Posts Tagged ‘marketing strategy’

How do we make a business case for an innovative concept given the data scarcity for the African mass market?

Anzetse Were writes some thoughtful points on the challenges facing private sector innovation in Kenya, and Africa. Two of her points caught my attention, in particular:

With regards to the private sector, an interesting point raised is that innovation targeting it must have a business case for adoption otherwise the innovation won’t be absorbed. Innovation must demonstrate that the short-term inconvenience of adoption will pay off in the long term.
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We have a real problem with information asymmetry and data bias. [… ] strategies for market penetration and sharing cannot be rolled out since the lack of data means the private sector doesn’t know where the market sits.

While Anzetse has specifically focused on the interface between the private and the public sector with regards to innovation, the points she brings up are nevertheless a challenge for either or both parties.

Size and value of the market opportunity for an innovation when data is scarce

Investors in innovation for new and untapped markets need the numbers to make sense of the opportunity. A dollar value and estimated size of the market are among the conventional metrics used to provide evidence of a return on their investment. How substantial is it?

In the African context, the mass market where the volumes can be found tends to be heavily biased towards the informal sectors, and still for the most part based on cash transactions. Textbook approaches to sizing and valuing the market space fall short without accessible and relevant data.

A few years ago, we were faced with a similar challenge for Village Telco, a social enterprise launching an innovative ICT device for low cost voice and data communication. They had developed the Mesh Potato,  a device for providing low-cost telephony and Internet in areas where alternative access either doesn’t exist or is too expensive. It is a marriage of a low-cost wireless access point capable of running a mesh networking protocol with an Analog Telephony Adapter.

They were looking to enter the Kenyan market, with the notion that the cyber cafe industry would make the best target audience for their device. Their investors wanted to know the size and value of the market opportunity prior to launching the product in Kenya. Although this happened just over 6 years ago, Kenya had already made a name for itself as a forward looking mobile phone market unafraid of experimentation.

Our challenge was two-fold: We were to look at 2nd and 3rd tier towns, not just Nairobi and Mombasa. Village Telco was looking to connect the unconnected. And we had to estimate the size and value of the market opportunity for a sector – internet cafes – that was primarily cash based and informal, particularly given the rural and small town geography we were considering. There was little or no data available to even get a handle on the number of cyber cafes operating in Kenya.

Secondly, we had to get an idea of the price point at which the product would be acceptable to this target audience. Keep in mind that the device was wholly unknown – an innovation – and there was nothing comparable on the market.

A qualitative approach to quantitative estimation

Given that this was not a conventional research project, and time and resources were constrained to a market analysis, we designed a minimal viable market discovery phase that would permit us to gather enough insights directly from the cyber cafe operators in order to estimate the size and value, as well as recommendations for pricing and market entry.

In late 2011, Kenya’s administrative divisions were still the original provinces.

Based on population density and relative income demographics, as well as an ICT gap analysis of voice and data services – reports available through Kenyan government institutions – we planned an optimal route that maximized exposure to the types of locations Village Telco had specified whilst sampling cyber cafes across a range of infrastructure access and regional income. This coverage was completed in less than 3 weeks.

Surfacing trends through indepth open ended interviews

Where we invested our time and effort was in identifying entrepreneurial and innovative cyber cafe operators in the smaller towns and villages we visited. The vast majority of internet cafes are run as side businesses by the owners who might be white collar employees or civil servants, and often managed by employees. It was the cyber cafe owner operator who saw their business as a growth opportunity that we were seeking.They not only knew their market but had seen the opportunities to grow and expand their services.

They were able to give us an idea of the future of the cyber cafe business in their region, a rough estimate (few businesspeople are willing to openly share revenue data) of the scale of their business, and the trends in decline or growth of the types of services they offered.

Through the data gathered, we were able to estimate the high growth regions for internet cafe services – Nakuru town for instance had seen the number of cybers grow from 10 or 15 in 2007 to upwards of 50, primarily due the increase in tertiary education institutions. Kilifi, on the Coast, had seen a doubling when a local university campus opened.

At the same time, we were able to gauge the value of the opportunity space by using the proxy of the proportion of owner/operators to manager/employees – the former were more likely to be interested in the Mesh Potato than the latter.

Our route planning also provided evidence of the pathways for innovation diffusion, outwards in a hub and spoke model from the central hub of Nairobi’s business district where new electronic products landed from the manufacturing centers of Asia.

