Is there a tipping point price for low income customer behavioural change?


Nairobi, Kenya Photo Credit: Niti Bhan

When the price of the LPG cylinders dropped significantly earlier this year, it was noticed that increasing numbers of urban lower income customers were purchasing the entry level size of 6kg – seen displayed along the top of the display unit above.

“A good number of my customers come from the slum,” said Kinuthia on Saturday. They are using cooking gas, but mainly the 6kg, which is why over 90 percent of what I am selling is the small cylinders.”

Kinuthia is among the cooking gas dealers in various suburbs in Nairobi who are experiencing booming business as demand for the commodity grows.

The trader noted that the slum residents started using cooking gas as the cost dropped following decline in fuel prices. Consumption of the clean energy in the East African nation is currently at a three-year high.

Previously, I’d written about the consumer decision making regarding choice of cooking fuel, driven as it was by cash flow and payment flexibility. That was based on household energy consumption behaviour, a study conducted in rural and peri-urban Kenya a couple of years ago. Along with the pricing, the choice of cooking fuel was also influenced by the household’s location – peri-urban (town) dwellers were required by landlords to forgo firewood and use only charcoal and kerosene, while those who lived on their homesteads tended to use firewood, and charcoal. These two choices are based on the relative time it took for each fuel to cook i.e. kerosene stoves are ready to use much faster than charcoal, and a charcoal stove is in turn faster than an open wood hearth.

Here, however, we’re seeing evidence of the aspirational leap (the brass ring syndrome) made by the lower income urban consumer as well as indication that some critical price barrier seems to have been breached for the entry level LPG cylinder. Cooks who would have used kerosene in the urban slums were shifting over to cleaner, safer LPG as soon as it became affordable, even in with the lumpsum required for the purchase. This is what makes me wonder if there’s some magic price point for sales to take off, and if so, is it a value processing based on the product category or a cash amount that is the trigger.

Based on all the prior work in this space, I’d hazard a guess that its very much the product itself, its status as a signifier of upward mobility, its value proposition and benefits, that work together to make it one of those things that are reached for when the price lowers enough to look accessible. I’ll keep an eye on what other products or services fall into this category but I’m doubtful that there’s any formulaic success model that just any old product aiming at the base of the pyramid could follow.

This entry was posted in African Consumer Market, Base of the Pyramid, Business Models, Consumer Behaviour, Emerging Markets, Frugality, Kenya, Perspective, Prepaid Economy & Informal Sector, urban, User research and tagged , , , , , , . Bookmark the permalink. Trackbacks are closed, but you can post a comment.

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