NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Along with John and Cory, I had attended BYU’s Microfranchise Learning Lab in Washington DC this past Friday. Two of the four microfranchises featured, HealthStore Kenya and Scojo, operate in the health industry. Granted, microfranchises are flourishing in many industries (see Kirk Magleby’s catalogue of over 60 microfranchises), but how does the microfranchise business structure enable success in the health industry in particular?

Mi Farmacita Nacional pharmacy chain (Mexico), Janani health clinics and health product outlets (India), ASEMBIS eyecare clinics (Costa Rica), Scojo Foundation reading glass vendors (El Salvador, Guatemala, India) and HealthStore Kenya clinics and pharmacies, are all fascinating examples of microfranchises able to deliver affordable and high-quality health products and services to poor rural areas, a feat impressive enough without considering the fact that franchisees in all five cases are financially sustainable. The franchisors themselves are non-profit organizations (with the exception of the for-profit pharmacy chain, Mi Farmacita Nacional) that collect fees from their franchisees but are able to subsidize a part of their administration costs with donor funds, decreasing financial strain on their franchisees. Other strategies common among these five microfranchises include:1. Price diversification of offerings: More expensive offerings allow the entrepreneur to sell cheaper products and services (e.g., commissions from surgical referrals supplement the small income generated by condom sales for Janani outlets). A related strategy is to use an income-based service fee scale, as ASEMBIS has done to subsidize the cost of treatment for low-income patients with the higher fees charged to wealthier customers.

2. Inventory diversification: Offering a greater variety of products and services opens up new markets and revenue sources for the franchise. Scojo’s ?vision advisors? sell not only reading glasses, but also protective eyewear and eyedrops (the latter is their best selling product). Mi Farmacita Nacional offers Internet and telephone services at their branches.

3. Generating large case loads and customer bases: These microfranchises lower the cost of their products and services by depending on high-volume sales and service delivery by their many franchise outlets and healthcare providers.

4. Gaining community trust is critical to the success of a business operating in healthcare. Both the franchisor and outlet operator are able to contribute in unique ways in the effort to build trust among their client base. An advantage inherent in the franchise model is its ability to create strong brand recognition through widespread and uniform marketing, and establishing permanent structures. Individual franchise operators, on the other hand, are able to negotiate cultural factors that might affect whether potential customers decide to patronize the business. Scojo and Janani make a point of recruiting and training women entrepreneurs to interface with female customers, those most likely to be responsible for their family’s health.

5. Quality control: An aspect related to community trust, the franchise model is able to ensure uniform quality and pricing among franchise outlets. Because franchise outlets depend on the franchisor for their products and also has contractual and financial obligations to the franchisor, the franchisor is in a unique position to enforce quality standards. HealthStore monitors its outlets through announced and unannounced visits, while Janani health personnel are tested by a doctor before being certified. As mentioned at BYU’s Microfranchise Learning Lab, however, quality control is still a primary challenge for franchises with numerous and widespread outlets.

Are there other benefits or detractors from delivering health products and services though a franchise model?