07 June 2022 15:14
In February 2019, Eat’n’Go, the Nigerian dealership of the famous pizza brand Domino’s, introduced a miniature version of the usual pizza boxes, at a cost of 550 naira (1.23 euros). Smaller and cheaper than the medium-sized pizza, which costs 3,900 naira (8.75 euros), this new version has been designed to be affordable for everyone. It was a necessary decision given the economic instability of this period, said CEO Patrick Michael.
“The Nigerian market is diversified and the potential for making profits continues to be very high,” he said. “However, we cannot underestimate the economic instability which in many ways has affected purchasing power. In times of this kind, it is important for industrialists like us to cushion the impact of the situation on customers “.
Two years ago, StarTimes, a Chinese satellite TV service with a very strong presence in Nigeria, added daily and weekly subscriptions – with fewer channels – to the option of monthly subscription for 60 naira (0.13 euros) and 300 naira respectively. (€ 0.67).
Pandemic and war
Since 2015, Nigeria, Africa’s largest economy, has entered recession twice and the naira has plummeted, losing 70 percent of its value against the dollar. The economy has found itself in a stranglehold, but things could get even worse.
According to a recent report by the World Bank, by 2022 the poor in the country will be 95.1 million, more than 40 percent of the population. And while the negative economic effects of the Covid-19 pandemic are slow to wear off, commodity prices continue to rise as a result of the Russian invasion of Ukraine.
A 2022 report from the National Bureau of Statistics (NBS) shows how Nigeria’s annual inflation rate accelerated for the third consecutive month, climbing from 15.92 percent in March to 16.82 percent in April. It is the strongest increase in the inflation rate since August 2021 and follows the trend of a global rise in commodity prices.
For Nigerians, the end result is less purchasing power and less money in their checking accounts. Indeed, according to Nigeria deposit insurance corporation, if it is true that in December 2021 the active bank accounts in the country were 133.5 million, in 99 percent of these accounts there were less than 500 thousand Naira N (1,121 euros).
The bag economy
Faced with such a reality, companies like Eat’n’Go choose a marketing strategy sachet, or “in miniature” to stay active. Scholars Rodolfo P. Ang and Joseph A. Sy-Changco of the Ateneo de Manila university in the Philippines define “miniature” marketing as “the attempt to increase the market penetration of a product by making it available in smaller packages and less expensive, thus aiming at the base of the economic pyramid “.
In Nigeria, “miniaturization” has been practiced for decades and is a prevalent strategy in other emerging markets such as the Philippines and India. Fast-moving consumer goods (FMCG) manufacturers have adopted it for items like Pure water nylon sachets, powdered milk and ready-made noodle packs. In this way, Nigerian economist Shakirudeen Taiwo explained, companies were able to meet up to 80 percent of the demand.
This strategy mitigates the effects of inflation, even if customers have to sacrifice quantity and, sometimes, quality as well.
In recent years, however, brands have intensified their use of this strategy to address a new economic reality. Now these products are sold in even smaller packages or in small nylon sachets. “According to the latest available data, in Nigeria we have over 75 percent of families living on less than 5-7 dollars a day (4.5-6.5 euros). That’s a huge percentage, ”Taiwo said. “So companies are starting to adapt their products to people in this income bracket, who represent the majority of the population.”
In this way, companies can reach more customers and maximize profits by being able to sell more products at a cumulatively higher price. But most important to customers is that this strategy mitigates the effects of inflation, even if they have to sacrifice quantity and, in some cases, quality as well.
Startup of the miniature
This trend is also taking place in the Nigerian tech sector and is affecting how more and more startups set prices for their products. The sector is still in its infancy, but it is considered by all to be very promising. In 2021, around 60 percent (€ 1.5 billion) of all funds raised by technology startups based in Africa (€ 2.71 billion) went to Nigeria.
But even the giants have to bow to market forces. Many tech companies are targeting younger Nigerians because they facilitate bureaucratic and costly procedures in the fields of investing, saving, buying insurance and accessing loans, introducing lower rates and cheaper payment plans, among other things. .
Yanmo Omorogbe, co-founder and CEO of the Bamboo investment platform, says companies like hers need to take market realities into account to create products suitable for the market. Using its partnership with a US stockbroker to its advantage, Bamboo allows Nigerians to participate in the US stock market for as little as $ 10 (€ 9.3).
“Here in Nigeria the majority of the population works hard to escape the poverty trap,” explained Omorogbe. “We have a narrow middle class that comes under attack from many sides and then there is an equally small segment of individuals with high net worth. The strategies that are put in place must take into account the differences, but the basic product should be able to adapt to everyone, ”she said. “In our case this meant adding features like fractional quotas, which allow people to invest with what they have, and lowering the minimum investment, so that more people can be involved.”
Eke Urum, Lagos-based investor and financial analyst, agrees and adds that this strategy is “a response to a negative reality”, given that “the demand supported by adequate purchasing power is contracting”. Rise, the techno-finance startup managed by Urum, allows Nigerians to invest dollars in the US real estate and equity market, starting with as little as one dollar.
In Nigeria, where insurance penetration doesn’t exceed 2 percent, startup Reliance health has created a system where people don’t necessarily have to have jobs to access health insurance. It has introduced plans starting at 3,500 naira (€ 7.85) up to 148,500 naira (€ 333), allowing users to pay on a monthly, quarterly or annual basis.
A solution or a problem?
The Nigerian government also seems to have understood how the system works and in 2019 launched a pension microfund, expanding the contribution-based pension fund to allow people employed in the informal and semi-formal sectors to create accounts even in the absence of a supervisor of the plan. accumulation – usually the employer – and save small bucks over a long period.
While these funds have not yet caught on for several reasons, they are nonetheless an indicator of market conditions and how local institutions are adapting to them.
However, according to experts and investors, “miniaturization” is as much an innovative solution as it is proof of a large-scale problem. “It can be a form of democratization, if we look at it from the perspective of companies that want to get certain products to people who otherwise couldn’t afford them,” said Bamboo’s Omorogbe. “But it can also be seen as an indication of a growing poverty that already today and even more so in the future prevents the majority of people from having access to a product or a service”.
With rising inflation and declining purchasing power, an increasing number of companies in different economic sectors may opt for “miniaturization,” even service providers previously targeted only to the middle or upper classes. “If you take a tour of a shopping center you can see how the concept of ‘miniaturization’ is gaining momentum,” says Taiwo. “For example, companies that offer integrated services may start offering specific ones at lower prices to ensure the accessibility and survival of the company.”
(Translation by Giusy Muzzopappa)
This article was published by Al Jazeera. Internazionale has a weekly newsletter that tells what is happening in Africa and one that deals with economics and work. You sign up who.