Market Segmentation in the Informal Economy

This table is from “How to profit from Africa’s different consumer groups” and the research is from NKC Independent Economists group. There is something lacking in understanding the patterns of purchasing power when segmentation methodology from the formal economy are applied ad hoc to markets which are primarily informal.

As mentioned at the end of the previous post, an alternate method of segmenting the mass majority markets across Sub Sahara might be to cluster by volatility of cash flow. Farmers, for example, will tend to have cash 2 or 3 times a year, based on their crop and their geography, and some of these will be earmarked ahead for farm inputs.

Then, depending on which segment one is targeting and the proportion in that bracket earning a living from a variety of sources rather than a fixed salaried job, one can assess how much adaptation would existing business models and payment plans require for reaching the majority of the target audience.
 This will differ from product to product, the articles breathlessly divulging all about this suddenly recognized African consumer market are still focusing on the creamy layer at the top of the income pyramid with their mentions of ice cream and caviar.

The old way focused on amounts of periodic cash flow, that is, income, as a means to segment people by disposable income available for consumption. The new way might have to look at their basket of groceries and then decide based on purchasing patterns.

The challenge arises when obsolete methods from a wholly different operating environment are applied out of context and the results interpreted in the same way as though there are no fundamental differences in the population and their mindset. There must be a reason why 96% of the hundreds of millions of mobile phone users across the continent are on prepaid or pay as you go plans.

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