Finding the right pricing strategy in a price-sensitive market.

Leon gripped the plane ticket, excitement battling nerves. Leaving his Munich office behind, he embarks on a journey not just of miles but of mindset. His company, EcoRide, had sent him to build their topline in Africa. In this story's context, it means expanding their business into Africa to increase the company's revenue or sales. For EcoRide, building their topline meant successfully entering the African market and increasing sales of their electric scooters. This business is situated within the shared mobility industry.

Armed with several hours of presentations and powerpoints by their European consultant detailing indices like Market volume and value, Growth rate, Market Segmentation, Competitive Landscape, Competitive pricing, Barriers to entry, Industry profitability, Industry regulations, etc, Leon couldn't wait to get started. The first 180-day road map is to roll out in the top 20 African countries based on population and then repeat this in another 180 days to cover the 40 countries they hope to operate. As far as we can tell, Leon has a plan. He only needs to execute.

Being proactive, EcoRide's legal and compliance team has started license acquisitions in these 20 countries. At the same time, Leon and the human resources personnel finished the interview cycles with the locals and issued offer letters. Oliver will work with these employees to pilot the EcoRide application while they roll out in the coming weeks. His first port of call was Nigeria, Africa's most populous country.

Landing in bustling Lagos, Leon was met with a kaleidoscope of energy, resilience, and challenges. Potential users like Ayo, a roadside hawker, valued affordability and practicality. The operational license took longer to be acquired, yet the organisation had to pay the recruited employees their salaries regardless. User acquisition was below projection, and Leon was slowly beginning to feel the heat from bosses in Munich. Who knows, he thought to himself, Ethiopia might be better.

Leon boarded Ethiopian Airways from Lagos to Addis Ababa. Landing in Addis Abada, he found that individual experiences and local contexts within Nigeria and Ethiopia differed significantly. Personal experiences and regional contexts, even within a country, vary significantly to warrant a nuanced business model. Leon's initial strategy, a slight modification from their German operations, faltered. Leon realised that through a continent, Africa wasn't just a single market but comprised diverse and nuanced markets.

If EcoRide joined the Chapter54 program, had they sent a representative to the "How to Build Your Topline in Africa" held in Munich, they could have heard directly from different experts from top global companies succeeding in Africa on how they navigated the terrain, modifying and adjusting their strategies and sometimes totally changing their approach to meet the needs of local users, navigating relationships with stakeholder, building partnerships with local stakeholders, and navigating the unique challenges of the African business landscape.

Not to falter over initial but typical challenges, what are Leon's chances of succeeding in Africa? Follow me on this series of recaps of the second Chapter54 summit.

First, the basics.

In sub-Saharan Africa, only one-third of the population can access public transportation, contrasted with three-quarters of individuals having public transport availability in Europe and the United States. This is according to a report by Oliver Wyman titled How Shared Mobility Impacts The Global Urban Landscape. The shared mobility industry, encompassing services like ride-hailing, car-sharing, and electric-powered bikes and scooters, offers economic benefits, enhances the accessibility of transit systems, and contributes to emission reduction efforts. Ride-hailing is totally shaking things up in the shared mobility industry. Think Uber, Lyft and Bolt – they've made catching a ride as easy as tapping your phone screen. And it's not just a big city thing; this trend is also hitting it off in Africa, with local rideshare apps popping up. Uber, Bolt, LüLA, Treepz, and Moja Ride are some examples of ride-sharing applications in Africa.

Digital payment is gaining a foothold as most digitally enabled shared mobility services rely on some sort of digital payment. Beyond shared mobility services, the use of digital payment in Africa is surging. The commonality between both industries is that most services are transactional in nature- a ride transaction and a payment transaction. Where services are transaction-based, how do you define the right pricing strategy?

1. Follow the market.

The market that defines everything. The market is crucial in defining business strategies, impacting pricing and service delivery. Take Uber, for example, operating in the mobility sector. They face the challenge of balancing driver earnings and rider costs. This involves understanding what constitutes a fair income for drivers while ensuring riders find the service affordable enough to switch from their existing transportation options.

However, achieving this balance is not a one-size-fits-all approach. Market dynamics vary significantly across countries and even within regions. Economic conditions, fuel costs, taxes, and vehicle availability differ significantly between Ghana, Tanzania, and Cote d'Ivoire. The stark contrast between rural and urban areas within a single country necessitates further consideration. By understanding these diverse market nuances at a broader national and regional level, companies can effectively position themselves and tailor their strategies for success.

A critical challenge the mobility business faces is ensuring widespread vehicle accessibility. A strategic partnership was forged with a leading African vehicle financing company to close the gap. This collaboration, driven by the company's successful track record within the continent, has expanded beyond Africa's borders, creating a more inclusive landscape for mobility services.

It's really the market that defines everything.