Sitting down face to face with the cafe owners and showing them the product and what it could do gave us the insight on pricing and market entry strategy. By the end of 5 weeks from start to finish, we were able to make a business case for innovation meant for a data scarce environment.

Innovation means breaking new ground

While the effort on the ground was very different from a conventional market analysis exercise due to the need to elicit information directly on the market and the product, the time and resources invested by the client were no different from an analysis based on secondary sources and accessible data flows.

The nature of the African mass market is such that pioneers entering the market will have to break new ground, not only with their products and services, but also their approach to analyzing and evaluating the business case for investment. It is not an impossible task and should not be considered a barrier to entry.

Segmenting the African Middle Class without dollar figures

Continuing the thinking from my previous post on the various attempts to size and value the potential of the emerging African middle classes based primarily in dollar figures, I thought to take a step back from income data to see if I could approach the challenge of segmentation in a different way. Below is the chart estimating the size of the original emerging African middle classes as posited by the African Development Bank back in 2011.

That is, rather than simply segmenting by range of daily expenditure i.e. $2 to $4 or $10 to $20 a day, what if we took a closer look at the reasons behind the spending and segmented by consumer mindset and buyer behaviour. After all, given the size of the informal sector in the majority of African countries and the percentage of population relying on irregular income streams from a variety of sources, few can confidently expect to spend exactly $4 each day. There might be times of abundance when hundreds of dollars may be available, and big ticket items purchased like colour television sets, offset by times of scarcity when one might just be making ends meet. Variability in cash flow is an inherent characteristic of entrepreneurship, regardless of income bracket or revenue sources. Furthermore, we can add geography as a factor, since urban expenditure is of a highly different nature than that in rural regions. Taking all of this (and more, based on years of observations in the field among consumers) here is my version of consumer segmentation of the same demographic as covered in the chart above.

Descriptive segmentation of consumer behaviour

The Middle class – traditional definition, white collar jobs, steady paycheck, education/professional qualifications, closely aligned with “upper middle class” in the AfDB chart.

Emerging “middle” or rather the increasingly visible African consumers – non traditional (OECD cite), rapid upward mobility, primarily based in informal sector trades and services, newly successful entrepreneurs, small businessmen, extremely ambitious

Floating class 1 (“Brass Ring Syndrome“) – seeking status signifiers that are the ‘brass ring’, that is, they are ready to leap upwards, are almost there, focused on investing in future revenue generation opportunities, aspirational, may tend to be seen more in rural areas than urban.

Floating class 2 (“Fragile” or “Newborn”) – seeking footholds to gain enough stability to balance upon so as to make the leap for the brass ring, saving to invest in future revenue generation, hungry for more (not food but a mindset, as in hungrily seeking upward mobility), they may include the youth startups, tech entrepreneurs and all looking for the “something”, maybe more urban, and in the African contextual usage of the word “hustling” for the opportunity.

“Bottom of the Pyramid” –  The $2/day demographic made famous by CK Prahalad,  they are the pool from which the above three segments are emerging and are critically important in Africa in a way that they aren’t in opposed to India for instance because they don’t think of themselves as permanently poor, just temporarily cash crunched, especially migrant workers. Very, very different consumption behaviour between urban  and rural in this segment. They may indeed form the rural version of Floating Class 2.  I include them here because AfDB segmentation starts at $2.

Concluding thoughts

Once one’s mindset has evolved into considering oneself as part of a certain lifestyle, even if one’s income is “floating”, there are changes in buying habits that remain as part of this upward mobility. An example is that of the milk ATMs in Kenya. That is why I believe that taking a closer look at shifts in household consumption patterns as indicators of emerging into the so called “middle class” may offer more valuable insights for consumer market analysis than attempting to segment by dollar figures alone.

The continued curse of Cargo Cult marketing in emerging markets

The concept of Cargo Cult marketing is not unknown yet its impact and influence in the emerging markets in which I operate, can be and is, much worse. The so called “Bottom of the Pyramid” (AKA the BoP) markets have conditions that are even more likely to give rise to this blind adherence to conventional wisdom, particularly since they are still the frontier lands, untapped and not fully established or formed, unlike the sophisticated mainstream consumer culture in which the rest of us are immersed. Additionally, they lack the supporting information mechanisms for effective and accurate feedback from the market on the effect of any monies invested in activities.

What is Cargo Cult thinking?

