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Cross Subsidy Model for Bottled Drinking Water #ResponsibleMarketing

Purified water (R.O./UV) provided for FREE in PET bottles(1l/2l)! With advertisements on the label as a way to generate revenue.

Photo of Venkata Subramanian R

Written by

Introduction:
Access to clean drinking water is amongst top challenges that developing countries like India face. Water borne diseases such as diarrhea, cholera, typhoid etc factors for a majority of deaths of children and adults. The problem is more prevalent in urban areas where increasing population and industrialization has led to depletion of water bodies and ground water contamination. Major efforts to provide access to drinking water includes municipal tap water and water purification system installed at public places. Unfortunately all the measures have limited success that is plagued by unhygienic conditions and frequent breakdowns.
Also, the technology is still limited in case of purification on the move; therefore the only mature alternative is packaged drinking water. However, cost of packaged drinking water limits many from economically poor background to buy bottled water. 

Also many packaged drinking water companies like Coca-Cola, Pepsi  are criticized for polluting and depleting local water resources. It is nonsensical and unethical to drill a hole at a selected water rich place to  quench the thirst of entire country, eventually causing permanent damage to that ecology. The more logical one could be is to utilize water locally, purify and serve.

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Product description:


The product is purified drinking water served in PET bottles, provided from water vending kiosk located at public places. Water will be locally purified, bottled and given to the customers by a kiosk vendor.

The product will be given for free to the customers. Leading industry standard purification technology, reverse osmosis,ultra filtration and UV will be employed with continuous electronic monitoring of quality of water. An important embodiment of the idea is to use label space in the bottle for advertisements via coupons, thereby generating revenue. The idea is not only to provide cheap purified drinking water but also to enrich the value to customer by giving offer coupons.

In the following rough prototype, POSEIDON is the brand name, below which there are multiple advertisements. Advertisements will be dynamically priced, that subsidizes the cost of water with a certain profit margin. The target beneficiaries of this business model includes people across the spectrum from lower class, middle and upper middle class.

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Below is the image of label wrapped around a bottle.

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There will be ample transparent area in the bottle, thereby the customer gets the sense of purity.  

How would you describe the stage of development of your idea?

  • Conceptual Development

How big or scalable is the potential of your idea?

Customer segment for purified drinking water (B2C) is typically lower to upper middle class commuters, who will hesitate to pay higher priced packaged drinking water like kinley, bisleri. The market size of packaged drinking water in India is over ~USD 1 billion, it is growing at 15% since 3yrs. Customer segment for advertisements (B2B) are various industries, technology companies etc. Primary market research suggest that, in a busy railway station like Chennai Egmore or Chennai central, there is a demand of about 3500 units; 20 such places have been identified. Therefore about ~70,000 liter of drinking water is planned to be served daily in Chennai alone. Further expansion, would be at the rate of 4 new vending kiosk a month, reaching out to other cities such as Mumbai,Delhi, Jaipur, Kolkatta etc, making it potentially highly scalable business model.

Explain the sustainability aspect of your idea

The idea focuses largely on cross subsidy model, where cost of bottled water is compensated from the revenue earned through advertisements. The cost to make a 1l purified water in bottle costs ~Rs6.60 (considering various factors including bottle cost, rent, utilities, salary etc). Advertisements will be dynamically priced, with a minimum price of ~Rs1.50 per advertisements, with 6 advertisements earning a minimum of Rs9. Earning a minimum margin of Rs3.40 per bottle. With about estimated 3500 bottles sold a day in a kiosk, at 20 different locations in a city. It a highly profitable & financially sustainable business model. The chief sustainable competitive advantage is the long term contracts @public places awarded by the government (3yrs), during the period rapid expansion to various stations and bus stands. And also utmost efforts to build the brand with great customer experience and service that is recognized not essentially for its low cost product. Also periodic design and product innovation will be done to keep the product fresh.

What types of financing would be required for your idea to be successful?

The project to be on ground would require initial seed capital for rent license fee, purification equipments, employee salary etc, with at least 3 months operating revenue.

In-country experience

  • Yes, for two or more years

Is your organization currently legally registered in India?

  • No

What states or districts will you target/are you targeting within India?

1.Tamil Nadu, Chennai, Sub-Urban Railway Stations 2.Delhi,Delhi Metro 3.Mumbai, Sub-urban railway stations.

Tell us a bit about yourself.

I am pursuing my masters in nanotechnology, my thesis is in development of 'Development of low cost membrane for water purification'. I was first introduced to entrepreneurship at entrepreneurship cell in university. The room was bustling with ideas & brainstorming; ranging from computer apps, rural BPOs, intelligent energy management, waste management and numerous more with people from science, engineering, management collaborating on different college startups. I was on Jagriti yatra 2015, a train voyage with 450 young thinkers for 15 days with all from diverse cultural and professional background, the stress was on social entrepreneurship as a mean to bring change in society. I will be very interested to work on vague ideas, innovative business models that challenges the existence of traditional business

21 comments

Join the conversation:

Comment
Photo of Nandan Jäs
Team

Hello venkat, That's a brilliant revenue modal idea! hope you will make it happen soon...
Also work on the recycling part to make it much more environmental as well commercial! 
Conrgatulations in advance. 

Photo of Venkata Subramanian R
Team

Hey Nandan,
Thank you, I hopefully find a solution on how to make it environmental friendly in  these brainstorming discussions. 

