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Customer needs and behaviour in Nigeria

by: Okey Okere, Managing Director of Hofstede Insights Nigeria

Important

Five of the most important things to know Customer needs and behaviour in Nigeria:

  • Stick with the Essentials. Nigeria is a lower-middle-income country. The annual income per head was around US$2,000 in 2019, and the income distribution is unequal. The average family spends approximately 57% of their household income on food items. Businesses producing and selling essential products could have an edge.

  • Size (or rather Scale) matters. When entering a country like Nigeria, it is important to finetune your market entry strategy to address the needs of the poor – the so-called ‘Base of the Pyramid’. Businesses trying to enter Africa should think about how to become agile enough to respond to the needs of the market. It might mean creating new products, adapting existing products (taste, look, design, feel) or scale products to meet the buyers purchasing power.

  • First Mover Advantage Critical. Like most other emerging markets, first-mover advantage is critical in Nigeria. Nigerian consumers tend to be extremely loyal to the first brand they know. Usually, the first brand to establish in the country dominates for a long time. Often, the first brand’s name becomes the colloquial name for that line of products or services. This extreme brand loyalty likely stems from collectivism.

  • Luxury brands do not shy away! Nigeria’s “small” middle class is still a huge market. Although a lot has been said about Nigeria being a low-income market, it is still important to realise that its population dynamics could still favour luxury brands. Only 10% of the total households earn 30.000€ or more annually. While that seems like a small proportion, it is important to note that - because of Nigeria’s large population - this percentage comes to around 20 million people.

  • Aspirational people, big brands matter – a good bet for future rewards. Even the poor in Nigeria tend to know good quality and aspire to acquire the same. Nigerians are an aspirational people: a complex market where 81% of the consumers in the country feel satisfied with the state of their finances, yet 65% say that they can only afford essentials. Although 55% of Nigerians are price-conscious, around 44% of them regularly treat themselves to expensive goods. 50% of the country’s population is under 16 years old. This market’s current face is only a surface scratch considering the future potential (George & Ukomadu, 2020; Akinsola, 2019; Tathagata, 2019; Monks, 2017; Hirsch, 2013)

 

Short Introduction

Nigeria is a complex market. The larger proportion of its population is poor. There is massive inequality in the country. However, the small percentage of the populace, who are (by western standards) middle class, together form a sizeable addressable market. The nation’s consumer needs are rapidly changing. Many new (especially western) concepts and products are being adopted, rapidly. Despite obvious socio-political and economic risks, there is ample business opportunity in Nigeria. With around 200 million people and a GDP of around US$400billion, it is both Africa’s largest population and largest economy. Nigeria is the seventh-largest country in the world and projected to become the world’s third-largest behind India and China by 2050 (Adegoke, 2017). It is also the sixth-largest crude oil producer in the world.

It is Africa’s backbone and economic powerhouse: often referred to as the “Giant of Africa” (Whiting, 2019). The former US president, Barack Obama, said that Nigeria is “critical to the rest of the continent and if Nigeria does not get it right, Africa will really not make more progress” (Emelumadu, 2010). Businesses thinking about expanding to Africa would probably not be taken seriously if their plans do not include Nigeria. But what do Nigerians want? And how do they buy? This document provides some guidelines.

 

Stick with the Essentials, (At least for now)

Based on the World Bank’s classification (World Bank Data Team, 2018), Nigeria is a lower-middle-income country. The annual income per head was around US$2,000 in 2019, and the income distribution is unequal. Approximately 40% of the nation’s population lives on less than US$1 a day (NBS, 2020, p. 6).  On average, Nigerians spend around 56.65% of their income on food (NBS, 2020b, p. 10). This situation is perennial: even in 2015, Nigerians spent the highest percentage of their income on food (around 56.4% of total income), compared to any other country in the world (Gray, 2016). To put this in perspective, people in Austria spend only 10% of their income on food, and in the US, only 6%. This development does not suggest that food is more expensive in Nigeria – it only means that the country’s people are poor. “The average American spends $2,392 per year on food, the average Nigerian half that: $1,132” (Gray, 2016). Furthermore, the top five non-food expenses by Nigerian households in 2019, were transportation (primarily commuting, 6.44%); healthcare (6.12%); education (6.04%), general services including telecoms/ICT (5.53%); and rent (5.28%). These stats suggest that, when trying to enter the Nigerian mass market, it may be wise to focus on essential items or related products and services. There is ample market opportunity for innovations that could lower the cost of these essentials. Successive Nigerian governments are also constantly on the lookout for partners to help boost local agricultural, food processing and manufacturing capabilities (NIPC, 2019). 

