SELCO–INDIA: LIGHTING THE BASE OF THE PYRAMID

There are more than 2 billion people in the world who currently lack reliable access to electricity.
About 46% of households in India do not have access to the power grid, and for many others the
supply is unreliable. For those people, smoky, dangerous oil or kerosene lanterns are the primary
light source. However, tremendous advances in photovoltaic technology have made provision of
electricity in a distributed fashion possible—one household and business at a time. Quite simply,
solar voltaic devices, such as the SELCO panel shown in the photo, capture and convert the energy
in sunlight into electricity.

The Solar Electric Lighting Company (SELCO) was founded in 1995 by Harish Hande, the current
managing director, and Neville Williams to sell and service solar electric home lighting systems
in areas of India lacking access to reliable electricity. SELCO’s customers range from poor daily-
wage laborers to institutions like schools and seminaries. All buy solar panels at the same rate:
about $450 for a 35-watt system that can light several 7-watt fluorescent bulbs for four hours
between charges. Emphasis is placed on designing solar home systems (SHS) to meet customers’
needs and budgets, whether for home or business. Depending on the customer’s requirements, the
system can be used for inexpensive lighting, water pumping, water heating, communications,
computing, and entertainment. These solar systems reduce dependence on other forms of energy
and are more reliable, affordable, and safer to use than the other energy sources used in these rural
locations.

The SELCO Business Model

SELCO has refined and articulated a business model that delivers an energy service to its ultimate
customer while, at every step along the way, providing for a high-quality, highly recognizable,
need-based product. SELCO’s personnel understand that they must provide not only needed solar
energy services to their customers, but also the information, installation, training, financing, and
other products and services necessary to develop a sustainable sales and service infrastructure.
SELCO assembles solar home “kits” using components produced exclusively for them by Indian
manufacturers. A typical kit consists of 35-watt panel, four 7-watt compact fluorescent lights and
a lead-acid battery that can store sufficient energy for the system to work both day and night
throughout the year. The batteries are designed to withstand significant discharge each day without
rapid deterioration. Cheaper car batteries cannot withstand this, and would become unusable
within about 6 months. An electronic charge controller protects the battery from charging or
discharging too much, and enables the battery to be used for at least 5 years.

SELCO sets stringent quality specifications, which are passed on to the customer as performance
guarantees. The solar photovoltaic modules and batteries are purchased from external suppliers.
SELCO initially had problems with the quality of the compact fluorescent lights (CFLs), so it set
up a sister business to manufacture these, as well as the charge controllers.

SELCO created a sales and service infrastructure that provides a one-stop energy shop for poor
families and businesses seeking reliable energy services. The company owns and operates a
decentralized network of 25 sales and service centers. SELCO manages its service centers from
the headquarters in Bangalore, India. Strong local management teams can quickly and efficiently
respond to changing customer needs, market conditions, local partners, and all other aspects of day
to-day operations. The strong local presence and understanding of customers allows SELCO to
effectively tailor systems and services to best meet their needs. These local agents are the initial
point of contact for up to 70% of customers; they receive a percentage commission for each SHS
sale they initiate. The sales agents are responsible for promoting the business, visiting potential
customers, designing systems, and taking payment.

The installation of the system is then carried out by SELCO technicians who are themselves part
of the value proposition, coming up with their own innovative ideas—for example, placing a light
in the corner of one room and removing bricks to let the light into other rooms, so that a single
light provides background illumination in three rooms. Another feature that allows flexibility at
low cost is having lights that can be moved from one place to another.

SELCO helps its customers finance their purchases by partnering with rural banks, leasing
companies, and microlending organizations to provide the necessary credit.

With its unique combination of product, service, and finance, SELCO is able to offer superior
lighting and electricity at a monthly price comparable to using traditional, less effective sources.
Combining these three elements creates a virtuous cycle. Using high-quality products reduces the
cost of ongoing service and maintenance.

In 2007, SELCO operated in the Indian states of Karnataka, Kerala, and Andhra Pradesh. SELCO
says it will move to a new region only if it can obtain good contacts for disseminating information
and providing finance.

Success Stories

People’s lives and livelihoods have been transformed through SELCO solar lights. The immediate
benefit to users is the provision of clean, good-quality light, and power for small appliances. Good
light improves morale and opportunities in ways that are difficult to quantify. Children are able to
study (or, as one homeowner said, “They have no excuse for not studying!”), domestic tasks are
done more safely and easily, and there are increased opportunities for income generation. For
example, the photo above shows a man using the solar lights to grow silkworms. For vendors,
produce from stalls is displayed better, and they do not have to work with the smell and heat from
kerosene lamps. Through its solar electric lighting systems, SELCO provides families with the
power to change their own lives.

For example, the rose pickers of one village outside Bangalore, India, typically got up before the
sun, grabbed a basket with one hand and a lamp with the other, and hurried to the fields so they
could bring their wares to market in time for the dawn crowds. These rose pickers were prime
candidates for solar-powered headlamps. SELCO partnered with local banks to help the workers
get loans to buy them. Wearing the charged lamps in the predawn darkness, the pickers could work
with both hands; they doubled their productivity, boosted their take-home pay, and generated
enough income to start paying down the headlamp loans.

Mallika, a mother of three, decided to capitalize on the location of the family’s house (by the side
of a main road) to sell fruits from a small kiosk. Started in 2002, the business grew with time and
became a popular tea spot among regular travelers like bus drivers and small delivery vans. This
favorable situation led Mallika to expand into coconuts, short eats, tea, sweet meats, and other
items, which made the kiosk even more popular.

Mallika opened the kiosk at daybreak but had to close at dusk because it was difficult to stay open
later with only the dim light of the kerosene lamp. Mallika decided to find a solution and was
introduced to solar lighting by a SELCO representative. Mallika had a solar home system (SHS)
installed, purchased under a credit arrangement by SELCO Lanka, and her business started to
flourish.

The youngest daughter of the family, Sanidi Ruwanthika, has this to say about the present situation:
“After we built our new house, we installed a SELCO SHS. Now, unlike the past, we keep the
kiosk open until late night. Our tea kiosk became a popular halting place for lorries and vans plying
the road at night. In addition, vans going on long distance trips also started to stop to buy fruits.
Since there are no other fruit stalls nearby open in the night, our business grew day by day.” Many
of the benefits of SELCO’s products are particularly significant for women: They often spend
more time in the home and therefore appreciate the improved light and income-generation
opportunities.

Many women take the responsibility of paying for the SHS and, through this, gain confidence in
financial management. To date, SELCO has:
• Installed more than 75,000 solar systems in rural areas
• Provided lighting and electricity to more than 300,000 people
• Achieved profitability on annual sales of $3 million.

To maintain this success, SELCO continues with promotional activities including:

• Running awareness campaigns in rural areas to demonstrate solar home systems
• Identifying potential beneficiaries
 • Training local technicians, installers, and service personnel
• Educating users

However, there are some challenges on SELCO’s horizon. A worldwide increase in demand for
solar gear has led to cost increases. This, coupled with an inability to raise prices, threatens
SELCO’s business model. SELCO would also like to triple its number of installations by 2010.

Questions

1. Explain the innovation adoption process for SELCO systems in terms of the six factors that
affect customer’s technology adoption decisions.
2. What role has the marketing function played in SELCO’s success? What suggestions do
you have to make their marketing more effective?
3. Is SELCO’s business model sustainable long-term? What are the threats to the business
model and how can SELCO prepare for these?
4. Is the SELCO business model sufficiently scalable to support its growth goals? If not, what
should it do?