Archive for the ‘Consumer Behaviour’ Category

Top 3 Assumptions About the African Consumer Market

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Treichville Market, Abidjan, Cote D’Ivoire (Photo Credit: Niti Bhan)

Claims have been made about the Great African Market Opportunity – in retail, in real estate, in banking, and packaged consumer goods – that drive investment decisions and marketing strategies. Yet, reality has been less opportunistic than imagined – Nestle’s struggles in Kenya back in 2015 are one such example.

Here are the top 3 assumptions, if left unpacked or unquestioned, that can make or break a new market entry strategy in the African Consumer Market. For most of the continent, it’s safe to say that the majority of the mass market are primarily employed in the informal economy.

1. Price is the problem
Affordability is not a matter of price but access to payment means or method. Upfront lumpsum cash transactions will narrow potential customer base down, depending on the season, or the income source.

What this means is that there are whole categories of products that would have had a larger audience but do not due to barriers set up by their own transaction model.

Accessibility and Affordability are thus not a function of the Price itself but the lack of flexibility in the business model. Flexibility drives consumer segmentation in the African Consumer Market, as product purchase decisions get made based on cash in hand and cash flow patterns.

2. Consumer Segmentation Metrics are the Same
The factors that influence the segments of the population who have the potential to be consumers are the following:
– Urban or Rural
– Sources of Income

Factors that do not influence “poverty” (ref: textbook market segmentation)
– Education
– Location
– Employer

Example: Schoolteachers are considered part of the rural elite in Kenya, accruing community status and respect. Yet, they may be on a fixed salary within a lower pay grade, albeit teaching with a Master’s degree, with less purchasing power than a school dropout with a successful trading business.

Assumption: Demographic attributes traditionally used such as Education level or stability of Employer correlate to consumer purchasing power or disposable income.

3. Brand Loyalty is absolute and unconditional
Consumer insight reports on the African market opportunity tend to highlight the high degree of brand loyalty prevalent among customers, and leave it at that. Recommendations then emphasize first mover advantage or capturing customer loyalty, with the assumption that once locked in, this will create a committed customer for life. Why brands matter so much is rarely, if ever, asked.

The assumption is that this brand loyalty implies pricing blind consumption and status seeking behaviours. While this may certainly occur at the upper end of the income spectrum, these drivers are not likely to be as common for decision making among the mass majority audience. Demand drivers for brand loyalty more commonly noted are:

– the need to minimize risk (of loss)
– maximizing the return on the investment (in the purchase) including status signalling and reputation factors, which have a role in accrual of social capital leveraged for business activities in the informal sector.

Trade-offs are constantly being made in purchasing decisions, influenced by a variety of factors. Yes, compromises may be made on groceries in order to pay for a branded product, but simplistic interpretations of this behaviour lead to egregious errors in the design of customer experiences.

Implicit Assumptions commonly held about Informal Markets

Mozambique

Woman owned and managed informal retail in Mozambique via Twitter

  1. “Informal Economy” always means illegal, shadowy, gray.
  2. High volume of low value cash transactions imply poverty, ignorance, lack of sophisticated money management.
  3. Operating with a lack of infrastructure and institutions implies ignorance, lack of ambitions and aspirations, and motivation.
  4. Lack of cash implies lack of purchasing power – particularly in rural settings.
  5. Lack of formal retail markets and packaged consumer goods implies lack of knowledge, information, and choices.
  6. Lack of competition, due to all of the above.
  7. Entering markets where informal retail dominates will be a cakewalk.

Mirror-Mirror, Who am I? The rise of African doll brands that empower Black girls

During the past few years, people of color all over the world have started challenging their absence in a positive light in the media, entertainment, books and toys. Black people, and Africans more specifically, feel invisible or highly under represented. The lack of visibility has severe effects on image, self esteem and success.

Experts say that self confidence starts at an early age. The images, words and overall culture we expose young minds to have a long term influence on the trajectory of their lives.  Who best than people of color themselves to produce and create articles that celebrate them and put them in the best light?

