Analysis: ‘satchetisation’ in Africa’s largest economy | Poverty and development

Abuja, Nigeria – In February 2019, Eat’n’Go, the Nigerian franchise of popular pizza maker Domino’s, launched its familiar miniature pizza box for 550 naira ($1.50).

This new version is much smaller in size than a medium-sized pizza, and at a price of N3,900 ($9), it’s designed to be affordable for everyone.

Chief executive Patrick Michael told Al Jazeera it was a necessary decision given the unstable economy at the time.

“The Nigerian market is diversified and the profit potential remains high,” he said. “However, we cannot ignore economic instability [which] purchasing power to some extent. In this case, it is necessary for industry players like us to mitigate the impact of this situation on customers. “

Two years ago, StarTimes, a Chinese satellite TV provider with a strong presence in Nigeria, added daily and weekly subscriptions – with fewer channels – to its existing monthly options for 60 naira (15 cents) respectively and 300 naira (72 cents).

Africa’s largest economy, Nigeria, has slid into recession twice since 2015, during which the naira has plunged against the dollar, losing 70% of its value. This has put the economy in a bottleneck. But things could get worse in the coming days.

According to a recent World Bank Report [PDF], by 2022, the number of poor people in the country is expected to reach 95.1 million, accounting for more than 40% of the total population. Commodity prices are rising due to the fallout from Russia’s invasion of Ukraine, even as the adverse economic effects of the COVID-19 pandemic persist.

The National Bureau of Statistics (NBS) 2022 report shows that Nigeria’s annual inflation accelerated for the third consecutive month to 16.82% in April 2022 from 15.92% in March. It was the biggest increase in inflation since August 2021 and came on the heels of a surge in global commodity prices.

For Nigerians, the end result is a huge drain on their purchasing power, ultimately leading to less money in their accounts.

In fact, as of December 2021, there were 133.5 million active bank accounts in the country, 99% of which had balances of less than 500,000 naira ($1,200). Nigeria Deposit Insurance Corporation.

Response to market realities

In response to this reality, businesses like Eat’n’Go are turning to sachet marketing as a strategy to stay in business.

Rodolfo P. Ang and Joseph A. Sy-Changco, scholars at Ateneo de Manila University, Philippines Sachet Marketing As “an effort to increase product market penetration by offering products in smaller, more affordable packages…a vehicle for accessing markets at the bottom of the economic pyramid.”

Colloquially known as “Sacheting”, it has been around for decades in Nigeria and is Popular in other emerging markets such as Philippines and India.

Fast-moving consumer goods companies (FMCGs) use it for items such as “purified water”, milk powder and instant bread. This enables the companies to cater to up to 80% of the market, Nigerian economist Shakirudeen Taiwo told Al Jazeera.

But in recent years, brands have stepped up their strategy as new economic realities set in. These products are now sold in smaller pouches or small nylon bags.

“According to the last count, we have more than 75% of Nigerian households living on less than $3-5 a day, which is a huge number,” Taiwo said. “So companies are starting to model their products to fit this income segment, since they make up the majority of the population.”

Doing so helps businesses reach more customers and maximize profits because they can sell more products at higher prices. But more importantly for buyers, it cushions the effects of inflation, even if they have to sacrifice quantity and, in some cases, quality.

How sachet marketing works in Nigeria’s tech industry

This trend is also manifesting in Nigeria’s tech industry, and has influenced the way more startups think about product pricing.

The industry may still be in its infancy, but it is highly regarded worldwide. About 60% ($1.7 billion) of total funding ($2.9 billion) raised by African tech startups in 2021 went to nigeria alone.

But even giants succumb to market forces.

Many tech companies appeal to young Nigerians because they ease the bureaucratic and expensive process of investing, saving, buying insurance and getting loans by introducing things like lower fees and cheaper payment plans.

Yanmo Omorogbe, co-founder and COO of investment platform Bamboo, says companies like hers have to consider market realities to achieve product-market fit. Bamboo leverages its US broker-dealer partnership to allow Nigerians to participate in the US stock market for as little as $10.

“here [in Nigeria]most people are trying to get out of the trap of the poverty line,” Omoro Bay told Al Jazeera. “A small segment of the middle class is pulled in a different direction, and then you have a small segment of high net worth individuals.

“Your strategy needs to account for differences, but the core product should work for everyone,” she said. “For us, that means adding some features, like allowing people to invest with what they have, while lowering the minimum so you can reach more people.”

Lagos-based investor and financial analyst Eke Urum agrees, calling the strategy “a response to bad reality” as “there is less and less demand for purchasing power support”.

Rise, a fintech startup he runs, allows Nigerians to make dollar investments in U.S. real estate and stock markets for as little as $1.

In Nigeria, where insurance penetration is below 2%, startup Reliance Health has created a system where people can get health insurance without being formally employed. It offers plans ranging from 3,500 naira ($7) to 148,500 naira ($297), allowing users to pay monthly, quarterly or annually.

Solution or problem?

The Nigerian government seemed to understand this when it launched a small pension scheme in 2019.

It expanded the country’s contributory pension scheme, allowing individuals in informal and semi-formal industries to create accounts without a scheme sponsor (usually their employer) and save small amounts of money over a long period of time.

Although the program has not yet fully caught on many reasons, It explains market conditions and how institutions operating here are adapting.

But experts and industry stakeholders say satchetisation is both an innovative solution and evidence of a massive problem.

“[It] Can be a form of democratization, where companies want to bring products to those who can’t afford them,” said Bamboo’s Omorogbe. “But the second point is that poverty is growing rapidly and most people in the economy can’t afford it. [a] products or services, and moving further and further away from offering them. “

As inflation rises and purchasing power declines, more companies in all sectors of the economy may turn to small bags, even service providers that previously only served the upper and middle classes.

“A visit to the mall will tell you that the pouch concept is getting more and more popular,” Taihe said. “We may also start to see it in terms of services. Companies that offer comprehensive services may start offering specific services at lower prices [to] Ensuring affordability and business survival. “