How to Succeed in Unstructured African Markets

Africa is the home of unstructured markets in the world. From Accra to Zanzibar, Gauteng to Lagos, you cannot travel up to three miles without finding an informal sector business activity. Anyone serious about business on the continent knows the markets are ubiquitous and account for over seventy percent of Sub-Saharan Africa’s workforce. Unstructured markets are economic activities operating largely within the continent’s informal sector. As the African Continental Free Trade Area creates opportunities on the continent, it is important to understand what it takes to win in unstructured markets.

These markets have unconventional characteristics and methods that defy logic. The markets keep poor financial records, lack data, evade written contracts, and engage largely in cash-based transactions. Market players adhere to the rules of informal regulatory bodies and prefer to do business with religious, ethnic or family affiliates. Buyer-seller interactions in these markets are not just transactional but also opportunities for building communal affiliations. 

Yet, businesses hardly sell effectively within these markets. Consider the case of a beauty startup in Ghana and a healthcare startup in South Africa that targeted informal sector consumers and ended up going out of business after losing millions of dollars in investment. Several businesses on the continent have also become unprofitable from selling products or services through retailers, wholesalers and distributors in the informal sector.

Most businesses fail in Africa’s unstructured markets because they do not understand how these markets work. There are three common myths that hinder the ability to understand these markets. The first myth is that unstructured markets are illegal markets. The second is that market players lack business acumen, and the third is that unstructured markets are a homogenous block. Insights from ten years of research show that the reality is different. Unstructured markets are largely fragmented markets that include gray market operators (such as fake phone sellers in Computer village) , hybrid markets adopting formal and informal sector practices ( such as Nollywood, agency banking networks, etc) and legitimate operators ( such as registered businesses in the Kadogo economy of East Africa). The level of structure varies within the market, and operators have developed business acumen through years of informal tutelage and apprenticeship. 

Unstructured markets have a unique form, and unmasking the composition can make all the difference. Research shows that Africa’s unstructured markets are the most suitable places for testing new product offerings and price scenarios. For example, Guinness Nigeria tested its Orijin brand in open-air markets of Ibadan and Port Harcourt before arriving at the right product quality and price. Shoppers and trade partners within the market prefer below the line activities and price bargaining is a common practice. Distributors and retailers within these markets play additional buying roles, including gatekeeping, influencing, education and others. Failing to understand how these markets work trigger disastrous consequences. So, how can organizations sell to win in Africa’s unstructured markets? Here are five winning strategies to consider.

1. Create your structure within the market: Unstructured markets are fragmented with varying degrees of structure. It is important for businesses to understand that they cannot play everywhere. The way to go is to analyze the market conditions of the unstructured market, select the right consumer segment, know the customer and how they want to buy. Slot Systems Limited is an example of a business that has created its own structure within unstructured markets. Businesses can build structure where it does not exist by investing in the right market research and insight generation.
2. Earn the trust of the market: Trust is critical for success in a market without data and contracts. Operators in unstructured markets transact based on trust and stay loyal to partners that cultivate a trustful relationship. Building trust goes beyond offering trade incentives or bonuses. For example, Kelloggs Tolaram led with empathy by delivering educational content in its study at home campaign to over 5 million households in Nigeria. The campaign success helped the brand to increase its year-on-year performance by 20%. Operators expect genuine manifestations of trust and empathy that go beyond transactional relationships.
3. Stay culturally intelligent and politically savvy: Unstructured markets have extensive networks of union leaders serving as influencers, political blocks acting as gatekeepers and market touts positioned as rent seekers. These different constituencies are powerful forces that can make or break a business. For example, Assist-2- Sell, a real estate marketing company in Nigeria, could not sell new residential apartments to traders in an unstructured market of Lagos until the company engaged market union leaders and power blocs. Respect is key and the constituencies are hungry for it. Power blocs can call off large deals for seemingly trivial manifestations of disrespect. One of the authors of this article lost a deal with union leaders in an unstructured market for failing to tuck in his shirt. Businesses should manage power dynamics by having strategic partnerships with market leaders after due diligence. Understanding the cultural and power dynamics of the market is critical for success.
4. Build a team and develop talent: Not all salespeople are suitable for engaging unstructured markets. It is therefore important to build the right team to carry out the arduous task. Salespeople for unstructured markets must have good price negotiation skills and must be good product educators. Salespeople must also know how to structure short-term credits and must be culturally intelligent. Training is also important and Lagos Business School has taken the lead in developing customized curricula for selling in unstructured markets.
5. Educate before you litigate: Many operators in unstructured markets sell counterfeit and inferior quality products. These operators distort competition and put customers at risk. While litigation may be a reasonable way to punish counterfeiters, it is often expensive and painful. A more proactive approach is to educate market operators and consumers about the dangers of buying counterfeit products. Education can include business skills training, shopper marketing, product handling exercises and career development programmes. One recent example is the case of Power Oil, a brand of cooking oil that was facing severe competition from unbranded and inferior quality products from unstructured markets. Power Oil commissioned Mediareach OMD to conduct market research and adopt a three-step journalistic process of declaring a state of emergency, countering the bias and harvesting. The brand leveraged the power of journalism to unravel harmful food hygiene behaviour and change the perception of the entire nation toward the cooking oil category. Sales grew by 100% because of the campaign.

Unstructured markets continue to dominate Africa. This is a wake-up call for businesses to think differently about what makes markets work on the continent.