Design of off-grid lighting business models to serve the poor: Field experiments and structural analysis
Abstract
A significant proportion of the world’s population has no access to grid-based electricity and so relies on off-grid lighting solutions. Rechargeable lamp technology is gaining popularity as an alternative off-grid lighting model in developing countries. In this paper, we explore consumer behavior and the operational inefficiencies that result under this model. Specifically, we are interested in (i) measuring the impact of inconvenience (of travelling to recharge the lamp) along with the impact of liquidity constraints (due to poverty) on lamp usage, and (ii) evaluating the efficacy of strategies that address these factors. We build a structural model of consumers’ recharge decisions that incorporates several operational features of the low-income regions. We conducted large-scale field experiments in Rwanda in partnership with a local rechargeable lamp operator and use the resultant data to estimate and test our model. We find that the complete removal of inconvenience and liquidity constraints from the current business model results in 73% and 126% increases in both recharges and revenue, thereby suggesting that these constraints are major sources of inefficiency. By implementing simple operations-based strategies – such as starting more recharge centers, visiting consumers periodically to collect their lamps for recharge, and allowing consumers to partially recharge their lamps and pay flexibly for the recharge – more than half the benefit of completely eliminating the inefficiencies can be attained. By contrast, the price- and capacity-based strategies that vary the economic variables (i.e., the amount paid per recharge and the amount of light obtained in return) but not the operational model perform far worse than the aforementioned strategies. Overall, our analysis emphasizes the importance of managing operations effectively even in markets with cash-constrained consumers, where firms may have a natural tendency to focus more on reducing prices