Several Africans, men and women, are active in the business of creating dolls or barbies that African girls can identify with through different skin tones, body shapes, hair texture or different outfits representative of various cultures. These dolls are mostly assembled in China, produced in low quantities and generally sold locally.

So far, five brands are emerging in both francophone and anglophone Africa:

Queens of Africa Dolls (Nigeria): The dolls and materials are designed, through fun and engaging materials, to subconsciously promote African heritage. Queens of Africa celebrates being an African girl in the 21st century by drawing on the strengths and achievements of ancestors and bring them up to date to empower and inspire today’s generation of African girls.

queens-of-africa-dolls

 

Momppy Mpoppy Dolls (South Africa): Fashion forward with an afro, the doll seeks to be a trendy and attractive alternative to Barbie for girls of African descent.

momppy-mpoppy-doll

 

Sarama Dolls (Côte d’Ivoire): Dolls dressed in traditional Ivorian gear, they celebrate various cultures in Côte d’Ivoire.

sarama-dolls

 

Naima Dolls (Côte d’Ivoire): A mix of dolls and barbies, with different shades of brown, hairstyles and outfits (modern and traditional) that exist in baby, male and female versions.
naima-dolls-sara-coulibaly-660x330

 

Nubia Kemiat (Cameroun): The doll with natural hair is a cultural story teller that narrates tales in Africa and throughout the world.
nubia-kemita

Local entrepreneurs are partnering with (department) stores or e-commerce sites to ensure greater distribution across the country and increasingly all through the world. Although, the middle class is  enthusiastic about such empowering cultural products, prices and availability remain barriers that brands need to address to develop mainstream products.

Insights on the psychology of cash money – Demonetization vs Financial Inclusion

moneyThe flurry of commentary on the Great Indian Demonetization of November 2016 has thrown up some nuggets of insight worth considering more deeply.

Santosh Desai explores the psychology of cash money in the Times of India blog, linking the need for tangible evidence of income to physical labour, as opposed to those of us with the contextual knowledge to understand the virtual concept i.e. digital currency.

“…there is another aspect of this situation that needs more reflection- the nature of the relationship we enjoy with cash. Cash is not merely a symbolic representation of value. Cash is the idea of value captured and owned. It is the product of labour that is an entity by itself and becomes much more than what it can buy. Sitting on a pile of cash gives pleasure both metaphorical and real.”

“…there is some value that is placed on the device of currency notes over and above the value that it signifies.”

This aspect has not been looked at deeply enough, imho, when financial inclusion is talked about, particularly in the context of digital solutions. I suspect that therein will lie behavioural insights that could conceivably drive design changes that lower the barriers to adoption in the strategies to introduce digital currencies and mobile monies to hitherto unbanked populations.

Earning money needs to be signified concretely. Those whose life’s earnings are in the form of a few high value currency notes, do not decode demonetization in quite the same way as those used to money in its conceptual form. The idea that it is possible to de-legitimise their life’s labour is to shake the foundations on which one’s life is constructed. What if some money is not exchanged? What if some paperwork, that bane of those living on the margins, is incomplete?

What if the mobile phone’s battery dies? Do my hard earned monies disappear like other unsaved data?

Trust in technology is a function of our contextual knowledge – our immersion in an environment saturated with electronic communication and screens of all types and purposes provides us with conceptual frameworks that are entirely different from someone whose daily labour is on the farm, or at a mechanic’s garage.

While those who are financially excluded might not face demonetization i.e. the de-legitimization of their labour, as Desai mentions above, the current attempts to convert their cash intensive habits into digital form via various “cashless” initiatives overlook the psychology of cash. Regardless of locale, those at the margins (the excluded) have high levels of mistrust in the system, through their experiences with institutions and the system, over time and history.

The talk of ‘cashless’ is easy, but it ignores that there is a cultural dimension to the physicality of cash. Digital wallets operate on a transfer of intention, where a promise to pay gets converted into an intention to buy. For this to work at scale, one needs to have become comfortable with the idea of surplus and develop the confidence that money will come without having to struggle or having to think about it all the time. One needs to develop trust in institutions, in a context where the evidence around is overwhelmingly to the contrary.

