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Analysis: The ‘satchetisation’ of Africa’s largest economy | Poverty and Development


Abuja, Nigeria – In February 2019, Eat’n’Go, the Nigerian franchise of famous pizza maker Domino’s, introduced miniature versions of the pizza boxes the market is familiar with, for 550 naira ($1.50).

Smaller in size and much cheaper than the average N3,900 ($9) pizza, this new version is designed to fit everyone’s budget.

Chief Executive Officer Patrick Michael told Al Jazeera that it was a necessary decision given the uncertain economy at the time.

“The Nigerian market is very diversified and the profit potential is still high,” he said. “However, we cannot underestimate economic instability [which] In some respects, has affected purchasing power. At times like these, it becomes appropriate for industry insiders like us to lessen the impact this situation has on customers. ”

Two years ago, StarTimes, a Chinese satellite TV provider with a strong presence in Nigeria, added daily and weekly subscriptions – with fewer channels – to N60 (15) respectively. cents) and N300 (72 cents) to their existing monthly option.

Since 2015, Nigeria, Africa’s largest economy, has fallen into recession twice and during that time, the naira has plummeted against the dollar, losing 70% of its value. That brought the economy to a standstill. But things could get worse in the coming days.

According to the World Bank recently report [PDF]It is forecasted that by 2022, the number of poor people in the country will reach 95.1 million people – accounting for more than 40% of the population. And even as the adverse economic effects of the COVID-19 pandemic linger, commodity prices are rising due to the effects of the pandemic. Russia Invades Ukraine.

A 2022 report by the National Bureau of Statistics (NBS), shows that Nigeria’s annual inflation rate rose for the third consecutive month to 16.82% in April 2022, from 15.92% in March. This is the biggest increase in inflation since August 2021 and follows the trend of soaring commodity prices globally.

For Nigerians, the end result is that their purchasing power is depleted and, ultimately, less money in their accounts.

Indeed, while there are 133.5 million active bank accounts in the country as of December 2021, 99% of them have less than 500,000 naira ($1,200), according to Nigeria Deposit Insurance Corporation.

Respond to market realities

In response to this reality, businesses like Eat’n’Go are turning to package marketing as a strategy to stay afloat.

Scholars Rodolfo P. Ang and Joseph A. Sy-Changco of Ateneo de Manila University in the Philippines, define package marketing is “an attempt to increase market penetration for one’s product by offering it in smaller, more affordable packages… a market penetration tool at the bottom of the pyramid. economy.”

Colloquially known as ‘sachetisation’, it has existed in Nigeria for decades and is popular in other emerging markets such as Philippines and India.

Fast-moving consumer goods (FMCGs) businesses have adopted it for items such as “‘purified water'”, powdered milk and instant noodle packs. Shakirudeen Taiwo, a Nigerian economist, told Al Jazeera, allowing companies to serve up to 80% of the market.

But in recent years, brands have stepped up their strategy, as a new economic reality poses. These products are now sold in even smaller packages or small nylon bags.

“According to the last statistic, we have more than 75% of households in Nigeria living on less than $3-5 per day, a huge number,” Taiwo said. “So companies started prototyping their products to fit this income level of people because they make up the majority of the population.”

Doing this helps businesses reach more customers and maximize profits because they can sell more products at a higher cumulative price. But more importantly for buyers, it counteracts the effects of inflation even at the expense of quantity and, in some cases, quality.

How package marketing plays out in Nigeria’s tech industry

This trend is also playing out in Nigeria’s tech industry and influencing the way more and more startups think about product pricing.

This industry may be in its infancy but is already appreciated worldwide. By 2021, about 60 percent ($1.7 billion) of the total ($2.9 billion) raised by Africa-based tech startups arrived in Nigeria alone.

But even the giants have to bow to market forces.

Many tech companies are attractive to younger Nigerians because they reduce the bureaucratic and costly processes of investing, saving, insurance and accessing loans by offering lower fees and services. cheaper payment plans, among other things.

Yanmo Omorogbe, co-founder and COO of investment platform Bamboo, said companies like hers must consider market realities to arrive at market-appropriate products. Leveraging a partnership with a US broker-dealer, Bamboo allows Nigerians to participate in the US stock market for as little as $10.

“Here [in Nigeria], most people are working hard to get out of the poverty trap,” Omorogbe told Al Jazeera. “A small middle class is being attracted in many different directions, and then you have an equally small segment of high net worth individuals.

“Your strategies will need to take differentiation into account, but the core product must be able to work for everyone,” she says. “For us, that means adding features like fractional shares that allow people to invest with what they have and also reducing the bare minimum so you can attract more people.”

Eke Urum, an investor and financial analyst based in Lagos, agrees, saying the strategy is “a response to a bad reality” because “demand backed by purchasing power is getting smaller and smaller.” again”.

Rise, the fintech startup he runs, allows Nigerians to invest dollars in real estate and the stock market in the United States, for as little as $1.

In Nigeria, where insurance penetration is less than 2%, Reliance Health, a startup, has created a system where people don’t have to work formally to access health insurance. It introduced plans from 3,500 naira ($7) to 148,500 naira ($297) that allow users to pay monthly, quarterly, or annually.

A solution or a problem?

The Nigerian government seems to understand this too when it launched a micro-retirement scheme in 2019.

It expanded the country’s contributory pension scheme to allow individuals in informal and semi-formal industries to create accounts without a plan sponsor – usually their employer – and save money. save a small amount in the long run.

Although the plan has not fully started yet various reasons, it illustrates the state of the market and how the organizations that operate here are adapting.

But industry experts and stakeholders say satchetisation is as innovative a solution as it is proof of a large-scale problem.

“[It] could be a form of democratization where companies want to bring products to people who can’t afford them,” said Bamboo’s Omorogbe. “But the second perspective is that poverty is rapidly increasing, where most people in the economy can’t afford it. [a] product or service and move further and further away from attracting them. “

As inflation rises while purchasing power declines vice versa, many companies in different sectors of the economy may turn to packaging, even service providers that previously served only the upper classes. middle and middle class.

“A trip to the mall will show you that the packaging concept is getting more attention,” Taiwo said. “We might as well start to see it in terms of services. Integrated service providers can start offering specific services at lower prices [to] ensure the solvency and survival of the business. ”



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