"Marjorie Saint-Lot, Uber Head of Cote d'Ivoire, Ghana & Uganda, Tanzania, Pakistan"

Knowledge transfer from an international company to a local subsidiary in any African country is crucial for establishing operations. However, it is essential to understand that this knowledge must be iterated and adapted to be relevant in Africa's specific country of operation.

A prime example of this adaptation can be seen in the development of a mobility product for a specific market. The business recognised the need to adopt an incredibly low-cost servicing approach. The level of service provided was bare, with cash being the sole accepted payment method. The vehicles lacked amenities like air conditioning, and the drivers dressed casually, even wearing slippers. Surprisingly, despite these simple features, this product experienced rapid scaling and became one of the company's fastest-growing offerings. This success highlights the importance of understanding the market and knowing when to prioritise simplicity over extravagance.

Point-of-Sale (POS) deployment

Another example relates to revenue generation within the sales model. In the case of a point-of-sale (POS) deployment business in Saudi Arabia, the model revolves around salespeople creating leads, followed by field support engineers deploying and maintaining the terminals. This model works well in Saudi Arabia, where the average ticket size is higher, allowing for the expenses associated with sales and technical personnel. However, the same model is not feasible in Egypt due to lower average ticket sizes. In Egypt, the business model relies on a larger number of sales forces operating on the ground, serving specific regions on foot. These sales forces handle everything from sales to installation and maintenance, adapting to the market conditions of Egypt.

2. Market Segmentation

For a transaction-based business, it is essential to be deliberate about market segmentation. Pinpointing your target segment is crucial for maximising volume at an optimal price point. Serving small and medium-sized enterprises (SMEs) requires a pricing strategy different from that of large enterprises. While targeting large businesses might offer the benefit of increased volume, it often comes at the expense of compromising your pricing model due to the intense competition among payment providers vying for their business. Additionally, remember that the perceived value of your product significantly influences the price customers are willing to pay.

Identifying the segment that will bring the maximum volume at the most relevant price is essential.

"Ahmed Nader, Country General Manager at Geidea Solutions"

3. Track churn

Closely monitoring activity levels is vital for SME customers to prevent unexpected customer churn. This means identifying customers who are using your service less frequently. When you encounter low activity, implementing a strategic pricing approach becomes crucial. Consider offering minimum payment options and consumption-based models, ensuring you generate a sustainable revenue stream that justifies the investment. Additionally, exploring the development of churn prediction models can be highly beneficial. These models can trigger alerts when customers exhibit behaviour indicative of churn. This early warning system empowers your sales or relationship teams to proactively engage with at-risk customers through targeted incentives like cashback rewards or a simpler flat subscription plan. By taking these steps, SMEs can effectively address churn and retain valuable customers.

4. Diversify your portfolio to manage your risk.

Diversify your business by adding an additional line of business to manage your risk effectively. Expanding your offerings reduces reliance on a single product or service and decreases vulnerability to market fluctuations. For example, the merchant acquiring POS business added additional line-sell POS terminals and back-end services to the banks in Egypt. That saved the company as it generated and guaranteed a proper cash flow to spend on the main business. This strategy helped to mitigate potential losses from a downturn in merchant acquiring services.

The role of pricing in stickiness- Daily or weekly subscription

When a product or service is priced at a level that customers perceive as fair and aligned with its value, they are likelier to stick with it over time. For example, a subscription in a European context is an excellent way to get stickiness. The subscription model ensures a recurring income for the business. In Africa, it might not exactly work the same way because for an "average African"1 their vision in time doesn't go beyond the day or the week. So, on most occasions, the notion of having a monthly subscription regardless of where you lay the price, from a usage perspective, might present a weak value proposition.

The telcos, for example, are working around this reality by having daily or weekly subscriptions for calls and data. Content providers like Netflix, Prime, etc., have yet to adopt this. This could be the beginning and the premises of the subscription model in Africa. We will see it evolving over the next few years, but probably with prepayments because Africa is a prepayment market. Users can't commit to how they're spending for a very long time because of a lot of uncertainty. Most of the population is employed in the informal economy without guaranteed monthly income. So, the earning psychology plays out in spending psychology as well.

Digital Payment for Digital Service Providers

Driving stickiness could be easy and straightforward payments for digital mobility companies or most digital service companies. How does the company get its commission, collect user money, and pay drivers for their earnings? This is key because cash payment is integrated into most mobility tech business payment collection systems.

Driving loyalty and stickiness on both sides of the marketplace.

1. Aggregation.

For the B2B model, aggregation and bundling can drive stickiness. Here, you are always looking at the customer of your customer and what their needs are. The outcome could be aggregating as many services as possible on the merchants' checkout, online or offline, so their customers could have various services. That creates stickiness because, for the merchant, the more aggregated service the customers need, the more they depend on their solution. For example, the Point of Sales merchant services company did not stop with just payment. Its vision was payment plus. The company aggregated all the buy now, pay later options in the market so that more customers can check out. It also bundled a system for lending providers to be onboarded on their service. These create stimuli that make the next competitor unattractive.

