Nitin Rao

Coincidence or Cross-Subsidy?

Here is an interesting case of serendipity where a product designed for a developing market has found application in a bigger and more mature market albeit in a niche space:

For over a decade, Procter & Gamble has been distributing sachets of its PuR water purifying powder at cost in water-challenged countries. The program was never meant to be anything other than a break-even proposition. But that was until the company realized that the single-use packets would be ideal for camping trips, other outdoor recreational uses, or to sell to U.S. tourists traveling to destinations where they cannot drink the water.Procter will now allow Reliance Products, which makes reusable water containers and other outdoor goods, to sell distribute and market Pur in the United States. Procter’s name will appear in tiny type on the back of each sachet. But it is the Reliance name that will be prominently displayed on the product. Procter will plow its share of profits back into the Children’s Safe Drinking Water program, its homegrown philanthropic project. But, for now, that fact will not appear on the Pur packages.

Read more in the IHT article – which goes on to point out:

“Some experts caution that Procter’s discreet strategy may backfire if consumers realize they are paying much more for a product that is distributed for just pennies in other countries. In America, the price would be about $2.50”

The experts seems to be missing the point – of course they can sell PuR for more than a few cents per packet – thats why things sell for radically different prices in the US/Europe vs. developing countries. Rob agrees that this seems to be an oversimplification. It is perfectly natural for P&G or indeed any body to use a different pricing strategy for the Home market.

More so, since P&G’s sales in developing countries have been a break-even proposition, and are not being confused with this venture, consumers in the US are not directly cross-subsidizing the price in developing markets. As I see it, P&G should have come under greater scrutiny if this was made out to be a larger branding/PR campaign.

From the BOP angle this product serves designated markets in developing countries by being affordable and in usable pack sizes. For the US market, it serves a niche market need.