I suspect that if this subject was explored further, we would discover that where mobile money has succeeded, such as in East Africa, the institution that was trusted was the telco – the mobile service operator, and that the early stages of adoption have a different narrative from that being used currently in entirely new markets where mobile money still struggles to penetrate. India and South Africa are two such places where the unbanked and the financially excluded have reasons of history to develop high mistrust of the systems of the privileged.

To convert one’s worth into worthlessness, even if for a small period is to make everyone nervous. Psychologically, money works on a convention of mutual deception. We agree to call something money, and that is good enough. But to have the thinness of this convention exposed in such a way is to cause great anxiety.

The transition to a cashless future can be made gentler and more accommodating to their fears and concerns, generating a sense of security and commitment, with some empathy for an entirely different world-view and life experience.

An economy of trust

_92445052_02Cash on credit is the caption given to this cartoon by the BBC. Neighbourhood groceries are offering their regular customers cash advances in addition to bread and milk.

While the media is filled with a plethora of stories of heartbreak, my own suspicion is that we’ll discover the resilience of the cash intensive informal sector lies in the relationships between people, once the hubbub has died down.

Detailed breakdown of Uber’s business model in Kenya puts spotlight on weaknesses

Latiff Cherono has just published an indepth analysis of what exactly it takes for an Uber driver in Nairobi to cover the cost of doing business. Here’s a snippet,

In this post, I try to understand the root cause of the disconnect between how the customer (who defines the value), Uber (the service that controls the experience) and the driver (the one who provides the service).

He accompanies his analysis with a detailed breakdown of costs and revenues, such as the table below, and others in his post.

new-picture-2And concludes:

The incentive for any person who starts a business is to maximize their profits. As such, we should expect that Uber drivers will approach their business in the same vein. However, the data provide by Uber to the driver is limited and prevents them from making informed decisions about generating revenue. For example, drivers do not know the estimate distance of a new trip when they accept it via the app. They are also penalized for not accepting rides (even if that trip may not make financial sense to the driver). All this is by design as Uber wants to maintain a steady supply of “online” vehicles on their network. One may argue that Uber is not being transparent enough with its independent contractors.

My thoughts:

Nairobi, Kenya isn’t the only ‘developing’ country context where Uber is creating unhappy drivers (and customers, one assumes) due to the design of their system. While most of the first world challenges to the company have come from the perspective of the formal economy and its regulations and laws regarding revenue, tax, employment status et al, the same cannot hold for the entirely different operating environment where the informal sector holds sway. And taxi driving is one such service.

Kampala, Uganda has it’s own challenges for Uber, including:

  • Uber drivers are reportedly leaving the service, switching off the Uber apps or not picking calls from corporate clients and those paying with a credit card. For the first four months after its launch, Uber was offering drivers incentives that saw them earn between Ush200,000 ($57.1) and Ush350,000 ($100) a week.
  • With increasing competition, drivers say that Uber’s incentive structure has been changing. In the first four months, Uber drivers were getting Ush15,000 (about $4) per hour, but this has since been scaled down to Ush10,000 ($2.9) and to Ush4,000 ($1.1) in incentives.

There is so much to be unpacked here, including the entire section on Uber’s own perception of how the market works, upto and including how to introduce time limited incentives, that I’ll follow up on it subsequently.

In this post, I wanted to highlight Latiff’s analysis and hard work pulling together the operating costs data, even as I leave you with this snippet from the article:

Uber’s commission in Nariobi was reduced from 25 to 20 per cent following protests by drivers in August, accusing the taxi hailing service of working them like slaves.

As I wrote earlier in the year, Uber could have done so much more in these markets, particularly on the path to formalization. Instead, they’re continuing on their journey as yet another smartphone app making life even easier while squandering the potential for real world change for the less privileged members of our societies.

