Race for the bottom as brands embrace ‘kadogo’ economy

Kenya is experiencing a race for the bottom as brands discover the lucrativeness of the mass market.

From brands in fast moving consumer goods (FMCGs) category such as Unilever’s Blue Band margarine and Omo to the aviation players such as Kenya Airways’ JamboJet, the allure of the ‘kadogo’ economy has been irresistible.

Today, a visit to any supermarket or kiosks, will be met by products that sell as little as Sh5 and Sh10. They include Royco, coffee sachets, steelwool , salt, Omo among others.

One brand that has set an enduring example of ‘kadogo’ economy is Safaricom . The telco perfected this art by swiftly moving from billing callers per minute to per second.

It was a watershed moment that not only revolutionised the telecommunication industry, but which also saw Safaricom cement its place as the most profitable player in the sector.

Before its competitors realised the game, Safaricom quickly came up with such products such as Bamba 20 and Bamba 10 and five, which were very popular with low-income earners who could not only call per second, but could easily acquire the product.

Airtel Kenya, then Kencell, remained for a while stuck with its billing per minute, somehow still believing that only the high-income people were in need of telecommunications services. Realising its folly, Airtel, would later on follow suit, billing its customers per second as well.

Titanic battle

But Airtel’s reluctance to jump into the ‘kadogo’ economy continued even after suffering this setback in their titanic battle with Safaricom.

It was a few months after they had launched their Unliminet product which sought to amalgamate data, calls and SMS into a single product that they realised that they had not served the low-end customers.

That is when they came up with Unliminet 20. Still in the telecommunications industry, Zuku is another brand that has revolutionised internet access by connecting people to Wireless internet at a cheaper cost of as little as Sh1,000 a month.

This is affordable to most households who had come to appreciate the importance of internet, but could not afford it. Never mind that the speed is only 1 Mbps, most people simply want to have access to the internet.

Orange has Holla bundles that allow one to make calls, SMS and use the internet at affordable prices ranging from Sh9 to Sh49. Just as Safaricom in telecommunication, Equity Bank disrupted the banking sector with micro-credit. Microcredit was never a thing for the bank. Banks, with their ornate halls, in well-secured high-end places, believed that the poor were unbankable. Thanks to Equity Bank, every lender is jostling for every available space in such unlikely places as Gikomba market.

And with the advent of mobile banking, the race for the bottom has moved a notch higher to the mobile handsets. Today, with such products as M-Shwari and KCB-Mpesa, credit of as little as Sh100 can be advanced to a person who is stuck without bus fare back home.

Insurance companies have also seen an opportunity to increase penetration with micro-insurance. Most insurance providers have targeted the agricultural sector with insurance firms such as Jubilee Insurance, CIC, UAP and many others customising products for the mass-market.

Even in aviation, low-cost airlines such as Kenya Airways’ Jambojet are locked in a fierce battle with Fly540 for domestic passengers. Charges in the low-cost airline can be as low as Sh4,000 to Kisumu City.

However a study by the World Bank between 2010 and 2011 questioned the economic usefulness of the ‘kadogo’ economy, saying it only serves to perpetuate poverty among low-income earners.

The study showed that low income earners end up paying more than the middle and upper income class for a similar unit of goods thus reducing their chances of breaking out of the poverty cycle.

Related Topics

‘kadogo’ economy