Foreign firms fail to understand Kenya

March 26, 2010
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, \"\"NAIROBI, Kenya, Mar 26 – The trend of foreign companies winding up their operations in Kenya might be as a result of failure by such firms to undertake comprehensive research on the local market.

Research and Marketing Services East Africa Country Manager Naftali Waburi said on Friday that there was possibility that the companies had not taken steps to understand the Kenyan market dynamics.

“Maybe what happens is that the manufacturers come here with products that are supposed to serve the mass market but they don’t have adequate research to understand how the market in Kenya operates,” he argued.

He said the local market was unique as it was characterised by the ‘single-serve’ or ‘kadogo’ economy which is the ability to buy goods or services at their lowest divisible level.

“Kenya’s way of doing things is totally different from other economies; it’s just a matter of understanding what drives the economy in order to fit in,” the researcher advised.

In the last few years, many companies with operations locally have been folding up citing declining revenues and lower profit margins. East Africa Magazines, publishers of ‘True Love’ and ‘Drum’ magazines among others is the latest to exit, citing severe effects of Kenya’s post election violence on their business.

Mr Waburi however argued that for such companies to make inroads locally, they have to consider the pricing of their products which would enable them to capitalise on low prices but bigger volumes.

The ‘kadogo’ economy took route in Kenya in the 1990s driven largely by the impact of tough economic times on people’s purchasing power. In a country where only four percent of the population is affluent and poverty levels are said to be at 46 percent of the economy, the trend has picked up gradually as people are assured of accessing the basic commodities at prices they can afford.

The trend has not been limited to housing goods but also telecommunications products and banking services. Companies such as Equity Bank, Safaricom and even multinationals have tapped into the mass market providing products for as low as Sh5, a move which has significantly boosted their revenues.

Despite challenges such as increased counterfeiting and the high cost of marketing such products that it poses, Mr Waburi reckoned that the concept would continue to grow as it is highly profitable.

“They (firms) might have many products they are selling, one that is premium and then others for selected markets. ‘Kadogo’ economy doesn’t have to go to Sh5 or Sh10 but you also have to look at the bigger bouquet against the smaller bouquet,” he added.

This, he said called for companies to segment their market and provide products and services that can serve not only the high-end market, but also those with lower incomes.

“We can still have the niche markets, like we have seen with banks that only refused to go the mass market way and they are making huge profits; we have others who are copying the ‘mass market’ bankers and although the results might be positive, they are not sustainable. So it’s good to look at the different segments and their spending habits,” the researcher added.

He also suggested that with a little modification, this concept can be exported to countries with higher poverty levels which would enable them to serve consumers in the low end market thus empower them.
 

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