 

 

Images: Gray, 2016 (World Economic Forum)

 

 

Size (or rather Scale) matters

When entering a country like Nigeria, it is important to finetune your market entry strategy to address the needs of the poor – the so-called ‘Base of the Pyramid’. Rather than writing off the market as too poor to afford your products, you want to consider retail models that would enable you to sell to them. Instead of looking for how to sell a 10€ product to one million people, perhaps consider how to sell a 2€ product to 100million people. Unitisation is a good strategy that could help. Unitisation means designing and producing smaller packages of products so that the base of the pyramid can afford them. Majority of the households in Nigeria are unable to afford a 10-pack of chocolate box, with each bar around 60g. They may be able to afford to buy a 2-pack product with 19g each. Hence businesses trying to enter Africa should think about how to become agile enough to respond to the needs of the market. It might mean creating new products, adapting existing products (taste, look, design, feel) or scale products to meet the buyers purchasing power.

 

First Mover Advantage Critical

Like with most other emerging markets, first-mover advantage is critical. Consumers in Nigeria tend to be extremely loyal to the first brand that they know. The first established brand in any line of product or service dominates in the country for a very long time. Other products would struggle to enter, as that line of product or service would be named after the first brand they know. Two examples of this are Nestle’s Maggi™ seasoning cubes and Kelloggs-Tolaram’s Indomie™ Noodles. Maggi™ was the first seasoning cube that housewives came to know in Nigeria. It was introduced into the country in the 1950s. Even today, all seasoning cubes and related products are colloquially called Maggi™, much to the chagrin of Nestle’s competitors. Likewise, Indomie™ noodles were first sold in Nigeria in 1988. The product struggled, initially, because the locals thought noodles were “worms”. Over time, the market accepted it – largely because it was easy to cook, unitised (i.e. sold in single units) and reasonably priced. The company’s sales in Nigeria in 2017 was around US$ 600million. Within 20 years, Nigeria became 12th largest noodles Market in the world – quite a feat, considering that noodles are not a Nigerian staple. Again, like Maggi™, all noodle products in Nigeria are referred to as Indomie™, making it difficult for competitors to break into the market.

It is highly likely that this type of brand loyalty stems from collectivism. Like most other African countries, Nigeria scores low (30/100) on Hofstede’s Individualism (IDV) dimension. With collectivist societies, it takes time to earn trust. However, when you enter the inner circle, you will reap the rewards for several lifetimes. On this, the Expat Arrivals website wrote: “Nigerians are famously friendly and hospitable people who take a genuine interest in the lives and experiences of foreigners. If one makes an effort to get to know the locals, this friendliness will be repaid tenfold” (Globe Media Ltd, 2020). Therefore, businesses considering Nigeria should move quickly. It might be wise to immediately launch a “Proof of Concept” model that could help the company study the market and understand how to establish and dominate quickly.

 

Luxury brands do not shy away! Nigeria’s “small” middle class is still a huge market

Although a lot has been said about Nigeria being a low-income market, it is still important to realise that its population dynamics could still favour luxury brands.

 

 

Image source: Shannon McCrocklin (2018)

 

Shannon McCrocklin (2018) estimates that 1% of Nigerians earn around 53.000€ annually, and only 10% in total earn 30.000€ or more annually. It seems like a small proportion, but that percentage comes to around 4 million households or around 20 million people. There are pockets of high-end consumers in Nigeria, large enough to sustain the entrance of certain luxury goods. With help from local partners (e.g. consultants, and researchers), businesses would know where, when and how to locate these high-end consumers and sell to them. 

 

Aspirational people, big brands matter – a good bet for future rewards

Even the poor in Nigeria tend to know good quality and aspire to acquire the same. In 2013, Nigeria was notoriously famous for being the world’s second-fastest-growing champagne market (Hirsch, 2013). In the same year, Nigerians were ranked as the fourth biggest tourism-spenders in UK shops. They spent an average of £500 per store visit, more than 400% higher than the average UK resident. Nigerians continued to spend on luxury goods, even when the country experienced a recession in 2016-17 (Monks, 2017).  They are aspirational people and a complex market (George & Ukomadu, 2020; Akinsola, 2019; Tathagata, 2019). 81% of the consumers in the country feel satisfied with the state of their finances, yet 65% say that they can only afford essentials (Tathagata, 2019). By 2025, 55% of Nigerians would be urban dwellers – the country’s urban population growth outstrips what is seen in India and China. Some ideas that have worked in Europe now seem to be keenly adopted too. Coffee houses, for instance, are becoming popular (George & Ukomadu, 2020). This trend is rather odd, considering that average year-round temperatures in Nigeria are around 30’C. Besides, although 55% of Nigerians are price-conscious, around 44% of them regularly treat themselves to expensive goods (Akinsola, 2019). Around 50% of the country’s population is under 16 years old. Businesses entering Nigeria should, therefore, be aware that what this market currently presents, which is good enough to go, is only a surface scratch considering its future potential.

 

Short Case Study

Promasidor Nigeria Ltd (formerly known as Wonder Foods) entered Nigeria in 1993 aiming to sell its filled milk powder – Cowbell Milk – to a hungry market, in 400g tins and larger configurations. While the product was priced reasonably lower than the leading brands (such as Frieslandcampina Peak Milk, Nestle’s Nido and Arla Food’s Dano Milk), it was unable to compete.