Photo of Giok P CHUA
Team

Sir
Globally ...all cities are moving away from 1-Use Disposal Bottle...which is pollutive,causes global warming, bad for sea+mammals.....and many more

Good idea for 1980++...wrong paradigm for 21st C. 

Use recycle bottle for others....yakkk

Photo of Venkata Subramanian R
Team

Dear Mr.Chua,

Thank you for your feedback.
Indeed it is true that disposable plastic bottle will be a menace to the nature, however I do not see any mature alternative to dispense water in that is proven to be safe and inexpensive; however recycled PET can be used to make products such as fibres for carpets, fibrefill, apparel and geotextiles. This could be a way to reduce carbon footprint.

Photo of Giok P CHUA
Team

Recycle is absolutely no winner

Photo of Venkata Subramanian R
Team

Well, I partially agree to that point.

also branded bottled water have water stored in it for months. therefore I think we could design a bottle that is atleast stable and does not degrade for the same period of time.
 

Photo of Christopher
Team

The idea would be great if it was reusable bottles that can be filled up at certain stations.

Photo of Venkata Subramanian R
Team

Hi Christopher,
Thank you for your feedback.
Refills is a critical part of existing business plan.

Branded packaged drinking water have water stored for months, so i think it would be safe to use PET bottles atleast for few months; making it very much reusable.

Photo of Gautam Khandelwal
Team

I think this is a great idea given the so many deaths that we have due to contaminated water which surely could be avoided. I especially like the revenue model of making water available free of cost.

However surely we need to work out a solution of ensuring that plastic does not lead to waste litter and pollution. 

Photo of Venkata Subramanian R
Team

Hi Gautam,
Thank you for your feedback.
Indeed the whole game lies in the innovative revenue model of this idea.

Though it solves the primary problem of delivering clean drinking water, the possible ill effects it could have in the environment is understandable. As mentioned in other comments, recycling is possibly the most appropriate way to reduce the carbon footprint.

Photo of Davis Cutter
Team

This is a great idea. Water sanitation is tied to affordability; if people can afford clean water, then the health repercussions wouldn't be as mass-scale as they are today. The fact that you have proven in your model to make water affordable is laudable. Congratulations. 

Only suggestion is taking out the pitchfork from the Poseidon logo. Seems a bit overkill. Aside from that, the prototype looks great. 

In response to Mr. Giok P Chua's comment, he has a good point that many cities are moving away from single use disposable bottles. If you could incentivize people to recycle the bottles after use, it would be more attractive to investors. Just an idea. 

Photo of Venkata Subramanian R
Team

Hey Davis,

Sorry for the delay in my reply. thank you very much for your feedback, the Logo is just a rough sketch, I will have to work to refine it.
Though I very strongly believe it could efficiently solve the problem of delivering drinking water in most appropriate way;  I agree that main problem with this business model is the potential environment nuisance it could create.
Appropriate ways to minimize this, could be through; reusable bottle or by recycling bottles. Since the revenue earned is mainly through advertisements, reusable bottles may not yield profits, hence may make this model less sustainable. however, free refills will still be provided, but cannot entirely rule out 1 time use bottles.

More creative options for alternatives to PET have to be explored.

Photo of Ronak Kamdar
Team

Excellent Idea. Might want to consider what happens to the dispensed bottles. Maybe the water is only free if the consumer returns the bottles or the consumer is charged a minimal amount (say Rs 1) to keep the bottle. This way you may be able to recycle them and reduce waste. 

Photo of Venkata Subramanian R
Team

@Ronak kamdar: thank you for your feedback, indeed it is a good idea to recycle the bottle, it will be disastrous if we do not keep a check on empty bottle. It will be irresponsible on our part.

Photo of Venkata Subramanian R
Team

I think it will discourage the consumers to avail for recycling bottle if they have to pay.

I am confident that we can also subsidize the cost of recycling through advertisement. It may also be needed to promote it  with offering attractive proposition, then recycling PET bottles also could be a viable idea

Photo of Venkata Subramanian R
Team

Also, one size fits all approach may not be appropriate to many low cost purification techniques  upon scaling up to different demographies.
Say: Activated carbon are effective only in removing organic contaminants silver nanoparticles are effective only in killing microbes, Iron nanoparticles are effective only in removing heavy metal ions!!Different demographies contains different kinds of contaminants, say one close to industrial area may have high organic and inorganic contaminants! one @rural places may have more microbial contaminations......

Photo of Venkata Subramanian R
Team

I see many of the ideas are on technical innovations to enable low cost purification of water, but it is very important to understand that the cost of purifying water to water quality as per industry standard (combination of RO,UV,UF) is very low @Rs0.20 for a decent scale of operation; there is no need for fancy membranes to decrease the cost further. It is somewhere value is lost in all water business, we need to focus on that! This problem can only be fixed by fixing the age old business model!

Photo of Venkata Subramanian R
Team

Apoorva Joshi Indeed through this attempt, it is intended to no more look at water crisis as a problem, rather look at it as big business opportunity to solve! 

Thank you

Photo of Apoorva Joshi
Team

To see the bigger picture, this might change India's face as a developing country since water issue is the major one among our urban society

Photo of Chithra Ramesan
Team

Interesting business model, could be  a game changer if it works!

Photo of OpenIDEO
Team

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