The best known derivation of the basic concept of a Cargo Cult is Richard Feynman’s speech on Cargo Cult Science, from which all other applications have flowed. In a nutshell, unquestioningly recreating the look and feel of an action in order to cause an equivalent result, without comprehending the ‘why’ behind the ‘what’ is what this is about. That is, the underlying principles are not understood and the form overshadows the substance. From the Wikipedia entry:

An example of cargo cult science is an experiment that uses another researcher’s results in lieu of an experimental control. Since the other researcher’s conditions might differ from those of the present experiment in unknown ways, differences in the outcome might have no relation to the independent variable under consideration.

Similarly, in situations which I will describe in greater detail below, a standard set of marketing actions are applied, regardless of whether the conditions may be the same or very significantly different. Conditions, in this case, include not only the very different operating environments between developed nations where most of these techniques and strategies were evolved, but also such elements as product categories, consumer demographics, media reach and consumption behaviour, not to mention cash flow, purchasing patterns and access to consumer credit.

Cargo Cult marketing in the informal economy


While the sachetization of everything is a great example of Cargo Cult marketing in the informal economy, the problem is deeper than simply a cosmetic change to the packaging or size of an SKU. Its the unquestioned application of a preconfigured set of activities that form the part of a marketing plan or strategy in a context and situation wholly different from the original.

Take Coca Cola for example. It is a fast moving consumer good (FMCG), an impulse buy or luxury, not a critical need for human survival, it is a ubiquitious global brand with the marketing firepower to pay for advertising on every single media available in every single country they are in and yes, in the commodity category that is sugar water, it is a brand that must be continuously hammered home and built.

Demand creation, market creation, distribution channels and consumer awareness are long established even in the untapped or underserved markets of the lower income demographic or the BoP or the rural customer in Africa or Asia. Directly or indirectly, the world has heard of Coca Cola.

“Build brand”, “Push a single message”, “Radio spots”, “Banners, stands and marketing collateral” are the elements of the Cargo Cult that are then replicated for any other product regardless of category – is it an FMCG or consumable like a soft drink? or existing demand – is it a brand new product category or do people even know this product exists and how it might benefit them?

These questions and others like them are overlooked in the belief that if we follow a Coca Cola’s steps exactly, we too will have a brand just like them (in far less than a 100 years) and consumers will come ask for our new product introduction by name (for far less than the billions of marketing dollars spent annually).

But wait, we developed this strategy following the textbook exactly

Kotler’s operating environment is Chicago. I have met with and spoken to him at NorthWestern. The decades of consumer insights leading the development of marketing principles and approaches were not developed in isolation from the information flows and experience that the context of a generations old and extremely sophisticated consumer culture provides.

Price, Product, Promotion and Place are the 4Ps that may not change as elements to be considered when looking at the marketing strategy for a new product introduction in the informal economy, but if we overlook the vast difference in context and thus leave questions of whether what we are blindly replicating is relevant, appropriate or even, affordable, unanswered, we are doing no better than the original South Sea islanders whose Cargo Cult religion led them to build a facsimile of an aeroplane landing strip in the hopes that flights bearing valuable cargo will arrive.

You can build a brand all you like, throwing thousands of dollars in plastering your name across the village or town but if its relevance to your customer’s lifestyle is unknown, will they ever even notice it or care?

You can play around with price and the psychology of price, but if all the principles you learn about and apply emerged from studying behaviour in a consumer market where disposable income and consumer credit cards are implicitly assumed, what difference will it make to subsistence farmer Joe whose cow will be kept unsold until its time to pay school fees for his children?

You can place yourself in hundreds of supermarkets across the country but your if intended target audience shops in their own informal and traditional markets, your efforts will only lead to a very expensive last mile problem.

You can continue to throw more and more money at the problem but without understanding who your customer is, how they shop and the decisions they make, in the context of their daily lives and environment, you will still feel the gap of an overwhelming lack of response. At that point, remind yourself of what Einstein once said,

“The definition of insanity is doing the same thing over and over and expecting different results.”

Marketing without understanding the basic principles of what and why and thus, how best to reach one’s customers, is Cargo Cult marketing.


If you must copy Coca Cola slavishly, then copy their willingness to be inspired by what their customers were actually doing, not what they thought the customer should be doing or imagined they were doing.

Fresh look at India’s consumer market

This report (PDF) by Yoshihiko Iwadare of Nomura Research Institute is only 15 pages long but manages to overturn conventional business strategy on its head in its framing and approach to new market entry for India’s emerging consumer markets.

For more on the Indian consumer market today.