Pricing in Africa wants a reset: The rise of insight-based fashions for casual markets

Saleh, a 25-year-old graduate from Nairobi, desperately wanted a brand new smartphone. He explored each choice to get the most effective worth. He got here throughout a well known African e-commerce model providing a “Buy Now Pay Later (BNPL)” plan, requiring a 20 % upfront cost and versatile month-to-month instalments. The deal appeared attractive. Yet, Saleh hesitated as a result of he didn’t need to owe anybody, irrespective of how little. He ultimately saved for months and acquired the identical cellphone in full.

Saleh’s expertise reveals a prevailing difficulty. There is a big mismatch between the pricing fashions companies make use of and the precise buying behaviour of their goal prospects in Africa. For occasion, the BNPL mannequin, imported primarily from Western markets the place pricing is usually constructed on cost-plus and margin calculations, often misfires. African markets, nevertheless, function below distinct circumstances, characterised by largely casual economies, a robust negotiation tradition, and aspiration-driven customers. Businesses too usually develop pricing fashions which can be indifferent from these contextual realities.

In the relentless quest for enterprise survival amidst financial turbulence, firms always face the temptation to base pricing selections totally on financial assumptions concerning the goal buyer, with out patiently amassing insights into essential non-economic parameters. The consequence of inadequate shopper perception is paradoxical: some companies are extra price-sensitive than their supposedly price-sensitive prospects. They supply low cost programmes which can be essentially misaligned with precise shopper wants.

The time has come for companies on the continent to evolve from pricing for survival to adopting insight-based pricing – a mannequin deeply aligned with Africa’s peculiar purchaser panorama.

Inspired by the urgency of this process, the authors of this text launched into an intensive insights journey to uncover the often-overlooked elements of purchaser value behaviour which can be important for crafting value fashions match for Africa. Our analysis instruments included a complete buyer survey of African consumers, a centered group dialogue with over 10 wholesalers, and in-depth interviews with greater than 65 retailers. The findings had been actually illuminating. African consumers, as our analysis reveals, often defy standard logic with regards to value behaviour. Businesses should grasp these nuances to bridge the hole between their pricing fashions and the purchasers they intention to serve.

If Saleh’s story resonates with you, listed below are 4 neglected concerns about purchaser pricing behaviour to combine into your insight-based pricing mannequin:

Buyer’s non-economic worth concerns: Beyond affordability

Affordability shouldn’t be all the time the first determinant of buyer response to costs and pricing modifications. Our survey revealed a placing counterpoint to the prevailing assumption of excessive value sensitivity:

Over 61 % of respondents have by no means used Buy Now Pay Later, with an extra 25 % having thought-about it however in the end not used it. Only about 13 % have utilised BNPL. This underscores a persistent and powerful cultural mindset round debt aversion and quick possession throughout African international locations like Kenya and Nigeria.

On a scale of 1 to 10 for value sensitivity, survey respondents scored a median of seven. While affordability was certainly probably the most important buy driver for 53 % of respondents, the aspirational worth of the model ranked an in depth second, at 45 %. Product reliability and sturdiness ranked third (35%), adopted by referral worth, with model picture rating final (5%).

Perhaps most surprisingly, 80.9 % of respondents deserted cheaper options and returned to pricier originals based mostly on components past mere affordability. Despite claiming to be price-sensitive, many customers select premium manufacturers to match their aspirational horizon. For instance, price-sensitive respondents purchased manufacturers like Gucci, YSL, iPhone, and Adidas to really feel “classy”. One defined, “I bought it regardless of the price because of its fit with who I aspire to become.”
To optimise your pricing mannequin, assume past your purchaser’s skill to afford your model.

Consider the next questions that African consumers usually implicitly ask:

Can I really feel important or empowered by shopping for this model?

Will this model carry out constantly, wherever I am going, and for so long as attainable?

Do my family and friends advocate it?

Building your mannequin round these further, non-economic concerns could make all of the distinction.

Buyers’ notion of value management: The haggling crucial

African consumers’ robust need to manage pricing conditions is a grossly neglected side of value modelling. On common, consumers in our pattern haggle as soon as each week.

Our analysis signifies that consumers in Africa really feel most answerable for value in open markets (57.4%), adopted by native kiosks and supermarkets (20.9%), e-commerce (17.6%), and social commerce platforms like WhatsApp (4.4%). Africans possess a deep-rooted negotiation tradition, which is vividly expressed of their largely casual markets. Yet, consumers’ emotions about value management are conspicuously absent from many current value fashions. The notion that e-commerce and social commerce platforms don’t permit value negotiation could partly clarify why prospects usually belief them lower than conventional open market shops. Incorporating the haggling urge for food of the goal buyer is a must have in pricing fashions throughout manufacturers and industries throughout the continent.

Buyers’ perceived place in your value phase: Challenging assumptions
Brands that value in another way by revenue segments (e.g., premium, mainstream, worth pricing) are inclined to assume that low-end prospects are inherently extra price-sensitive than high-end prospects. Our examine outcomes, nevertheless, reveal the other.

The upper-middle-income bracket (incomes $196–$326 per 30 days) was probably the most price-sensitive, whereas lower-income brackets (lower than $45 per 30 days) had been surprisingly much less price-sensitive. The findings confirmed that bottom-of-the-pyramid prospects prioritise shopping for from household, buddies, or trusted associates greater than securing the most effective cut price. In distinction, middle-income prospects usually function with extra fragile budgets and larger anxiousness about assembly a number of monetary obligations. If you’re constructing a pricing mannequin for a premium model, don’t merely assume prospects shall be insensitive to cost; as a substitute, perceive what “sensitivity” actually means to a premium buyer within the African context.

Buyer’s value context: Time, area, and sort matter

Brands should deeply perceive the particular context for which they’re pricing. Our examine revealed important pricing behaviour variations based mostly on area, purchaser kind, and time.

Regional nuances: South-Eastern consumers emerged as probably the most aspirational consumers in Nigeria, but they’re concurrently extraordinarily price-sensitive relating to digital manufacturers. South West prospects exhibit the best value negotiation charge and are the strongest sceptics about low-cost substitutes. Northern prospects, conversely, are extra relaxed about costs, primarily as a result of they place larger significance on trusting the acquisition location.
Buyer kind: The examine additionally discovered that business-to-business (B2B) prospects document larger value sensitivity than business-to-customer (B2C) consumers.

Temporal components: Purchase time is crucial. Buyers don’t view value the identical method when time-sensitive components are at play, akin to wage cycles, harvest seasons, main spiritual festivals (e.g., Ramadan, Christmas), and even faculty charge seasons.

One of probably the most shocking insights from this analysis, significantly relating to the BNPL schemes, is the persistent and powerful cultural mindset round debt aversion and quick possession throughout African international locations like Kenya and Nigeria. Instead of merely pushing the BNPL mannequin, companies in Africa can flip the script by initiating a “Plan Now, Buy Later” mannequin. This strategy permits prospects to pay upfront for services or products they plan to wish. This mannequin empowers customers with management, removes the stress of debt, and nonetheless helps deliberate buying behaviour. Region, timing, and purchaser kind are essential contextual concerns that may make value fashions extra versatile, adaptable, and personalised for African consumers.

Africa’s casual, aspirational, and trust-based market calls for a essentially completely different pricing mannequin to domesticate sustained buyer patronage and obtain market dominance.

Authors

Uchenna Uzo, Faculty and Academic Director, Africa Retail Academy, Lagos Business School

Mahmood Abdullahi Loke, Director, Accel360 Hub

Ephraim Nwokporo, Manager, Research and Partnerships, Africa Retail Academy, Lagos Business School