My colleague expressed shock at the price of packaged mushrooms in supermarkets in Eastlands compared to those in Westlands in Nairobi.
The price for the same product was almost double in Eastlands compared to Westlands.
She was surprised at the pricing logic, but this is just a poverty penalty. I explained that the rich always pay less than the poor in many circumstances.
Micro finance institutions charge higher interest rates for loans than mainstream banks while shylocks charge the highest.
The premium charged for access to quality goods and services to the bottom of the pyramid market is termed as the poverty penalty. So why are the poor paying more than the rich?
This is because of local monopolies, inadequate access, inadequate distribution and strong traditional intermediaries and these can push the price to as high as 25 times more than what the rich pay.
Many business people profiteering from this segment deny the fact that the poor are paying the poverty penalty as this will make them feel less socially responsible. However, it is just a reward for higher risks and involvement in the business while serving this low-end market.
Economic times are becoming harsher by day as the shilling weakens further against the major currencies.
One of the ways the consumers are coping in this harsh economy is by buying in small quantities. This denies them the opportunity to buy in bulk which is more economical and cheaper in the long-term.
Market analysts view this as an opportunity for investors to make profits.
Low-end market innovations and luxuries remain relevant at this times when many are lacking as research indicates that in recession, consumers are not keen to compromise on little luxuries, because they want to spoil themselves ‘a bit’ as they down their sorrows.
The time is now ripe for businesses to venture into the bottom of the pyramid markets; this would require some review of your current business model in order to serve the market sustainably.
East African Breweries demonstrated this by developing a totally different distribution channel for the Senator Keg brand targeted at the low-end market.
Investors can also repackage in smaller packets especially those that have established brands.
This will boost the kadogo economy (economy of small things) as the cost of living continues to rise.
With time even businesses that have avoided playing in this low-end market will have to devise ways of getting into this segment.
One interesting thing about this segment is that the consumers are highly brand conscious meaning that they are keen to get the best quality that money can buy.
There are other ways that consumers maybe responding to the economic times which you may not have noticed.
For example, women are said to adjust very quickly to changing economic times. Some economic researchers have linked the performance of the economy to the average length of the skirt.
Recession and long skirts
They observe that women’s dressing is highly linked to how they feel economically; if they feel challenged they dress more conservatively especially wearing longer dresses and skirts.
During good times, they dress more liberally expressing good economic feel with shorter dresses or skirts and more skin exposure.
By observing the average length of the skirt we can therefore tell when the economy is getting better or worse.
I once raised this issue in a research conference in Europe and one lady from UK argued that this may not be true as women dress according to the weather if it is cold they wear more.
I reminded her of some analysis from the New York Stock Exchange that discovered that the stock index tended to go higher on a sunny morning and drop on a chilly one.
So if you see the long skirts getting back into fashion get ready for bad economic times and when the miniskirts are all over the place an economic boom awaits.
The writer is the marketing director of SBO Research. E-mail: [email protected]