PRICE WARS, CONSUMERS AND THE RETAIL MARKET IN NIGERIA – BY ISAAC OLUWASEUN

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“Nowadays people know the price of everything, but the value of nothing.”

-Oscar Wilde

The past few weeks have been quite interesting on the Nigerian Retail Market, as the ongoing price war between Uber and Taxify continues and, more recently, Coca-Cola & Pepsi have joined the fray. The Oscar Wilde quote above could easily describe the situation, not as it relates to the brands mentioned only, but also to most or all other brands and firms involved in price wars across various consumer and market segments, sectors and industries in Nigeria.

Retailers, who constantly beat down prices to compete, may bring more traffic to their stores, but does this really bring any long-term value to their year-end financial reports? Or, perhaps, are they discounting themselves into oblivion?

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Let us begin with Uber and Taxify, the most-widely used taxi hailing applications in Nigeria (at least, for the time being). Most of us had thought Taxify was a flash in the pan when it started, “Give Taxify six weeks to fizzle out”, the critics said, but alas, some ten months later, the Taxify brand is still here, with driver partners receiving the higher payout than Uber’s. Uber still has the first mover advantage, though and has reached the stage where it has become a synonym for ‘cab’ or ‘take a cab’. Do not be surprised if a Nigerian says “I’ll Uber there”, or (the strange-sounding present continuous) “I’m Ubering to work today” or (its ridiculous past tense), “I Ubered to church on Sunday”. Now, this is the height of good branding and a first-entrant advantage. I shall discuss such topics in detail in subsequent posts, though.

Arch-rivals Pepsi and Coca Cola

Now, let’s get back to Coke and Pepsi. Coca-Cola introduced a 35cl bottle (aka ‘Solo’) into the market at ₦100 as a compensation of sorts to consumers, while it also increased the 50cl to 60cl (aka ‘Bigger Boy’) at a Recommended Retail Price (RRP) of ₦150. Pepsi retaliated, by selling its 50cl at ₦100, even though all sellers I have come across sell it at ₦120. Question: does this mean Pepsi supplies the trade channels at ₦100, but would rather remain dodgy on the real RRP for its product? There has been a lot of hype and publicity on this price reduction which begs the question. Does the average Nigerian consumer care more for quantity rather than quality (of the brand) or affinity and loyalty to the brand?

Is this price reduction and increase in the quantity of ‘sugared water’ enough to sway the market in Pepsi’s favor? Will the Coca-Cola faithful ditch his/her favorite brand, because a substitute is offered at a lower price and greater quantity? Personally, I doubt this assumption, but time and sales figures will tell.

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Who wins?

That is the the big question. Who really wins at the end? The short term winners of a price war are usually the consumers  -if the companies keep their promises. However, consumers could also be the long term losers. If these brands realized the paradox of their Prisoner Dilemma, they would decide to come to a truce and, then, both could increase prices.

Eventually, companies will always do what’s best for the business and that may not include price slashes which cut into their revenues or increase their costs. There also exists the possibility of compromising the quality of ingredients used to manufacture the product, all in a bid to reduce production cost and maintain the same or sell at a higher profit margin.

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Another very interesting occurrence has been the repackaging of almost every retail product into smaller (economy) packs. Have you noticed how, when you are in a retail store, everyday consumer items like milk, cereal, sugar, teabags, cooking ingredients have smaller (economy) sizes which sell at less than ₦100? I consider this a smart move, because these firms know that, in most cases, earning power has generally dwindled and even if it remained same, the purchasing power of the Naira has reduced and, so, they just have to rise up smartly to the situation by producing more affordable sizes of their products.

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Which is better? A consumer buys a carton of an item at ₦1000, twice per month. Another consumer buys smaller units (economy packs) of same item at ₦80 every day.

It works both ways, as the consumer does not feel like he is saving less money and the company becomes more profitable.

I daresay we might soon have Coke and Pepsi in ₦50 Tetrapaks, targeted at kids. Bama and Jago (mayonnaise brands) might soon come in small sachets like BlueBand margarine does.

Heinz and other manufacturers of ketchup might also follow suit, almost immediately, by aggressively marketing their already existing sachet packages.

I am getting quite hungry as I type the last few words here and I have just ₦200 left on me. Hmmm… can I afford to get myself some breakfast in present-day Nigeria, with this amount?

Let’s find out together.

I Walk up to an ‘aboki’:

Nasco Cornflakes (economy pack) – ₦80

Sachet Milk- ₦50

Sugar- ₦20

2 Sachets of Water – ₦20

Total – ₦170

Breakfast is served at less than ₦200.

Life is Good.

 

Source: Outrepreneurs‘,  Isaac Oluwaseun

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