Think at London Business School
Thursday 10 November 2022
Adoption of solar power in developing nations remains low. A new study by Kamalini Ramdas and Amrita Kundu discovers a key reason why.
By Kamalini Ramdas, Amrita Kundu
In the last decade or so, mobile payment systems and digital wallets have brought millions of unbanked families into the financial system around the globe. Solar energy – particularly pay-as-you-go solar home systems – can provide power to rural and off-grid households where communities have previously relied on candles, kerosene and paraffin lamps after sundown. The potential of digital technology to accelerate socioeconomic development is undisputed. The problem is adoption.
Uptake of services such as solar home systems in many emerging countries and regions is sluggish, yet researchers and policy-makers are unsure why this scenario persists. Some put it down to lack of information and capital; others cite risk aversion, or even outright fear of new technology, on the part of consumers. Shedding compelling empirical light on the low adoption rate is a new study by Kamalini Ramdas, Deloitte Chair in Innovation and Entrepreneurship at London Business School, and Georgetown University’s Amrita Kundu (former PhD student at London Business School). They tracked real-world uptake of solar home systems in East Africa over a period of 14 months and found that one of the most important factors impacting adoption of this technology is the speed and reliability of after-sales support services. So critical is this, in fact, that even a short delay of one week above the average wait time for technical support can see adoption rates in the area fall dramatically.
“Getting technicians out to resolve glitches fast should build trust, especially in tight-knit communities where word of mouth matters and travels fast,” says Dr Kundu. “Going into this study, we wanted to test the hypothesis that poor customer service after a sale is made could have a significant impact on communities who might be wary of new technologies.”
In Uganda around 75% of the population lives effectively off the grid, with little or no access to electrical power. For this population, credit or pay-as-you-go solar systems have enormous potential as a sustainable and affordable alternative to gas and oil. Professor Ramdas and Dr Kundu looked at one of the country’s leading solar home systems manufacturer and distributor; a firm with 46 branches that serve rural and urban populations ranging from 100,000 households to several million in cities such as Kampala. They were given access to detailed customer sales data covering 14 months between June 2016 and 2017. During this time, the company sold just under 11,700 home systems to Ugandan families; some 83% of whom were first-time adopters. The researchers looked at all after-sales service data related to each sale and, in particular, the wait times for technicians to arrive or fix glitches in workshops.
“Post-sales service requests arise commonly because of improper use that shortens battery life and installation or supply issues. There can also be factors related to weather, such as heavy rains, lightning or dust storms,” says Professor Ramdas. “Getting technicians out can also be impacted by the weather and by the conditions of the roads in rural communities, creating congestion and backlogs in the company’s offices. So we looked at all of that, too.”
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“When customer service suffered a delay of more than a week, adoption plummeted by up to 32%”
Parsing all of this information, the researchers found that when the average wait time for technical support to Ugandan households in the test area increased, the subsequent adoption rate in the area was significantly impacted. Delaying the average customer service wait time at a branch by just 24 hours saw adoption drop by around 1%. When customer service suffered a delay of more than a week, adoption plummeted by up to 32.4%. Impact on adoption rate was greatest when existing customers had service cases that were long pending, due to waiting for repair at the workshop.
“What we observed here was a direct link between delays in getting technicians out to homes to resolve problems and purchasing decision-making by first-time adopters,” says Dr Kundu. “In other words, the timeliness or quality of post-sales care as experienced or perceived by existing customers was either encouraging or discouraging new customers from purchasing the product – most likely because of word-of-mouth feedback in the community.”
To test the power of the word-of-mouth effect, the researchers surveyed around 1,000 of the company’s existing customers, asking them how likely they would be to refer the solar home system to other families. Again, they found a strong, direct correlation between the willingness to recommend the product – and the number of customers acquired through referrals – and the referring customer’s service wait time; despite the fact that households could claim cash for referrals.
“In the last six months of our study our partner company started a formal referral programme. Every month existing customers were gifted USh30,000 (£7.00) for each customer acquired through their referral,” says Professor Ramdas. Nonetheless, for each additional day of waiting for technical support, the study found a concomitant drop off in referrals of more than 5%.
The findings should provide food for thought for technology firms and investors looking to implement effective customer-acquisition strategies and increase technology adoption in emerging markets, says Dr Kundu. For companies offering tech-based solutions in these regions, a key area of resource allocation should be increasing capacity in workshops and repair centres to reduce operational backlogs that lead to long wait times.
“Another important aspect of our study is that we provide direct evidence on the role of word of mouth in customer acquisition,” Dr Kundu points out. “To reduce negative word of mouth resulting from long wait times, therefore, solar providers and others really need to look at fortifying their service teams or even partnering with value-chain specialists that can bridge the gaps in repair work and customer care post-sale.”
The researchers also suggest that policy-makers take note of the findings and think about ways to incentivise companies to invest in after-sale services as they make efforts to improve infrastructure – especially roads – to provide better access for rural communities in emerging markets.
Capitalising on the promise of new technologies to improve the lot of millions of lives around the world could be accelerated by these measures. Professor Ramdas says, “Around 14% of the world’s population does not have access to electricity. Ninety-five percent of this unserved population lives in sub-Saharan Africa and Asia. So, reduced adoption of solar technology due to long service wait times has a direct cost on the socioeconomic development of these communities.”