Market Intermediary Model

The market intermediary model of social enterprise provides services to its target population or "clients," small producers (individuals, firm or cooperatives), to help them access markets. Social enterprise services add value to client-made products, typically these services include: product development; production and marketing assistance; and credit. The market intermediary either purchases the client-made products outright or takes them on consignment, and then sells the products in high margin markets at a mark-up.

The market intermediary model is usually embedded: the social program is the business, its mission centers on strengthening markets and facilitating clients' financial security by helping them develop and sell their products. The social enterprise achieves financial self-sufficiency through the sale of its client-made products. Income is used to pay the business' operating expenses and to cover program costs of rendering product development, marketing and credit services to clients.

Marketing supply cooperatives, as well as fair trade, agriculture, and handicraft organizations frequently use the market intermediary model of social enterprise. Common types of business that apply this model are: marketing organizations, consumer product firms, or those selling processed foods or agricultural products.

Theoretical example: a craft marketing cooperative creates economic opportunities for rural artisans by purchasing their handmade rugs, baskets, and sculptures and then marketing them overseas. The cooperative buys the products outright at fair prices then sells them at a mark-up to cover operating expenses and business growth. Earned income is also used by the cooperative for social activities tied to business success: helping artisans with product development and quality assurance, and providing working capital loans to clients to purchase raw materials and supplies to produce quality art.

TOPLA, an example of Market Intermediary Model

When Save the Children conducted a study of economic activities of poor women living in rural Haiti it found that many were engaged in food processing to support their families. Rural women purchased citrus fruit and peanuts from local producers and transformed them into peanut butter and jam, staple Haitian breakfast foods, which they sold in their communities. However, these women were unable to maximize profits because the market for their products was saturated (most rural families make their own peanut butter and jam) and purchasing power of their customers was very low. In the same study, Save the Children learned that in cities, such as Port-au-Prince, working moms and urbanites bought peanut butter and jam from supermarkets at prices much higher than those in the rural areas. Rural producers were not capable of selling their products in urban markets because they lacked transportation, marketing knowledge, and retail contacts. Save the Children concluded that it could substantially increase economic opportunities and income for poor rural women through a program aimed at bridging this market gap.

Together with a Haitian nonprofit partner, Save the Children helped establish TOPLA, a social enterprise that markets the women-made food products in urban areas. The social enterprise adds value to the women's existing food transformation activities by improving quality, productivity and enhancing product standardization with basic, semi-industrial processing equipment. TOPLA is able to realize economies of bulk purchase for raw materials, bringing down manufacturing costs and increasing profit margins, which are passed on to its clients. As a market intermediary, TOPLA manages marketing, sales, and distribution functions. In doing so, social enterprise managers found an attractive high margin niche in the "import imitator" market for the TOPLA brand. Import imitators are priced between cheap locally-produced brands and expensive US imports, like Skippy, and appeal to a market segment that is brand and quality conscious yet lacks the means to buy real imports. The products’ stylized packaging and labels add minimal cost and allows the enterprise to earn considerably more on each unit sold than if it had positioned its products in the overcrowded domestically-produced market. Since it was established in 1998, TOPLA has helped hundreds of poor Haitian women earn a livable wage and achieve economic security for their families.

[note: Excerpted from: Alter, Sutia Kim, Managing the Double Bottom Line, Pact 2000]

Pumice Marketing Cooperative, an example of Market Intermediary Model

The Aetas, indigenous people of Luzon, Philippines once lived simply on abundant fish and wildlife, and subsidence farming. The plight of these poor mountain people began when a volcano on Mount Pinatubo erupted in the early 1990s and buried their community and its natural resources under volcanic ash and stone. Threatened with starvation, many Aetas migrated to cities to find jobs. Unskilled, poorly educated, and lacking urban savvy, they were exploited for labor and left to live in urban squalor. Those that stayed stripped the mountain of its few remaining natural resources to survive. Meanwhile, entrepreneurs in Manila discovered the benefits of the acres and acres of stone and rock left behind by the volcano--Pumice, which is used in garment factories to produce “stone washed” denim fashions.

With help from the Asian Institute for technology, Aeta people formed a marketing social enterprise to gather, market and sell the stones to the thousands of garment makers in the Philippines. The marketing cooperative commercializes the informal process of selling pumice to middlemen who pay the Aeta very low prices then realize large profits by selling products to the private sector. As a result of the social enterprise, the Aeta are able earn a livable, rather than a marginal income. The work is appropriate and encourages them to say in their community rather than migrating to cities where their economic prospects are bleak. As well, the alternative livelihood reduces reliance on environmentally destructive activities. This market intermediary model is an example of "small is beautiful"; startup costs were $38,000 in 2003, yielding a return of economic security for hundreds of indigenous people.

[source: Information provided by World Bank Development Marketplace 2003]