The Impact of Glasses
Do you wear glasses or contact lenses? Most likely you do. According to the most recent study by The Vision Council of America, 75% of Americans use some form of corrective lenses (https://www.thevisioncouncil.org/sites/default/files/Q415-Topline-Overview-Presentation-Stats-with-Notes-FINAL.PDF). How difficult is it to operate when you misplace your glasses? (disclaimer, I’m one of the lucky few with 20/20 vision and so I’m talking from a place of ignorance here) Well that is one of the many essentials that people living in less-developed countries in the world have to live with on a daily basis.
It is estimated that 624 million people need corrective lenses and do not have the money to buy them. While these numbers are hard to verify, it is estimated that over $200 Billion in lost productivity can be attributed to the lack of corrective lenses. Since 90% of that 624 million live in low income countries, that $200 Billion has a huge toll on those trying to rise out of extreme poverty.
The loss is substantial, but so is the potential for improvement. According to a study that observed Indian tea pickers, corrective lenses improved production by over 20% (https://www.thelancet.com/journals/langlo/article/PIIS2214-109X(18)30329-2/fulltext). In general, it’s estimated that for those who just need corrective lenses, their individual productivity should increase by 35% and would lead to an average increase in income by 20%. All of this can be solved with a pair glasses that cost $1 to make.
This is where VisionSpring steps in. After conducting extensive research, it has been concluded that even in the most poverty-stricken regions, people see the value of glasses and are willing to pay up to 10% of their monthly income to purchase glasses. To respond to this constraint, VisionSpring has been able to provide glasses that on average sell for $4. They have shops within the urban regions as central hubs in the community, but then set up clinics in rural villages where they can provide free eye evaluations and provide these highly cost-effective glasses right into the community.
To date, VisionSpring has distributed over 4 million glasses. They estimate that on average, the increase in productivity provides the individual user with $104 in increased net income from their $4 pair of glasses. They project that over its lifetime, VisionSpring has helped produce over $800 million in economic impact (not sure how they estimated that).
But how do they provide these glasses so cheap? They use a method called Cross-subsidization, which in short means they sell products in different markets at different prices.
Cross-Subsidization is a powerful method in social enterprise that allow institutions to fix market failures. For instance, in this issue with glasses, it generally costs only $1 to manufacture a pair of glasses, but then why are glasses so expensive? It is because the market for glasses is designed for low volume, and high prices. Manufacturers spend a lot on licensing and advertising so that they can create high-margin sales on glasses that are at a manufacturing level, very cheap. The online glasses company, Warby Parker disrupted this model by sidestepping the licencing costs, and sold directly to consumer. This allowed them to sell the glasses at a fraction of the average cost (http://disruptionmag.com/2016/05/17/dave-gilboa-warby-parker/). This brought the price down to under $100, but even still, Warby Parker has to incur higher costs due to providing large amount of styles to cater to consumer preferences. The problem that still remains is that the raw materials are cheap, but providing the product to those who need it most proves hard to achieve. That is the market failure. This market failure is further perpetuated in that even if prices were lower, the costs rise since distribution costs will escalate in trying to reach the remote regions, and thus the market remains in the convenience of urban regions, and where target consumers are also willing to pay more money.
How Cross-Subsidization works is that you distinguish between two different target audiences, and provide different services to each. The benefits gained from one target audience provides the financial buffer that allows the organization to be able to serve the other market at the lower price point. So for VisionSpring, they have two target audiences: the urban consumer and the rural consumer. The urban consumer is more selective, since there are multiple options out there, and glasses are not only a optical aide, but also a fashion accessory, thus they are willing to pay more to find the right style. The rural consumer is more concerned about the optical aide and style becomes secondary to that; they need better vision, but they are much more price sensitive.
To address these two consumers, what VisionSpring does is sets up storefronts in urban areas, where they are able to provide a large variety of glasses, and to provide additional services of customization to suit the consumers preferences. For this, they can charge a higher price at these stores and generate a higher profit margin from the sale of those glasses. But then they take that excess profit, and that allows them to “subsidize” their own glasses that they are able to sell to the rural consumer. They can sell the glasses at cost or even at a loss, because that loss is covered by the sale of the high-margin sales.
VisionSpring doesn’t do handouts. Much like with One Acre Fund, they are trying to leverage a critical service that has the broadest reach. If they simply hand out glasses, there is no financial return that allows them to be sustainable and also limits the amount of people that will ultimately be able to receive glasses. But they still have to keep prices insanely low in order to meet the low-income consumer with their given constraints.
Cross-subsidization does a lot of that work, but donations also play a critical part in keeping the operation sustainable. In fact, Warby Parker works with VisionSpring through Warby Parker’s “Buy-a-pair, Give-a-pair” program (https://www.warbyparker.com/buy-a-pair-give-a-pair). When you buy a pair of glasses from Warby Parker, they will donate to VisionSpring that covers the subsidization of a pair of glasses. So the title is a little inaccurate, since VisionSpring still isn’t “giving” a pair of glasses, but it’s still through this sustainable model.
In that same manner, you can help provide affordable glasses to people who otherwise couldn’t afford glasses. VisionSpring reports that every $5 donation helps provide an additional pair of glasses. I don’t have any deeper information on their finances, but that would seem to indicate that if $5 “gives” a pair of glasses, then the break-even price of glasses for VisionSpring is $9 per pair of glasses, and thus lose $5 for every pair of $4 glasses that they sell. So while you may not get the warm feeling of imagining someone being handed a pair of glasses that has your name on it, but you can help further the expansion of this operation that allows more people to gain access to this service with every $5 that you give.
This is again a concept of trying to use markets to meet people where they are at. It would be nice to simply hand out glasses to people, but that is not sustainable and it also jeopardizes local vendors, which only fixes one problem by making a new one. VisionSpring has the foundation for sustainable impact and you can be a part of that. Warby Parker has signed on, and has helped subsidize over 1 million pairs of glasses. You can too at $5 per pair of glasses. Talk about being lazy, $5 and you help subsidize the price of glasses that can dramatically impact someone’s life.