In 2003, a $20 million R&D and marketing project at Procter & Gamble (P&G) had reached a financial impasse after eight years of work. A decade earlier, the company had spotted an opportunity to supply a water-purifying product to the developing world, which, it was hoped, would increase the company's share of the mass consumer market in the emerging economies.
At the same time, the company believed it could save lives by providing a simple way to purify household and drinking water. Unsafe water supplies and inadequate sanitation kill more than 3 million people every year, making this problem collectively more lethal than Aids.
The project stalled in late 2003 when it became clear that the financial returns for selling a powder product called PUR Purifier of Water did not justify further investment in commercial terms. At this point, P&G changed tack, transforming the project into a corporate social responsibility (CSR) programme. Alan Lafley, P&G's president and chief executive, moved it to the corporate sustainability department (CSD), itself a new division. Thereafter, the company developed partnerships with not-for-profit organisations in social, health services and humanitarian relief to market and distribute the product more effectively.
P&G Pakistan tried the commercial route once more in 2004, but the results were not encouraging. In 2005, P&G officially announced its new non-commercial approach and its decision to sell PUR at $0.04 per sachet, the cost of production. PUR would be sold at cost to non-profit partners, but a large number of donations of the product would be paid for by P&G corporate philanthropy and employee donations.
The new non-profit strategy proved a success and by the end of 2006, P&G had sold 57 million sachets, at cost, to humanitarian organisations, in contrast to the mere 3 million sachets sold during the commercial phase. The biggest lesson of this study is that P&G knew when to close the commercial venture and when to leverage partnerships with non-profit organisations to fulfill a broader social need. It did so with clear expectations about the cost of making it sustainable, meaning that PUR would be a non-profit venture - driven by a social mission rather than profits. It left the social marketing - educating the target customer about the risks of untreated water and distributing the product at an affordable price - to the non-profit organisations.
P&G first researched new water-purifying technologies in 1991, following a major outbreak of cholera in Central America. P&G's diluted chlorine bleach water-purification technology was not well received by all its target customers in the region, some of whom said that the water looked dirty and tasted of chlorine. In 1995, the company signed a collaborative research agreement with the US Centers for Disease Control and Prevention (CDC) to test and develop water-purification products.
After joining forces with CDC, P&G tested a low-cost water filter in Guatemala, but local people complained that the filters clogged up too quickly. P&G then reverse-engineered the municipal water treatment process, leading to the discovery of the powder product.
PUR is a sachet of powder, which when swirled into a 10-litre bucket of dirty water results in clean and safe drinking water. It was launched in 2000, priced for a low-income commercial market at $0.08-$0.10 a sachet. Independent studies show that it is effective in reducing the cases of water-borne disease, with an upper range of 90% and an average disease reduction rate of 50%. However, after three years of market tests in Guatemala, Morocco and Pakistan, the product had not made a profit. Mixed results came back in 2003, with repeat purchase rates of 5%, 10% and sometimes 25%.
The decision then facing Lafley was clear: push ahead on the PUR initiative, given its public health benefits, or terminate the initiative, given its costs and low returns. Employees who had worked with the product, however, found it difficult to shut down a product line that held so much promise. Greg Allgood, who worked in the consumer health products unit, recalls an internal memo: "The memo had no conclusion about what to do with the product, but it was very clear that no product engaged our employees and our stakeholders - customers, governments, UN groups, NGOs - like this one."
PUR was relaunched as a CSR product in 2004 within the Safe Drinking Water Alliance, a partnership comprising P&G and the Johns Hopkins University Bloomberg School of Public Health's Center for Communication Programs (CCP), Population Services International (PSI) and UK charity Care. The Safe Drinking Water Alliance was the first in a series of partnerships between P&G and non-profit organisations featuring PUR and was designed as a pilot programme to test three marketing strategies: social marketing, commercial marketing and disaster and humanitarian relief networks.
Now working in P&G's CSD unit as director of the Children's Safe Drinking Water (CSDW) programme, Allgood says: "Our purpose as a company is to improve the lives of the world's consumers. Our brands, such as Pantene, Oil of Olay, Always, Tide and Ariel, touch consumers every day in ways that meet their needs. Our focal philanthropy programme, the Children's Safe Drinking Water programme, makes our purpose as a company tangible for our employees and critical stakeholders."
Simple in theory, but finding the right formula is often more difficult. Local barriers to entry are often tricky to overcome in 'bottom of the pyramid' markets. Certainly, P&G discovered that traditional marketing methods did not work; consumers were suspicious of new products that required them to change the way they managed their lives. During 2004, it began a new testing strategy. Putting the product into the CSD unit and turning it into a non-profit venture gave enthusiasts such as Allgood the room to explore alternative marketing.
