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Multinationals misinterpret Africa

News, 21 August 2017
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AFRICA: Many multinational businesses have found that sales and profits in sub-Saharan African markets are below expectations but that is because their expectations were unrealistic in the first place, a regional analyst has argued.

Writing on the Harvard Business Review site, Anna Rosenberg, director of Sub-Saharan Africa Research at Frontier Strategy Group, suggests that companies have misunderstood the drivers of consumer spending power, underestimated how much local factors determine purchasing decisions and failed to consider how the “consumer class” is changing across the region.

A reliance on headline economic indicators like GDP and demographic growth data, for example, can fail to appreciate the extremities of wealth in many countries which contain a small elite class and a large poor population with little spending power.

A better measure of purchasing power, she says, is “the Consumer Class Conditions Index (CCCI), which ranks markets according to how easily wealth filters through society” and is based on thousands of aggregated data points, such as a country’s rate of formal job creation, education levels, and welfare provision.

Frontier Strategy Group’s own analysis has also found that more than half of working adults earn incomes from informal activities that are not reflected in official income statistics.

“While this means spending power is likely higher than official data indicates, it complicates the task of predicting shifts in consumer demand,” she notes. Accordingly she advises looking at proxy indicators – rainfall determines harvest quality rural income, for example.

Rosenberg also demolishes a couple of myths that inform multinational marketing strategies, namely that Africans are conspicuous consumers and that they are adopting Western habits.

They are not so much interested in luxury brands as valuing durability over flashiness when buying higher-cost items, she says, and multinational need to connect with these priorities.

And while African consumers are becoming more used to various Western products, tradition continues to play a more important role.

This can manifest itself in a preference for open-air markets rather than malls, where produce is thought to be fresher and to offer better value, or in the way that the income of city workers supports their families in villages, meaning that these rural consumers often have more to spend than might be assumed.

Multinationals “need to refine their assumptions about who their customers are and what their purchasing power is,” Rosenberg concludes.

Data sourced from Harvard Business Review; additional content by WARC staff

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