Four out of every five Ugandans lack access to grid electricity . This constrains their opportunities for work, education, or operating a business. Around 35 million Ugandans, 97% of the population, rely on traditional and relatively inefficient energy sources such as wood, kerosene, fuel, and charcoal to cook their meals and light their homes. The poor are affected the most, since they spend a large portion of their family income on energy costs (approximately 13%, equivalent to $99 USD per year, according to a 2015 report by the Global Alliance for Clean Cookstoves 2015).
Over the course of their lifespan, solar off-grid energy solutions can help reduce the rural poor’s spending on energy services, while delivering superior lighting services as compared to traditional, fuel based lighting. However, the high first cost of solar products can impose a constraint for adoption of products. Financing off-grid solar energy systems is a promising market based solution to reduce energy poverty globally. The convergence of solar home system markets and technological advancements of mobile money and pay-as-you-go (PayGo) based financing models have shifted how off-grid energy products can be offered.
UNCDF’s CleanStart Programme, in partnership with SolarAid/Acumen and the Schatz Energy Research Center (SERC), is conducting research on energy adoption patterns, an examination of what some have called the energy ladder. The research seeks to determine how people finance their solar systems and the channels customers use to purchase them (e.g. cash purchase in the store, micro-finance loan, or mobile phone enabled PayGo finance). Additionally, the research will investigate the drivers of solar product adoption, particularly the role of flexible financing tools in influencing customers’ purchase behavior.
This blog series reveals some of the early outcomes of the study. Our first blog showed that dissatisfaction with traditional energy sources and the regular grid generates significant market opportunity that solar off-grid energy firms can potentially tap into. In this blog, we explore ways in which marketing and information sharing drive solar product purchase decisions of customers.
Exposure to Multiple Sources of Information
Not surprisingly, most solar end-users in Uganda were exposed to multiple sources of information before they purchased a product (see Figure 1). We asked 600 phone survey respondents about prior experiences and information that influenced them to purchase the off-grid solar products they owned. Collectively they mentioned a total of 875 information effects related to 726 products that they owned. Three information and marketing sources were particularly influential in driving end-user uptake.
Figure 1: Responses for multiple-choice question, “What prior experiences or information influenced you to purchase each of the solar products that you own?” Source: Survey responses for phone baseline survey, May-June, 2016, Energy Ladder Research Total number of phone surveys: 600; Total number of prior experience and informational effects that led to a purchase: 875
1. Direct Marketing by Solar Off-grid Organizations
The results confirm that direct marketing by solar companies is a powerful source of buyer persuasion: 85% of respondents stated that information from solar businesses, including sources such as sales calls, demonstration campaigns, and radio advertising, affected their purchasing decisions. This indicates that in-person engagements with potential buyers are influential and can be leveraged by sales staff to explain product features, benefits, and flexible payment options such as micro-credit and pay-as-you-go (PayGo).
2. Demonstration Effect
Among the product buyers in the study, 22% stated that their purchase decision was influenced by seeing a solar device in a “real” application in an acquaintance’s home. This helped lower their risk perception and increased their comfort in making the purchase. Seeing the product in an acquaintance’s house may have also had aspirational effects, contributing to a desire to purchase the product.
3. Referrals by Thought Leaders and Peers
The third most commonly stated influence comes from purchase recommendations by thought leaders and referrals by other satisfied customers.
Thought leaders, such as a teacher, headmaster, or religious leader, are perceived as knowledgeable and holding accurate judgment. Purchase recommendations coming from a teacher, for example, are treated particularly trustworthy and reliable. Approximately 19% of our face-to-face survey respondents stated that a teacher or a headmaster recommended them to purchase a solar system. In fact, organizations retailing solar energy products recognize this and often recruit teachers as sales agents or target this customer segment with tailored marketing campaigns.
Existing satisfied customers present another powerful source of influence. A satisfied customer is more likely to recommend solar products to their relative or acquaintances. Indeed, 87% of the survey respondents during face-to-face interviews mentioned they had recommended an acquaintance to purchase a solar system!
The fact that direct marketing, demonstration, and referrals drive purchasing decisions has implications for solar product development. First the quality of products becomes important because ‘good referrals and demonstrations’ may lead to enhanced sales, but bad ‘referral and demonstrations’ may easily stop market expansion. Likewise, providers could encourage and reward the sharing of positive customer experiences, for example, by offering referral discounts or by featuring customer testimonials in marketing campaigns. In doing so, caution must be applied to avoid aggressive sales practices that flood the market with weak quality products. Third, the financing component was not seen as a key reason to purchase the product and, thus, while PayGo may enable easier product financing, there is still a need for direct marketing and service delivery. While there is expressed demand for solar energy technologies, many customers indicated that there was no sale agent or retail point in close proximity, thereby reducing sales because it is too difficult to make a purchase.
Richa Goyal (SERC), Arne Jacobson (SERC), Robin Gravesteijn (UNCDF): The Energy Ladder Research – an initiative launched by UNCDF’s CleanStart Programme in partnership with SolarAid/Acumen aims to address these and several other questions. Researchers at the Schatz Energy Research Center (SERC) are conducting the research through a mix of quantitative and qualitative research methods, including 600 phone interviews and 114 face-to-face interviews with users of solar energy products in two regions of rural Uganda. This year-long study explores customer adoption and financing behavior of off-grid energy solutions.