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.
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