 

 

Analysis of the mobile phone’s impact on cash flows and transactions in the informal sector

As we saw, Mrs Chimphamba needs to juggle time and money as part of her household financial management in order to ensure that expenses can be met by income. We also saw that the mobile phone was made viable and feasible by the availability of the prepaid business model that gave her full control over timing and the amount required to maintain it — how much airtime to purchase? when? how often? — all of these decisions were in her hands, within the limits of the operator’s business model. Now, we’ll take a closer look at the impact of the mobile on her domestic economy.

Readily available real time communication has helped Mrs C by speeding up the time taken for a decision on a purchase or a sale. That is, the transaction cycle has been shortened. As the speed of information exchange increases, it increases the speed of transactions — it shortens the duration of time taken to execute them from inception to completion. This, in turn, implies that more transactions can now take place in the same amount of time thereby increasing the frequency and the periodicity. When mobile money is present, one can see that as both quantity and frequency of transactions speed up, so does the cash flow. We’ll come back to this factor.

To explain using a real life example, Mrs Chimphamba does not need to sit at her homestead wondering if today someone will pass by to purchase a bottle of wine. Similarly, Mrs C’s customers do not need to go out of their way to pass by her homestead to see if the wine is distilled and ready for sale, or whether it will still take another day or two for the next batch to be ready. Further, the uncertainty of whether they’ll have cash on hand on that future day, or if they’ll return as promised are all elements that real time communication have minimized.

Now, Mrs C is able to let her regular customers know that she’s making a new batch for sale and do they want to reserve a bottle for purchase? It allows her customers to put aside cash for this purchase. She is even able to accept and execute larger orders for some future date, and even accept some cash advances if her operating environment includes the presence of a mobile money transfer system such as those more prevalent in East Africa. This in turn changes her purchasing patterns and decision making as the pattern of cash flows — timing and amount — changes. She isn’t making do anymore on an unknown and predictable sale based on sitting and waiting for someone to show up to buy her wine.

Real time communication has improved the decision making cycle for both buyer and seller in a transaction as it counteracts uncertainty and information asymmetry even while speeding up the time take for a decision.

As the quantity and frequency of transactions increase— first, in cash conducted face to face, and then later, remotely by mobile money, regardless of the size of each transaction — the change in cash flow patterns begins to smooth out the volatility (the uncertainty factor has changed completely) between incoming and outgoing, as well as the decisionmaking involved. That is, the gap between income and expense starts becoming less in terms of both timing and amount — there is the possibility of a steady stream in the pipeline. Calculus offers hints of how the curve can begin to smoothen out as frequency and periodicity of transactions begins to accelerate.

Size of transactions thus begin to matter less in that the incoming amount now does not need to be so large as to cover expenses for an unknown duration of time before the next incoming payment; nor do expenses have to be tightly controlled constantly due to the uncertainty of the duration of time before the next payment, and the types of expenses incurred during this unknown period of time.

So the boost in decision making — how long it takes to complete a transaction, how often can transactions be completed — enabled by the real time communication facilitated by the mobile phone; plus the attendant immediacy of receiving payment via the same platform is the root of the improvement in the hyperlocal economy and consumption patterns among the informal sector actors. This is why large established traders (with sufficient financial cushion) were heard to observe that both purchasing power and consumption patterns had changed in their market town (Busia, Kenya Jan 2016) in the past 10 years since first the mobile phone, and later, mPesa, were introduced into their operating environment.

Uncertainty and information asymmetry that have long characterized the fragile and volatile nature of the informal sector operating in inadequately provided environments with unreliable systems and scarce data. In the next chapter we’ll step back and take a broader look at communication, connectivity, and commerce in the informal economy starting with the description of the operating environment’s characteristics regardless of continent.

This is part of a newly launched Medium where I will write in detail on economic behaviour and its drivers in the informal economy. Much of it draws upon the original research in the field from 2008-2009 which was shared on the prepaid economy blog. I found that time had passed and increased my understanding and I wanted to explore those discoveries in writing. Much of this is the foundation for recent works on ‘Mama Biashara‘.

Professionals stand above the competition: Branding lessons from street vendors of Africa

zimbabwe-flashy-vendors

Zimbabwe

Farai Mushayademo’s distinctive dress sense, with a different shiny suit every day, makes him a darling of customers and helps him beat the “rising competition,” he said.