But first it gave the commercial strategy one more push in Pakistan with a big product launch in June 2004. This time, the launch was run in parallel with a public awareness-raising campaign on drinking water treatments, designed by the Johns Hopkins University CCP. In June 2004, P&G Pakistan launched the product with a big media event; however, it was not co-ordinated well with the public awareness campaign and by the end of the summer repeat purchase rates were too low to sustain the commercial market. Allgood proposed an exit strategy with his counterpart in Pakistan, Tarek El Baradi. Together, they recommended: "Instead of just saying 'we tried, we failed, sorry', we could say, 'we tried, we failed, but we're still committed and we want to do it with our partner PSI'."
After the commercial failure in Pakistan, P&G donated the stockpiled product to PSI in Pakistan, with a cash donation to support its launch of a social market in Pakistan through its local non-profit partner networks. And in April 2005, PUR sachets became 'a corporate signature product', featured within the CSDW. Being a signature product meant that it was backed with corporate-level organisation and a commitment to provide the product at cost indefinitely.
In the same year, P&G tested the social marketing route in Haiti with one of its new partners. PSI is the largest non-profit social marketing organisation in the world and had become well known in developing countries as a leader in preventative healthcare strategies. Social marketing strategies aim to balance market and health outcomes, making products affordable and charging just enough to keep distribution channels open.
By the end of 2005, however, market penetration of PUR sachets in Haiti remained low. Political violence had disrupted educational campaigns and the social marketing strategy was never fully implemented. But the experience in Haiti solidified the working relationship between P&G and PSI, which today have social marketing campaigns in at least 10 other countries. P&G tested the product in a humanitarian relief strategy in partnership with Care in Ethiopia in 2004. Care purchased the product at cost with money provided by USAID and distributed it with its humanitarian relief package for free.
The first big test case for the humanitarian market came when the Indian Ocean tsunami struck at the end of 2004. One of the main priorities for international disaster relief agencies was the provision of clean drinking water, and requests for PUR sachets came from organisations including Samaritan's Purse, AmeriCares and Unicef. As Allgood says: "Before this date, we'd sold only 3 million sachets in three years. After the tsunami hit, we sold 15 million sachets in 48 hours. AmeriCares used two of its cargo planes: one went to Sri Lanka and the other to Indonesia. We increased production: we went to 24-hour shifts and we installed an additional packing machine."
The sachets are easy to stockpile: they are small, light and have a shelf life of more than three years. Within two weeks of the disaster, P&G had delivered the 15 million sachets (paid for by P&G donations), enough to treat 150 million litres of water, and pledged another 13 million. In total, P&G donated $3.1 million in cash and product to, among others, PSI, the Red Cross/Red Crescent, AmeriCares and Unicef.
It served to introduce PUR as a humanitarian relief product to a global audience of international non-profit organisations, relief agencies and their donors, and raise the public profile of water treatment as a priority in vulnerable populations. By the end of 2006, at least 18 million sachets had been delivered through social markets and the model had expanded from two to 10 locations, including Uganda, Ethiopia and Kenya.
At home, P&G had an engaged and supportive employee audience. As a CSR product, PUR sachets had already had positive effects on P&G recruitment and employee retention. "Even beyond our brands, what make P&G a special and great company are our people and their commitment to improving life. Because our employees are so engaged with our philanthropy programme, it's become an integral part of what makes us successful," says Allgood.
Within P&G, Cause Related Marketing (CRM), featuring the CSDW programme, started to take off. An early CRM effort involved P&G-Italy. Donations were made to buy PUR sachets through purchases of P&G brand detergent, Dash, over a weekend in December 2005 through the local outlet, Carrefour. The programme generated 70,000 sachets, which were donated to PSI-Pakistan in the aftermath of the earthquake in Kashmir.
P&G brand managers looked into expanding CRM using the PUR brand in North America. In May 2006, a CRM campaign was organised through a national coupon flyer, Brand-Savers, where a donation of 1.5 cents was made from every PUR brand water filter. The goal was to raise $200,000 for PSI in Kenya to provide 40,000 children with a year's worth of safe drinking water. By mid-2006, the goal had been achieved with a total of $400,000 for the year; the same is projected for 2007.
P&G has increased its public profile, stepping up its safe drinking water efforts with non-profit partnerships, philanthropic support and employee support and donations. Here is proof that local markets can be won over to innovative new products, a hopeful sign for P&G's future commercial and philanthropic ambitions in the developing world.
PROCTER & GAMBLE'S JOURNEY 1991: Develops a chlorine bleach water- purifying product
1999: Tests low-cost water filters in Guatemala and moves from filter purifiers to water treatment strategies
2000: Launches powder product PUR Purifier of Water, priced at $0.10 a sachet
2003: Transfers PUR to the CSD unit, as a non-profit venture
2004: Donates its stockpile of sachets to PSI and delivers 15 million sachets to tsunami relief organisations in 48 hours
2005: Makes PUR a "corporate signature product", and commits to sell it at cost indefinitely
2006: PUR reaches 10 social markets and non-profit distribution totals 54 million sachets.
Margaret Hanson is adjunct professor and senior researchfellow at INSEAD