 

 

Images from Konga.Com (2020);  Chimezie (2018)

 

Through market research, they discovered that only the tiny middle and upper class (less than 10% of the population) were able to afford to buy milk in large tins. Most of these middle- and upper-class buyers also preferred the more expensive (and higher quality) full cream milk powder to Cowbell. The company quickly switched strategy and started selling its product in smaller sized cellophane sachets and later in branded 20g sachets. Their recognition of the market’s need and their ability to scale-down their product succeeded. The company currently sells around US$400m of milk and other food products in Nigeria annually.

 


 

Resources and interesting links

1. DMastermind

Consumer Analytics, Market Entry and Brand Positioning Professional Services

http://dmastermind.com/

 

2. Nigeria’s National Bureau of Statistics (NBS)

Statistical data on Nigeria and consumption patterns

https://nigerianstat.gov.ng/elibrary

 

3. The Connected Nigerian Consumer: Nigeria Consumer Behaviour, Income, And Ecommerce

Statistical data on Nigerian consumer behaviour

https://www.geopoll.com/blog/nigerian-consumer-behaviour-income-ecommerce/

 

4. Nigerian Investment Promotion Commission

The Nigerian Federal Government agency  that “encourages, promotes and coordinates investments in Nigeria.”

https://nipc.gov.ng/

 

 

References

Adegoke, Y. (2017, 26 June). UN: Half of world’s population growth is likely to occur in Africa. Retrieved May 13, 2020, from CNN: Inside Africa: https://edition.cnn.com/2017/06/25/africa/africa-population-growth-un/in...

Akinsola, W. (2019, June 11). The state of Nigeria’s Fashion Industry. Retrieved from Stears Business: https://www.stearsng.com/article/the-state-of-nigerias-fashion-industry

Chimezie, A. (2018, June 1). Cowbell Milk ‘Say NO to malnutrition’ donates 1 Sachet for 1 Retweet. Retrieved May 19, 2020, from Naijalife Magazine: http://naijalifemagazine.com/blog/2018/06/01/cowbell-milk-say-no-malnutr...

Emelumadu, C. (2010, June 7). How important is Nigeria to Africa? Retrieved May 20, 2020, from BBC World Service: https://www.bbc.co.uk/blogs/africahaveyoursay/2010/06/how-important-is-n...

George, L., & Ukomadu, A. (2020, March 12). Tea and cocoa-loving Nigerians finding new thirst for coffee. Retrieved May 19, 2020, from Reuters: https://www.reuters.com/article/us-nigeria-coffee/tea-and-cocoa-loving-n...

Globe Media Ltd. (2020, May 1). Doing Business In Nigeria. Retrieved May 19, 2020, from Expat Arrivals: https://www.expatarrivals.com/africa/nigeria/doing-business-nigeria

Gray, A. (2016, December 7). Which countries spend the most on food? This map will show you. Retrieved May 19, 2020, from World Economic Forum: https://www.weforum.org/agenda/2016/12/this-map-shows-how-much-each-coun...

Hirsch, A. (2013, May 8). Nigeria’s love of champagne takes sales growth to second highest in world. Retrieved May 19, 2020, from Guardian News & Media Limited: https://www.theguardian.com/world/2013/may/08/nigeria-champagne-sales-gr...

Konga.Com. (2020, May 1). Dairy, Eggs & Cheese. Retrieved May 19, 2020, from Konga.com: https://www.konga.com/product/peak-powdered-milk-400g-tin-x-2-2511987

McCrocklin, S. (2018, December 16). The Connected Nigerian Consumer: Nigeria Consumer Behaviour, Income, And ECommerce. Retrieved from GeoPoll Community: https://www.geopoll.com/blog/nigerian-consumer-behaviour-income-ecommerce/

Monks, K. (2017, September 26). Nigerian party people keep the champagne flowing through recession. Retrieved May 19, 2020, from CNN Market Place Africa: https://edition.cnn.com/2017/09/22/africa/nigeria-premium-drinking/index...

NBS. (2020). 2019 Poverty and Inequality in Nigeria: Executive Summary. Abuja: National Bureau of Statistics (NBS).

NBS. (2020b). Consumption Expenditure Pattern in Nigeria. Abuja: National Bureau of Statistics (NBS).

NIPC. (2019, March 30). Opportunities: Agriculture. Retrieved May 19, 2020, from Nigerian Investment Promotion Commission: https://nipc.gov.ng/opportunities/agriculture/

Tathagata, R. (2019, August 1). Major shifts on the horizon in Nigeria’s consumer landscape. Retrieved May 19, 2020, from Marketing Edge: https://marketingedge.com.ng/major-shifts-on-the-horizon-in-nigerias-con...

Whiting, K. (2019, August 9). 5 facts to know about Africa’s powerhouse - Nigeria. Retrieved May 2020, 2020, from World Economic Forum: https://www.weforum.org/agenda/2019/08/nigeria-africa-economy/

World Bank Data Team. (2018, July 1). New country classifications by income level: 2018-2019. Retrieved April 19, 2019, from World Bank Group: https://blogs.worldbank.org/opendata/new-country-classifications-income-...