In 2013, fresh off the plane and drunk on the “Africa Rising” narrative of that time, I came across something I found unusual and exciting in Nigeria’s business scene. It wasn’t so much the fact that there was a local car manufacturer that impressed me, but the fact that the company’s origin story was the closest thing I had ever heard to a “Nigerian dream.” A hustler without a tertiary education trained under a ‘master’ within the famed ‘boyi-boyi’ Igbo apprenticeship system, eventually gaining his freedom and going into the business of importing and distributing plastic products.
A few years later, he ventured into importing motorcycles and he figured out that he could out-compete his rivals by bringing the machinery in CKD (completely knocked down). In so doing he could pack more motorcycles into a single container and reduce his shipping costs relative to his peers. When the CKD bikes got to Nnewi, he assembled a team of technicians to put them together for onward distribution. The strategy was a roaring success, and so a couple of decades later, Innocent Chukwuma decided to replicate it with 4-wheeled motor vehicles. It was at this point that I joined the story.
Narrative Is Useful, up to a point
Drunk on optimism fuelled by 7 percent year-on-year GDP growth, a market-friendly administration and dozens of books about China’s industrial miracle, I was convinced that Innoson Vehicle Manufacturing was the canary in the coalmine announcing Nigeria’s impending arrival as a global economic force. I became an unpaid and unsolicited brand evangelist, going as far as opening and managing social media pages for the company and mailing international motoring publications about the unfolding Nigerian miracle in Nnewi.
After a sluggish start to its marketing efforts, the company soon caught on and began actively pushing its credentials as a bringer of pride to Nigerians and a vanquisher of “tokunbo” from Nigerian roads. I noticed however, that everytime the issue of its prices came up, IVM became very cagey, with the response often being a generic “send an email to us.” Part of me wondered why a national manufacturing lodestar with ambitions of growing a Pan-African presence would be cagey about its prices, but I didn’t give too much thought to it.
In 2014, IVM announced that it was going to launch a “N1 million vehicle,” which would have caused a sensation in Nigeria’s automotive space. The promise soon morphed into a “N1.5 million vehicle,” but even that would have been spectacular. Then the promised release date came and went with no word about the said game-changing car. Eventually, in November 2014, IVM released the IVM Fox and the IVM Umu – for at least double the promised price and without any immediate access to financing.
Apparently, not even all the national pride, patriotism and excitement fuelled by marketing could
challenge reality. Building a vehicle for that price in an area with a very small population of people with the relevant skills, and using imported parts subject to exchange rate fluctuations made it impossible to deliver on the very optimistic promise. The narrative of Nnewi boy-turned automotive manufacturer disrupting the used car space with cheap brand new cars was a seductive one, but ultimately an unrealistic one.
Data and research over marketing
A problem that IVM and many other Nigerian businesses face while trying to do something unprecedented in the local market is that rather than surrounding themselves with professional business and as much relevant data as they can manage, they often choose to surround themselves with yes-men and marketing types who rarely tell them “no” when applicable. In the absence of solid strategy based on sound data, such businesses end up doing what footballers call a “hit and hope.”
IVM is a case-in-point of a Nigerian business whose actions and very existence are based on a “hit and hope” strategy coupled with the controlling entrepreneur’s sheer determination and willpower. A proper business consultant might have recommended against local vehicle manufacturing in the first place for a number of reasons including skills shortage, key man risk, risk of loss due to exchange rate fluctuations and most importantly, a market that is simply too poor to afford the output from IVM’s sprawling Nnewi facility.
The “N1 million vehicles” announced with much fanfare in 2014 today retail at a starting price of N7.6 million. This is simply the reality of building a car in Nigeria – it is more expensive than building a car in China because the required employee skills are scarce, electricity is expensive and self-generated, and the supply chain is susceptible to rapid price shifts due to a weakening and unstable naira. Assuming the decision was made to assemble cars locally regardless of economic conditions, a business consultant would have recommended putting in fail-safes such as inventory stockpiling to guarantee customer prices.
I mentioned in a prior column that the total number of Nigerian consumers who have a monthly income of N200,000 and above is only about 5 million people. In addition, approximately 92.1 percent of Nigerians make less than N60,000 a month. The addressable market is tiny, and even that market is very price sensitive. The number one factor Nigerian consumers respond to is price, evidenced by our embrace of Korean vehicles despite their perceived lower quality.
I myself drive a Kia Rio which was bought brand new for N1.5 million in 2010 with airbags as an optional feature. At the time, you could get it for less if you opted out of airbags – and many consumers did exactly that because that is how important price is in this market. There is no amount of “Proudly Nigerian” marketing messages that will convince to spend N7.6 million on a vehicle if I simply do not have N7.6 million to spend on a vehicle. Such a business might get lots of retweets, likes and shares on the internet from patriotic onlookers, but what is that if only government institutions and a tiny number of wealthy people actually buy the
product?
Establish a value proposition with price at the centre
Nigeria has a reputation for being a place where business people often waste fantastic sums of money on flights of fancy, allegedly because they obtained their money dishonestly.
In reality, many investors doing honest work make losing bets because Nigerian business culture is to hide all your cards and then attack the market out of the blue almost like a military ambush, lest someone else “steal” your idea. Instead of making expensive commitments based on hunches and gut feelings, investors must learn to treat consultants, data and research as part of their core strategy, and not an afterthought. Before putting down money on an idea, entrepreneurs must establish a realistic target, come up with a workable plan for hitting that target and build a trustworthy team that can action that plan. The strategy should always inform the marketing, and not the other way around. Whether it is manufacturing or services or trading, the most important questions must be related to the value proposition in the context of Nigeria’s unique economic circumstances:
Am I offering something that consumers can afford? What am I bringing consumers that they cannot get elsewhere or for less money? Will this product offering drive sales figures or drive marketing conversation – which of these is more important to me? If a competitor enters the market, how am I positioned to compete on not just marketing spend but on price? How much exposure do I have to government policy or personnel changes? How much exposure do I have to exchange rate fluctuations? Can I offer consumers a guaranteed price? It is important to note that Nigeria’s most successful brands have operated in the country for decades, and they do not use their “Nigerianness” as an emotional plea to drive sales. Nobody buys Peak Milk or
Coca Cola because they are Nigerian manufacturing behemoths that provide jobs to thousands of Nigerians or because they want to #BuyNaijatoGrowtheNaira. People buy these products simply because they are cheap and easily accessible.
As I mentioned some weeks back, the mass of upwardly mobile 25 year-old Nigerian consumers with significant discretionary income, who may spend N7 million on a car out of patriotism is a fantasy created and sustained by marketing people. They do not exist. Nigeria has an extremely poor population – deal with it. Price is not just the most important value proposition in Nigeria – it is the only value proposition.
