Why firms need great strategy to mine EA’s small niche markets

Global product manufacturer Procter and Gamble (P&G) last week launched a new detergent called Ariel Washing Machine Powder targeting the over 200,000 Kenyans who own a washing machine; a relatively small consumer base but one that is growing rapidly and is able to buy top-end products.

In December 2016, the Institute of Economic Affairs reported a sharp rise in middle class employees. They rose from 166,515 people in 2009 to 272,569 in 2015, presenting an early-stage market for consumer goods and luxury products.

“The Ariel Washing Machine Powder targets the burgeoning middle class in Kenya with disposable income and appetite for quality products and services. At least 200,000 families use washing machines to launder their clothes, but most of them do not get value for their money due to the use of the wrong washing powder,” said Gala Francisco, Ariel Brand Manager.

“Regular hand wash detergent is less effective in washing machines because it produces too much foam, which may delay the washing cycle, reduce cleaning effectiveness and prevent proper rinsing. The product therefore comes into the market to save them from this agony.”

As the P&G launch demonstrates, the growing middle class in Kenya has become an attractive market for international companies seeking to expand their business or introduce new products.

Yet, in comparison with other markets, the consumer base remains small presenting a marketing hurdle to companies as they seek marketplace critical mass.

Currently, only 0.43 per cent of Kenyans own a washing machine, meaning P&G will be forced to adopt a niche marketing strategy such as directly engaging with consumers and offering product demonstrations in order to reach its small target market and influence purchasing.

This contrasts with a market such as the UK, where 97 per cent of households own a washing machine, meaning detergent companies can use mass advertising such as television ads, because its target market is not limited to a particular demographic.

“In such a small and highly targeted market, usually there exists little or no competition and prices of products are high. However, due to few potential customers it makes it difficult for a company to enjoy a larger profit margin,” said Bruce Gumo, an analyst at BizTrace, a marketing solutions agency.

“Plus, there is also limited growth because there is a small group of customers to buy products where businesses in most cases have to rely on selling large quantities of products in order to attain critical mass.”

According to a research paper on strategic management and critical mass, economists John McGee and Prof Tanya Sammut-Bonnici found that attaining critical mass — the point at which the rate of change of demand or the gradient of the demand curve changes in magnitude and direction leading to an exponential increase in the purchase of a product — is important for increased sales and profit.

“Before the critical mass point is reached, the product is hardly known by consumers or considered feasible and its purchase rates are gradual,” reads the report.

For high end products targeting East Africa’s emerging middle class market, its relatively small size makes such critical mass vital, with the market still insufficient to support multiple minor suppliers in a volume that is viable.

Thus, there is a need for such entrants to reach critical mass by embracing the appropriate marketing strategy, just as luxury British manufacturer Bentley has done by avoiding traditional advertising and employing one-on-one showings to reach its prospective buyers.

- African Laughter