Apr 5 2012
Challenges to Increased Consumer Spending
In spite of the substantial growth prospects for consumer spending, key challenges remain, with regard to market structure, distribution channels, and level of skills.
Market structure: Africa’s consumer market is heterogeneous and highly segmented. Due to different income levels between countries and within countries, and due to cultural, geographical, and language differences, the behavior and spending power of African consumers vary widely. Foreign companies and retailers wishing to penetrate the African market will therefore need to take into account these differences in developing their products and marketing strategies to suit the needs of particular segments of the market. Tailoring products to customers’ needs and decreasing costs in order to compete with local companies, are among the alternatives that larger foreign companies can use to overcome this challenge.
Distribution channels: Companies must also confront the challenges of poor distribution channels and underdeveloped transportation and other infrastructure services in order to gain access to customer markets. Strong sales networks, including direct-distribution and wholesale, would need to be developed in order to penetrate consumer markets and gain market share.
Level of skills:
Recruiting well-trained employees with experience in marketing is another key challenge facing retailers. The current dearth of skills across Africa is worrisome, and reversing this trend may require massive investments in training, especially in business related skills. In order to achieve long-term success and viability, companies may therefore need to initially rely on international staff whilst investing in training of local agents to build capacity, mainly through apprenticeship programs.
Overcoming these challenges will be costly, but over the long-term the benefits will likely outweigh these costs. From a policy perspective, the authorities will need to devise better policy instruments to better deal with the potential impact of inflationary pressures that may be fuelled by a rise in excess consumer demand.
Written by Blondel Nyamkure Ph.D