2. Bundling.

The POS merchant services business leveraged the growing competition through bundling by vertically integrating into various market segments such as hospitality, education, and IP acquisition. Specifically, in the restaurant segment of the hospitality industry, they developed a comprehensive solution that covers everything from order management to kitchen operations to payment processing, all seamlessly integrated into unified dashboards. This bundled offering is complicated for competitors to surpass, as it provides a holistic and efficient solution that addresses multiple pain points for businesses in the industry.

Navigating Complex Relationships with Policymakers

Effectively managing the relationship with policymakers is crucial for mobility businesses, as they significantly influence pricing dynamics. A prime example of this can be seen in Tanzania, where service fee caps have been implemented. In the mobility sector, regulators continuously experiment with different pricing structures and schemes due to the traditional nature of vehicle transportation in the transportation sector. Due to security reasons, there could be regulatory pushbacks for rideshare due to passenger safety and fair pricing. These highlight the importance of staying abreast of policy changes and actively engaging with policymakers to ensure a favourable pricing environment that aligns with the needs of the mobility business. By navigating this complex relationship, companies can adapt their pricing strategies accordingly and maintain a competitive edge in the market.

Customer Discount Behaviour

Customer psychology plays a significant role in discount behaviour, influencing how they perceive and react to different offers. Personal Financial Situations come into play as budget-conscious customers are attracted to discounts. Also, various cultures have varying attitudes towards discounts. Some cultures view them as opportunities for shrewd bargaining (and would not buy if no discount is applied), others as signs of desperation, and others as the standard price point for the product or services going forward, as is the case in some African countries.

So, the business has to figure out how each country or region within a country perceives discounts and threads them delicately and build that into your business model. For example, a discount is perceived as the standard price point in Egypt. Once offered, raising the price to the standard pricing is extremely difficult. So, it is advisable to provide timely promotions. Even when customers request discounts, periodic promotions such as cashback tied to a specified volume can do the magic. This is because the perception is that a promo ends at that point, but a discount becomes the acceptable price point.

Maximising Market Potential with Limited Resources: Optimise

Your Acquisition Strategy.

Optimising your acquisition cost is crucial in a market where resources are limited. One practical approach is to leverage referrals and word-of-mouth marketing, particularly by tying them to referral programs. This strategy can yield excellent results for companies seeking to expand their customer base. Businesses often deploy download campaigns through various channels, such as brand ambassadors and strategic partnerships, to further enhance acquisition efforts. Collaborating with telcos, banks, airlines, OEMs, and home builders can be particularly beneficial in reaching a wider audience and driving growth.

Operating in a lean and efficient manner is critical. By keeping staffing levels minimal and utilising third-party services, businesses can achieve organic growth at a realistic price point. This approach allows for resource optimisation and ensures that investments are directed towards areas that drive growth.

From the user's perspective, brand perception plays a significant role. Building a strong and positive brand image can significantly influence customer acquisition. By delivering value, providing excellent customer experiences, and consistently meeting expectations, businesses can enhance their brand perception and attract more customers.

Wrapping Up

Lower development levels across Africa present unique opportunities compared to established markets. New businesses can fill the gap in digital payments and shared mobility solutions rather than compete with existing players.

Addressing mobility accessibility challenges in Africa remains crucial. Partnerships forged with a leading African vehicle financing company demonstrate how collaboration can bridge the gap and create a more inclusive environment for various services.

The ongoing shift towards a cashless society in Egypt, driven by central bank regulations, opens a 'green field' for businesses. This could translate to a significant 10-20% annual cash conversion to digital payments, creating a promising space for all involved.

In conclusion, Africa offers a crude environment to both indigenous and foreign businesses. The vast growth potential and the significant untapped market create a compelling opportunity for those prepared to embrace it. With a significant portion of the population yet to adopt digital payment solutions and deficient access to public transport,?there is ample potential for growth and success in this evolving market.

Note:

Average African is used with caution because generalising an entire continent with over 50 nations and diverse economic realities can be misleading and inaccurate due to the wide range of GDP per capita, significant income disparities even within each country (urban vs rural dwellers) and currency fluctuation due to exchange rates impacting on the value of GDP per capital calculation. However, 2022 GDP per capita of 30 out of 54 African countries in 2022 is below $US4,000.

***About the authour_Based in Hong Kong and the United Kingdom, Ifunanya built her career in Nigeria across retail, commercial, and corporate banking.?More recently, her experience includes being a pioneer employee in Africa's fintech sector and working in Hong Kong’s fintech scene. She is currently undertaking a Master's degree in Finance (Analytics and Fintech) at Hong Kong Baptist University. She hopes to leverage my understanding of technology-enabled financial solutions, customer-centric approaches, and innovation in financial services to work in sectors that focus on Digital Financial Services. If you've enjoyed this piece, don't hesitate to like it, leave a comment, and share the article with others.