Why it’s Hard to be a Category Creator in Africa
It’s all clear by now how Africa remains an enormously fertile ground for tech entrepreneurs, global tech giants and venture capitalists looking to tap into the growing and developing economies. There is a significant rise in internet penetration, a youthful and vibrant workforce, and the tremendous opportunities for digital innovators to utilize emerging technologies to improve access to education, health care, financial services, and energy. All these come with a need to understand the proper way of entering the frontier and emerging markets in Africa. In this article, I’ll be highlighting some challenges to expect when using Category Creation as a growth or entry strategy.
There are so many approaches an organization or an entrepreneur can take when entering a market : from Mergers and acquisition, hostile takeovers, disrupting the current market and the famous approach called category creation. As mentioned above, we’ll be looking at the challenges experienced by category creators in African markets and determining why being a tech disruptor is fundamentally better compared to creating a whole new category.
Here are the factors I believe make category creation extremely difficult in African markets:
There are so many barriers to entry in African markets. One of them is policies that do not support innovation and startups. Public policy has an ultimate goal of improving social welfare. Authorities aim at contributing to that objective by targeting intermediate goals such as economic efficiency, financial stability, market integrity or consumer protection.
Policies aiming at ensuring a level playing field among all participants in a particular market constitute one of the instruments available to achieve the competitive markets objective. Yet specific policy instruments aimed at meeting intermediate policy objectives have unintended effects on others. In the field of financial regulation, social objectives such as financial stability, market integrity or consumer protection take precedence over favoring competition in financial services markets.
Complex and Inconsistent Regulations
One of the challenges faced by category creators when entering any African markets is the lack of a balanced regulatory framework. How do you bring innovation into a country with regulations that are not advanced enough to license your operations? This is what we are currently witnessing in a lot of countries in Africa. The question we need to answer now is how do we achieve a level playing field without hindering new businesses and startups from entering our markets. Not all companies competing in a particular market segment should necessarily be subject to the same rules. Differences in regulatory requirements should, however, be justified on the basis of higher priority policy objectives. Provided these higher-priority policy objectives are achieved, regulation should aim to minimize gaps in the regulatory burdens faced by different players.
Lack of Tech Knowledge
One of the most powerful strategies used to increase the adoption of tech innovations in Africa is product education. Product education is all about educating users about the uses and benefits of a product and how to engage with the product to meet their needs. As a product marketer positioning and scaling tech products in different markets in Africa, one of the challenges category creators are bound to face is a customer base of individuals who aren’t exposed to tech. The Google Next Billion Users team calls them Novice Internet Users (NIUs) — These are individuals who are currently experiencing low digital confidence usually brought on by low digital literacy. They are often mobile-only or mobile-first internet users. This is because of the lack of digital and technology education which is one of the reasons why the African continent is lagging behind when it comes to product adoption and tech advancements. Educating Novice Internet Users in order to prevent misconceptions and empowering them to engage more with tech devices will significantly grow the numbers of technology users in Sub — Saharan Africa making category creation easy.
The face of the internet is evolving, influenced more than ever by those coming online for the first time — Google Next Billion User Website
Many smallholder farmers living in the hinterlands mostly speak their native dialects; this poses a challenge to agri-tech instructors or trainers who often have training manuals and product manuals written in official languages — most times, English language. This is where localization of training manuals, apps and platforms is very important.
With this fact being acknowledged, now it becomes the responsibility of the category creator to not only raise awareness about the industry they are creating and the problem they’re solving, but also educate the target customer segment on how their products work. Educating and sensitizing a product within the market, establishing offline customer touch-points and subsidizing products in order to attract reluctant adopters is expensive. That’s why disrupting an industry that has already been formed makes things easier for tech disruptors compared to those who opt to create categories. Not to say that tech disruptors don’t need to educate their users, the difference is in the varying degree of education that has to take place with category creators having to invest significantly more than the tech disruptors.
Technological and infrastructure challenges
Africa, enabled by rapid technological change and demographic shifts, is primed for a major socioeconomic and structural revolution. Technological efficiency is relatively low, with little sign of technological dynamism or innovation which has been caused by technological and infrastructure challenges. Tech startups face challenges in rolling out their products and services in new markets due to technological and infrastructure challenges. Despite recent growth in internet connectivity, internet penetration is slow on the continent. As of December 2020, internet penetration was at 43 percent, meaning about six out of 10 Africans were not using the web. In Nigeria, data-driven agri-tech platforms like Farmz2u tackle the challenge of poor internet connection and penetration. As a web-based platform, poor internet gets in the way of their service. The digital adoption lag in Africa makes it more difficult for start-ups such as Farmz2u to reduce the cost of serving additional customers as they expand. For African start-ups, growth is often hindered by operational friction and sometimes the ability to fully leverage on the efficiencies of technology.
According to the African Development Bank (AFDB), 640 million Africans have no access to energy, corresponding to an electricity access rate of just over 40 percent, the lowest in the world.
Besides the reality of low internet and smartphone penetration, African start-ups have to be sensitive to the cost of data when building a consumer facing product. Users are concerned that apps consume data, and money from their pocket even if it is working in background mode. Additionally, many users encounter issues regarding limited storage capacity, especially since most people use low-cost mobile devices. These are things that have to be factored in during a product’s narrative design.
Resistance to Change
Africans tend to adopt technology in a somewhat untrustworthy manner and it’s about time people stopped being lackluster consumers of technology. But we can’t blame people because every consumer behaviour is influenced by a set of underlying factors and circumstances.
There are no African start-ups exempted from this behavioral resistance. There is pressure to ensure that interaction with a tech product leads to trust, especially on the first try. This can be facilitated by having offline touch-points such as agents or providing additional support during the on-boarding process. Nevertheless, digital on-boarding remains a priority as offline channels are difficult to track and scale. In this case, explicit economic incentives have the potential to drive digital adoption (e.g. promotions, raffles or cashback offers). Messaging around cost-saving and value-add can be crucial when trying to penetrate price-sensitive markets across the continent.
It goes without saying that positioning a startup in any African market is hard. Creating a category becomes even harder compared to disrupting an existing category because of the factors highlighted above. Market uncertainty despite growth potential is one of the main barriers to entry facing a lot of companies looking to enter markets in Sub-Saharan Africa. But understanding that Africa is the next digital growth frontier should motivate your team to figure out ways of entering new markets despite the challenges highlighted above through careful planning and market research.
PS: Definition of Terms
Technology Disruptor: An organization/Startup introducing technology that supersedes an older process, product, or habit. Inventing an entirely new way of getting something done in a market that already exists.
Category Creation: is a business strategy that focuses on positioning and evangelizing a brand new problem observed in the marketplace, in addition to the solution for that very problem. The output is an entirely new industry of products and services — distinct and differentiated from anything that had ever come before.
Narrative Design: This is a communication vehicle that helps companies deliver their story to an audience
Positioning: This is simply about your ownable market position. Your positioning answers the questions ‘how are you unique?’ and ‘how do you want to be perceived in the market?’
Africa: A continent made up of 54 different countries with people from different cultures, tribes, belief systems and values.