG model – “Save Money – Make Money”, represents a series of “intermediate technologies” that help to build capacity, and can contribute to the long-term wellness of communities in health, productivity, and the environment.

Examples of products under these categories include (but are not limited to) the following:

  • Prevention: Insecticide treated bed nets, water treatment, vitamin A and condoms.
  • Treatment: Essential medicines for the major diseases (e.g. malaria and diarhheal diseases) as well as treatments for worms and more common ailments like flu and cold.
  • Personal Hygiene: Personal care products like feminine hygiene, soaps, skin lotion and toothpaste.
  • Save Money-Make Money: Products that contribute to household income or savings such as solar lanterns, high-efficiency cook stoves, water filters, and reading glasses.

Whom it serves

Living Goods is focused on providing affordable medical products to communities with inadequate access to essential medicines. Access is measured by proximity, affordability, quality, and consistency of in-stock availability. Specifically, LG aims to serve populations living on 50 cents to $2 a day – “poor, but not destitute”. Geographically, LG centers in rural and peri-urban areas of Uganda but ideally seeks to replicate its business model in other countries through partnerships.

Accounting for success

Success for Living Goods is measured on the following criteria:

  • Scalability. In this regard LG has tripled its branches to 35 in 2009, reaching 20 districts in Uganda. Even so, currently it does not serve all regions in Uganda.
  • Affordability of products/services to target consumers. On average, LG products are 30% cheaper than market.
  • Product delivery and brand awareness. CHPs carry branded materials and signs to help build identity for the organization in local communities.
  • Efficacy. Although we have not found data around this impact, LG does work closely with a number of organizations (like JPAL) to obtain rigorous quantitative assessments of their interventions. LG has set measurable goals in the next 5 years, including reducing the rate of infant mortality 15-30% in target communities.
  • Financial sustainability. Although it is difficult to assess total costs of the program, we do know that CHPs keep 20% of sales, earning approximately $750 a year (compared to a national GDP of $1200 in 2009). At the very least, these earnings help ensure the sustainability from the point of view of the CHP. Additionally, LG seeks to be fully financially sustainable in the next 4-6 years and aims to have each additional branch be self-sufficient within 3 years.

Living Goods is able to deliver on their mission by focusing on the following elements:

  • Local partners: LG has partnered with local NGOs, community groups and microfinance organizations to leverage their existing infrastructure, scale, and community relations for recruiting and supporting CHPs. This also helps LG in reducing its overhead administrative costs, and in expanding rapidly by virtue of the partner organizations’ existent network.
  • Competitive pricing: By creating a streamlined supply chain from public and private resources and by reducing the number of price markups as well as costs (e.g. eliminating the need for storefronts), LG secures prices at or below relevant competition. This pricing is critical to their financial sustainability.
  • Distribution and monitoring: LG is strongly dedicated to regular collection and analysis of quantitative data. CHPs are required to keep a detailed record of the daily transactions. Regular monthly monitoring of CHPs is conducted by independent agents to acquire inventory, market demand, and pricing information. Agents also serve to resupply inventory, communicate current promotions and provide on-going training to CHPs. Finally, agents help maintain quality control as regards the storage, prescription and sale of regulated items. Furthermore, LG also partners with organizations like the Poverty Action Lab (J-PAL) and BRAC’s M&E division, who assesses LG’s impact and efficacy as an integrated organization.
  • Branding and communications: LG understands the importance of developing a consistent and respected brand within the communities. CHPs wear uniforms and carry branded material. The organization ensures that both CHPs and partners recognize CHPs as representatives of the program. LGs produce illustrative manuals for different health conditions in both English and Luganda that are easy for both the CHPs and their
    customers to understand.

Looking ahead: student thoughts

We make a number of tactical and strategic recommendations.

Monitoring and regulation. As LG scales, its ability to effectively monitor and support its CHPs may be limited, both financially and logistically. Critical to success will be finding innovative and more efficient means to coordinate CHPs, such as by better aligning their incentives with the quality guidelines of LG.

Tracking. In addition to directly affecting morbidity and mortality outcomes, LG contributes more broadly by pioneering and refining the Avon business model to the global health delivery arena. However, although it has dedicated resources to measuring its effectiveness in the regard of health outcomes, it has not focused on quantifying its operational efficacy–for example, just how “lean” its supply chain is. Better understanding the features of LG’s success will promote scalability and replication.

Refining core competencies. Particularly in the light of its many partnerships and desire to scale, its important for LG to identify its core competencies. What parts of this business model does it wish to own? Which parts are better outsourced to partner organizations?

Download the accompanying student presentation on LivingGoods (pdf).

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