This is my playbook: Rwanda, Gambia and most less populated African countries are not good places to launch a business to consumer (B2C) startups except in healthcare and broad food areas. In those countries, I only get interested if the company is in business to business (B2B) space. I do think the population is small to provide numbers which can enable leverageable factors towards scaling a business. In other words, in those countries, B2B could work but B2C will struggle as the scalable advantages are severely limited.
But when it comes to Nigeria, Kenya, and South Africa, anything is possible. You can launch a B2C or B2B because they have the numbers.
Now, you want to do business in the B2C space in Nigeria, the question is “where do you position the company”? You need to go back to this plot (above). It is called the Fortune at the middle of the pyramid: “the most significant opportunity for African B2C startups lies with consumers who earn between $4 — $8 per day … This is largely because that income band holds the highest concentration of discretionary spending power on the continent, as the graph below shows.”
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Companies like Bigi Cola and La Casera understand this redesign. You can also make a case that the sachetization in places like Nigeria where everything is now bundled in sachets has a root therein. Simply, there are not many consumers outside that $4-$8 per day segment for any big B2C business (if you focus outside this segment, your business must have a dose of B2B).
Interestingly, that is also where I see a big percentage of my popular 30 million people who earn relatively decent income in Nigeria; those 30 million are the core of the consumer market.
This is the full summary from DFS Lab, the researcher which did the study:
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Africa is growing fast, has a young and urban population, and many opportunities for improvements in productivity and resource utilization — thus there is much cause for optimism in the tech sector! But purely consumer focused apps will face unique challenges with monetization relative to markets like China, Indonesia, or Latin America.
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Many consumer-focused apps will find easy early traction going after the relatively wealthy $10/day and above segment but will risk a niche business as growth stalls due to the limited size of this population.
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The largest economic opportunity in a pure sense are consumers between $4-$8/day. Here is the largest density of discretionary income due to the capacity to spend beyond simple necessities, and much larger population numbers. That said, costs to acquire and serve these larger numbers of customers will be prohibitive to most and will be the critical factor in success.
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Conversely, those who can create innovative, low cost ways to acquire and serve users in the $4-$8/day category (e.g. partnering with community groups, government, USSD interfaces, viral peer marketing, etc) have the potential to create massive amounts of value by opening these consumers to new markets.
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Also, businesses that focus on primary necessities (by selling directly or improving the value chain efficiency) have a much larger market to target.
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Further, models such as gig work, or seller market places that can dramatically increase people’s income break the logic presented here and could potentially generate large revenue from relatively lower income populations (while improving their income as well, hopefully)
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Finally, while the picture this data paints implies B2C models will face headwinds, we do think that B2B business models that focus on organizing value chains, improving efficiency and resource utilization, digitizing SMEs, and generally increasing productive capacity have huge potential — we will cover this in another piece.
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The major code to crack is knowing how to stimulate demand of your product, if you do, the people will spend. The list of ‘essentials’ is elastic, you have to force your products or services to enter that bucket.
If larger number of people keeps increasing the list of what constitutes ‘necessities’ in their spending habits, productive will greatly improve.
That band is the monthly salary range of N50k – N100k earners, the epicentre of the working-class brackets.
With all the burdens and deductions chasing this salary range, it’s a miracle to remain sane, let alone looking for expensive things to buy.
When we create products and then frown at low patronage, have we taken time to run the numbers to ascertain the disproportionate size of salary earners in this bracket? And the bigger shock? This earning range is still a ‘luxury’ for considerable bunch sitting on the lower cadre, the minimum and micro wage earners.
This is where our entrepreneurial and innovative capabilities need to be tested. It’s not enough to know these realities, those of us who can think need to do more to find ways to move more earners to the other side. This scramble to get a cut from the small cake has its limitations, the idea should be to bake a massive cake, then invite more people to come with their own knives.
We need a new league, the league of entrepreneurs who pay good wages to all their employees, they are the sort of people that should be winning awards and collecting titles here. This perpetual slavery we have subjected a lot of people here needs to end, it’s not nice at all.
From a behavioral perspective, earners within that band though aspirational in their dreams and desires for middle-class status which is quite elusive as that keep shrinking on a daily basis as the naira weakens and the addressable market is impacted by low oil prices, fewer opportunities, and the uncertainties of the pandemic and looming recession.
However in as much as they desire a much better livelihood, the realities of their earnings is not changing at the speed of their desires… they are compelled to want the better, their earning power (opportunity cost constraint) with respect to their economic reality would make them settle for big brands if packaged in more affordable sizes and that is where ‘sachetization’ can thrive, especially within the FMCG space.
This projection should also speak to organizations with service offerings or at the edge of driving innovation within the value chain – where bespoke offerings or differentiated service offerings can speak to this niche of consumers not previously thought about or might have been overlooked from an esoteric price point. Crafting a unique offering for these personas albeit stipped down (but riding on the similar brand essence) but designed and positioned ‘specially’ within this target market can unlock a new service offering never before imagined.
Designing a product with a market fit that talks to these consumers within that market segment can help companies improve their profit margin and unlock a new market segment as the graph corroborates.
Interestingly, I would be very mesmerized if a local company can pivot and maximize the opportunities within this segment or what would be the benefit of data with such rich analysis if not well-utilized and exploited.
Thank you for sharing Prof.
Thanks so much for the comment. It is a piece on itself. Thanks for checking – beautiful insight.