Brands take on used goods with cheap, quality products

French carmaker Renault has launched a cheap car model, the Renault KWID, selling for Sh1.2 million, in a bid to combat the demand for second hand vehicles, which currently dominate Africa’s car retail market.

“The entry of the Renault KWID into the market is set to transform the segment and offer customers a brand new car with unprecedented features for its segment at an affordable price,” said Paul Chaggar, chief commercial officer of Simba Corporation, Renault’s official distributor in Kenya.

Currently, in Kenya, Ethiopia and Nigeria, eight out of 10 imported vehicles are used, according to research by Deloitte.

But the introduction of a cheaper car brand by Renault poses a new competitive threat to the second hand vehicle market as consumers could opt to shift to the “better” and affordable product.

“The latest product offerings by brands are viewed as the most up-to-date and technologically advanced,” said Cedric Nzomo, the digital director at Verge Digital.

“The qualm is normally the price point which determines whether or not the consumer is getting real value, but overall, consumers consider new to be better because quality is always king.”

He cited the example of the smartphone market that has been revolutionised with the entry of quality low cost handsets by Chinese brands. One of the markets that felt the effect was India’s second hand phone market.

A 2011 article titled, ‘The story of India’s Rs 60,000 cr second-hand market, minus cars and bikes’ in the Economic Times, reported that the demand for second hand durable consumer items declined due to cheaper products from China with sellers saying they had experienced around a 70 per cent fall in sales.

“Although the demand for pre-owned smart hones, tablets and other high-end handsets remain robust, buyers looking for cheap ranged phones go for Chinese products. Why would anyone want to buy an old high-end phone, if a brand new Chinese phone exists?” the article posed.

Consumers’ decision in purchasing cheap new products rather than second hand ones also relies on the expectations they have for the new product.

According to research by the University of York on people’s reactions to new technology, people like new things because they can create a placebo effect for an experience that is more fun and immersive.

The mere expectation of a difference can be sufficient to change one’s experience, even if the new product is not different from the older version.

“The expectation is that something new must be better than the thing before,” psychologist Walter Boot of Florida State University said in an interview with New Scientist in regards to the research. “Maybe that is why people buy a new smartphone every few years.”

However, as much as consumers prefer new products to second hand products, there exists a chance of failure for a brand if it fails to meet consumers’ expectations.

“The strategy of introducing a new quality cheap product in a market in a bid to lure consumers from second hand products, can fail due to two main reasons: price and value,” said Mr Nzomo.

“A smartphone manufacturer can decide to go lower on cost without devaluing their brand. There are handsets with similar specifications and “smaller” brands are always cheaper.

“But for cars — and any other long-term investment — it boils down to value. A cheap car that is poorly built, regardless of novelty, will not sell well, especially if the brand is affiliated with quality. Poor quality negatively impacts the brand and dilutes brand equity.”

- African Laughter