This article on the increasing competition for the burgeoning informal economy of Harare, the capital of Zimbabwe, came less than a month after we saw this smartly turned out fruit vendor plying his trade in the streets of Accra, Ghana.

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Ghana

For communicating brand quality, the Ghanaian gentleman surely deserves an award. His read to eat fruit was as smartly packaged and labelled as any consumer brand in a supermarket.

cth8lhbxyaqv0lyI’ve written before on the topic of ‘Branding the Unbranded’ – whether its the humble avocado being sold by the side of the road in upcountry Kenya, or a designer BBQ meant for the emerging middle class – but these distinctively dressed gentlemen on two opposite ends of the vast African continent come under an entirely new category of product and service innovation happening in the informal sector.

How do you set yourself apart in the unbranded informal economy in response to rising competition is a challenge. Ghanaian market women’s customer development and retention strategies in a commodity market (potatoes) were documented a decade ago, and found to rely on social skills, including non verbal ones such as eye contact and encouraging smiles. Yet, her advantage is that her potential customers are slowly walking through the market, looking for the best potatoes to purchase. She has the time to call out and attract their attention.

For these men on the streets, walking through traffic, that advantage is fleeting or nonexistent. They must grab attention *and* communicate their messaging in an instant (can they have been reading Gladwell’s blink?) – and the fruit vendor, with his spotless white gloves, and packaged fruit, clearly rises above the rest with his strategy.

The police are also, one hopes, less likely to chase a man in a three piece suit off the street. This is one pan African trend worth keeping an eye on.

Mobile Money in South Africa: The nature of the beast by Flo Mosoane

pexels-photo-3The 2015 State Of The Industry Report (SOTIR) for Mobile Money published by GSMA, reveals a picture of a service that continues to change the landscape of financial inclusion in developing and poor countries across the globe. In December of 2015, the industry processed transactions in excess of a billion, most of which were in Sub Sahara Africa.

It seems however, that the continued success of Mobile Money eludes South Africa. What with the untimely death of Vodacom Mpesa after millions of Rands of reinvestment. Only 4 months after which MTN South Africa also announced that they are ceasing new registrations, marking the end of (Mobile Network Operator) MNO-lead Mobile Money deployments here.

Despite the large bang that MTN Mobile Money launched with, managing to sign over 2 million subscribers; at the end, Vodacom Mpesa only had just over 75 000 users, and MTN Mobile Money only about 140 000 or so users. A performance that neither of these well-established, successful, multinational MNO’s can be proud of.

We lament the apparent failure of Mobile Money in South Africa. It is well established that it has made a significant contribution to financial inclusion for underserved populations, and still presents significant opportunity to serve unbanked and underbanked communities.

This is a very special contribution by Flo Mosoane, writing from first hand experience on the ground on this subject. Do read the whole article.

Read On…

How to Spot Signals of Local Purchasing Patterns in the Market

np-md-mohamed-kanuThis photograph is taken from a regular news item from a Liberian newspaper announcing the opening of a new petrol station in the town of Ganta. What caught my attention is the size of the LPG cylinders being promoted. On the left is the 6kg and on the right is an even smaller size that I’ve yet to see elsewhere – the 6kg one has been spotted in the lower income side of Jakarta, and in the markets of Abidjan, and Nairobi.

What it tells me is that purchasing power in the local market is not only a little less than a major capital city, this is probably a tier 2 city, but also that its a cash intensive market where incomes are more likely to be the volatile cash flows from commercial activities in the informal sector.

The lumpsums available for LPG aren’t going to be as large as to afford the standard 13kg size, but it doesn’t preclude people from purchasing these smaller sizes more frequently. That is, we cannot assume total consumption volumes to be less than larger cities where larger sizes are more popular. On the other hand, the micro size on the right seems to hint at the possibility of LPG being more popular than traditional fuels such as kerosene, charcoal, or firewood.

These small sizes also signal a fragmented, informal market where small pack sizes and sachets are popular.