Sam Floy

Interesting posts about start ups, East Africa and fried chicken

Commodity? Brand? Cheapo? Fancy?

This is a post about how products are priced in Kenya, and some of the thoughts around how we categorise things in such a way that it becomes normal behaviour to save $1 on one product, but pay $10 extra on another.

Cheapo vs Fancy

I had a conversation with some friends recently about which product types do you always buy the cheapest, and which are you less concerned about price.

For me, I’ll go cheapo on flights, watches, and bottled water and am willing to pay extra for fancy (green) tea, beer, and running shoes.

From a business perspective, what I’m interested in is what the companies in the latter category have been able to do to convince us that it’s justifiable to pay extra for their product.

The essence of that seems to be how one creates extra value associated with the products/ services that are on sale.

Commodity vs Brand

The way I’ve made the distinction in my own choices has been through viewing products as commodities or brands.

A commodity is a homogeneous product and as such it makes sense to seek the cheapest price.

If you’re a supplier in this type of market, it becomes an issue, as you and your competitors are in a race to the bottom with price.

Whilst low prices are good for the consumer, it means any margins that the company makes are soon eroded, which is bad for business.

We’re not like all the other guys

The defence against entering an arena where consumers are making a choice based on price is to make them view the product you’re selling as a separate product category to the others on offer.

Moving the thought process from from being “which is the cheapest green tea?” to “which is the cheapest [premium/ quality/ ethical] green tea?” means that the price companies can charge rise, as the customer has a new frame of reference.

Whilst there’s more breathing room in this product category with fewer options (there are less premium green teas than green teas in total) the consumer is still likely to choose the one that makes most sense financially.

Ideally it seems that brands should strive to convince consumers that their singular product offering is in itself worthy of being a distinct product category. I’m no longer thinking “which is the cheapest premium green tea?”, but instead “I need to get my BRAND NAME green tea”.

That is essence of establishing brand loyalty and it becomes evident in how people explain their purchases.

To some, an iPhone and an Android sit in the same category of “smart phone”. As Androids are typically cheaper, most who go for this option will view the comparison as such. Those friends who are on iPhone aren’t viewing it as “just another smart phone”, but instead view it in a category of “sleek, well-designed smart phones that work with my Mac” which, of course, iPhone is leader in and so they’re willing to pay the price.

The Kenyan consumer

Whilst I somewhat felt the commodity: brand trade off in the UK, in Kenya it’s even more pronounced.

Typically this comes from viewing things like getting your car washed as commodities, and where to go for cocktails as more of a brand.

Even the wealthiest Kenyans I know speak of spending time scouring for a bargain to “save a coin”, and yet in other domains will happily splurge on goods where price is less of an issue.

Despite incomes rising, it is interesting how ingrained in the national psyche it is to get a deal.

Peanut butter

This leads me to a project I did with a company in Kenya who manufacture peanut butter.

The market for PB in Kenya is split in imported products (with excellent brands) that sell for $5, or locally produced peanut butter which costs about $1.65.

I’ve tried most of these, and can say that the quality of the locally produced peanut butter isn’t as high as it could be.

Local, quality peanut butter

I then found one which I liked.

After emailing the owner I soon found myself sitting down for dinner with him and talking shop.

Their peanut butter is just as good as the international brands, however by being produced just out of Nairobi, they can offer it to the market at a significantly lower price.

The issue though, is that in the minds of the Kenyan consumer, the peanut butter they sell is still a commodity. It’s priced at $1.70, and so the thrifty shopper will skip over it on their way to the counterpart which costs $1.65.

I’ve tasted both, and it’s certainly 2.9% better in quality.

But it’s only 5 cents!

The frustrating thing for him was that when you look at the same consumers of this peanut butter, they wouldn’t hesitate a moment in spending an extra dollar on a fancy cocktail, or getting another side dish at a restaurant.

That alone could pay for many pots of better quality peanut butter but, because the way of thinking about these product types is fundamentally different, it’s a tough battle to fight.

Brands > commodities

Once it’s spelled out like this, it’s not really revolutionary: you need to convince customers that what you’re providing is worth the money.

Thinking and observing this recently has made me much more aware of the fickleness we all have when making spending choices, and then how to design/ communicate a product in such a way that a customer wants to pay more.

How customers perceive you, or at least place value on what you offer, is at the crux of building a successful business and has been guiding my thoughts around how to position any products/services I do out here.

For me, it seems more fun to build a brand which people value, than go into commodities game of competing on price.

I’ll be updating soon with progress on one of my food based side hustles, and the thinking I’m doing around ensuring it is viewed by consumers as a brand, rather than a commodity.

For now though, thanks for reading!

1 Comment

  1. “After emailing the owner I soon found myself sitting down for dinner with him and talking shop.” – the essence of Sam Floy 🙂

Leave a Reply

Your email address will not be published.

*

© 2017 Sam Floy

Theme by Anders NorenUp ↑