Invert the Pyramid

When to give up on a cliche. Published in the Business Daily on 21 January 2014, at http://www.businessdailyafrica.com/Opinion-and-Analysis/Entrepreneurs-must-target-more-than-just-the-bottom-of-pyramid/-/539548/2153140/-/12nelx4z/-/index.html

A few weekends ago, there was an online furore (as Kenyan online furores go) about the cost of a ticket at the ‘Blankets and Wine’ concert series. The contention was that, at KSh 4,500, the picnic-and-dance event had become unaffordable. (There was an unrelated to-do about immoral goings-on after hours at the event, but that’s a discussion for another day and another forum). This is not the first time that the event’s impresario, Muthoni Ndonga, has been on the receiving end of criticism about the cost of her events – I have also laid into her on social media – but I will admit that I hadn’t thought about the issue beyond some mild interest.

That was until mid last week, when an intriguing article in the Financial Times caught my eye. The head of Nestlé’s Asian division, Nandu Nandkishore, was admitting a near-fatal error in the company’s approach to the Indian market. The foods maker had targeted the mass market – selling to those ‘spending pocket change on sweets and noodles’ – while neglecting the country’s growing numbers of affluent spenders. This segment of the market, the article concluded, was more immune to inflation and temporary economic blips, and Nestlé was thus shifting strategy to go after them.

These two incidents go to the very heart of a strategy discussion that broke out a few years ago, when university professor C.K. Prahalad published the book ‘The Fortune at the Bottom of the Pyramid’. His insights were not particularly profound for anyone who does business in Africa, Asia or Latin America – that poorer people will buy and consume goods in smaller sizes, and that there’s very many millions of them. The true gem was that companies that start off serving this market, but keep wanting to grow out of it, might have it backward. They may (and perhaps should) stay with that market.

The buzz created by the book (and the buzz phrase that quickly became a cliché) unfortunately then served to mask another insight: global companies, and their local doppelgangers, then assumed that profits were only to be found in mass sales to pocket-shallow consumers. Entire corporate strategies and sales careers were re-oriented with this insight in mind.

What was forgotten was two traits about these markets that make them remarkably interesting and challenging, and which are epitomised by the Blankets and Wine and Nestlé insights. The first is that consumers in emerging markets are not easily categorisable into income and spending profiles. The second is that there is a part of the pyramid – and a significantly sizeable one – that tends to be forgotten, even as fortunes are being sought at the bottom of it.

There was a curious photo making the rounds on the Internet a couple of weeks ago. It shows an array of impressively expensive champagne being sold in Nigeria – in a kiosk. Bottles of Moet et Chandon are proudly displayed in a space where you’d expect to see packets of washing powder or milk. Quietly (or, in characteristic Nigerian fashion, loudly), the West African nation has become Africa’s biggest consumer of high-end champagne. This is still in a country with low per capita income. Compare this picture with one closer to home, where expensive German cars are parked at the dingiest, smokiest nyama choma joints. The assumption that a particular income level determines consumption patterns is a demonstrably false one.

Here’s another example that my friend James Mbugua pointed out to me in a Facebook argument (he’s worth quoting in full): ‘Nokia made a mistake in taking their [high-end] Lumia phones to the US first while continuing to sell [lower-end] Asha phones here because they are competing with Apple and Samsung in the US. Meanwhile Samsung, a truly global player, usually has the Galaxy series out here within no time after releasing it in the US.’ The assumption made that consumers in poorer countries will not want (or afford) high end products is leading firms such as Nokia (and Apple, which does not have a proper, formal presence in most countries) to leave billions in sales and profits on the table. Consumers will buy Apple’s latest iPad Air and take it with them as they travel in a matatu, in defiance of the simplistic income/ spending profiles that they may be slotted into.

The second part is as important. It’s not just about the vaunted rise of Africa’s middle class. There has always been a significant number of people who can afford the finer things in life, even in countries that are nominally poor (it’s not for nothing that the term ‘Wabenzi’ was coined in 1960s and 70s Africa). There has also, always, been a significant appetite for what one may call the petit luxuries – higher priced baubles, more expensive consumables, restaurants and holidays – which is now coming into the radar.

What’s clear is that while Prof. Prahalad (bless his soul – he passed away in April 2010) illuminated an important bit of the pyramid, companies and entrepreneurs that want to make money must look at, and target, the rest of the edifice.