Perhaps because disposable income is limited, African consumers are selective and smart about what they purchase. According to Boston Consulting Group’s 2013 Africa Consumer Sentiment Survey, 70% of people interviewed said they knew a lot about the details of the products they buy. When compared with a global average of 57%, this suggests that African consumers are both knowledgeable and diligent in their decision-making process.
Rather than buying indiscriminately, 74% of African consumers, compared with a global average of 67%, said they focus their spending on the few product categories that matter most to them. Important categories, where consumers are most willing to trade up and least willing to trade down, include clothing, healthcare and baby products. Less than a third of consumers said they want to spend the bare minimum or to save money in those categories. Moreover, almost 75% reported saving and cutting back on spending in other areas to pay more for products that are important to them. Consistent with consumers in other developing economies, 72% of African shoppers said they value quality over quantity; the global average was 53%.
This focus on quality also affects decisions about trading up and trading down. Of the African consumers interviewed, 71% – compared with 60% on average in mature markets – said some products are just too important to swap for cheaper alternatives or to cut back on. While all consumers consider some products to be of paramount importance, the categories they value can differ. For example, only a third of lower-income Nigerian consumers are willing to trade up on home electronics, while more than 90% of Nigerian consumers making more than US$20,000 per year said they are willing to pay more for items such as stereos and TVs. By contrast, few consumers are willing to pay more for a product when a less expensive alternative exists and they perceive no meaningful differences between the two.
As a rule, African consumers will trade up for quality and trade down to economise and stretch their budgets. About half of the respondents reported that they are more willing to pay a premium for non-grocery categories, such as clothing (53%), products for infants and toddlers (53%), and healthcare (52%). More than 40% are inclined to trade up for durable goods, such as mobile electronics, home electronics and home appliances. On the other hand, groceries are shaping up to be a competitive, low-margin category. Few African consumers plan to increase their spending in this category, and many plan to trade down.
Where do African consumers make their purchases? Although most shoppers go to traditional retail outlets such as shops, markets and kiosks, these local venues are giving way to a wider range of more modern formats. Many African consumers said they now shop for consumer durable goods and packaged food at specialty retailers, hypermarkets and supermarkets. Pharmacies and clinics are the primary source for healthcare products and services.
But here as well, retail preferences vary greatly by country, income level and product category. Since the marketing and distribution approaches that work in one African country may not work in another, companies must identify the leading retailers for specific products in different markets for the different consumer segments. The reality is that distribution and availability can be challenging for many products in Africa. Companies must also figure out where consumers seek their products and find ways to deliver to those outlets.
Clearly, African consumers have more disposable income and more choices than ever before. Still, their selectiveness is largely driven by necessity, and the need to economise leads to forced tradeoffs. Smart companies will invest in understanding these diverse consumers – and how their behaviours vary market by market – to determine which product categories are priorities, how much of a premium different products can command, and what it will take to win in those categories. Certainly, luxury categories with largely untapped potential do exist, but multinationals must evaluate the size of the market and how strongly a high price is associated with high quality. Moreover, given the changing retail landscape, companies must think carefully about product placement in African markets and optimise distribution accordingly.
This is an excerpt from Understanding Consumers in the “Many Africas” written by Stefano Niavas, Lori Spivey, Mia von Koschitzky Kimani, and Garett Chau and published by the Boston Consulting Group.