How to understand your market and profit from it.

Life is in stages when we are born, we start out as babies, then toddlers, then children etc. until we reach adulthood. Now for each of these stages our needs, expectations are different and good parenting is all about understanding these differences and responding appropriately.

In almost a similar manner the markets in which we operate as businesses also have its stages and each stage has its own nuances, your success as a business is all about understanding these stages and being able to respond appropriately.

I discussed the different stages of a market with Abayomi Olarinmoye, a partner at Verraki (former Accenture Nigeria), we spoke about how to understand the market stages, how to play in them, what to do if you have yourself entering a market at the wrong time and lots more. 

Q1: Please introduce yourself to us.

I am Abayomi, a partner at Verraki, a technology, advisory and ventures company focused on transforming Africa and changing our continent’s narrative. We work across twelve sectors of the economy covering financial services, telecommunications, energy, consumer goods, transportation, public sector and other sectors. I have also had a stint as an entrepreneur in the food space.

Q2: Human beings have their stages in life: baby, toddler, childhood, teenage, young adult etc. We are told that in economics that markets also have their stages, can you please explain the different stages?

Markets have lifecycles just like products do. The four broad stages of a market are -: 

(i) Infancy 

(ii) Growth 

(iii) Maturity/Saturation 

(iv) Decline.

Infancy – the products are relatively new, awareness and the acceptance are on the rise, adoption is gradual, people are beginning to understand the products and suppliers of the products and related support services are emerging or getting established within the ecosystem.

A good example of this would be the GSM market at inception.

Growth- The rate of uptake is on a faster rise, volumes are growing, there are more entrants into the market, demand is relatively higher than supply, new investments are being made in the production, distribution and promotion of the products, the products are then getting standardized in terms of quality specifications.

The GSM market at the time secondary players entered GLO entered the market will be a good example of this.

Maturity/Saturation - At this stage, the rate of growth begins to slow down, demand is flattening out and there is enough supply to meet the needs of the users. Players are beginning to compete on quality and price basis and innovation may be on the decline. Several products may fail, or competition may fizzle out while other players get established.

An example of this would be the Print media, apart from the oldies there are hardly any newspapers rather what we are experiencing is an upsurge in Online media and publications.

Decline: The volumes are on the decline, competition may be thinning out, the product becomes a near commodity and technology may be reducing the relevance of the product or service.

An example of this would be the Photography market, people no longer print as much as before and with the advent of the telephone with very good cameras, only the professionals now use the camera.

To properly assess the stage that a market is in, the market dynamics need to be assessed. For example, are the market volumes or potential growing, are people finding more uses for the product or service, are we seeing product extensions and variations, is technology disrupting how the product is produced, delivered or used, is technology making the market more efficient i.e stripping out costs, what are the growth drivers and are they on the rise or declining, are substitute products growing at a faster rate?

May I sound a note of caution though, except it is a fad-driven market, markets are not that elastic i.e. it takes a while for a market to reach saturation point and then begin to decline. Also, since we are considering the Nigerian market and possibly, a localized sub-set of that, I would also say that we have a very diverse and growing population in Nigeria.

Latest estimates from UNPF say we are about 201 million! Of which more than 10% possibly reside around Lagos/Ogun environs. That's over twenty million people who are potential users/buyers of products and services. I am not certain that we have reached a saturation point for most markets in Africa! Entrepreneurs are advised not to give up too soon but to analyze the market critically before concluding that it is time to bail out.

Conventional wisdom dictates that no new entrant enters a market when it is declining, however, realities and successful examples have turned this theory on its head. It is possible to extend the lifecycle of the market provided the product need is not becoming obsolete and regulations are not working against its growth.

What do I mean? It is possible to enter a mature market with a new technology that enables you to cut out costs involved in producing and delivering the product significantly. It is also possible to find new use cases for the same products extending it into a new segment of the market. It is also possible to have a geographic variation where you are moving into an unpenetrated or saturated region.

Q3: More often than not SME's just start their businesses without considering whether the market is suitable for them, why should an SME bother with the stage of the market of their interest?

An SME needs to be very aware of the stage and state of the market he/she is getting into so that he can line up the proper arsenals for the marketing penetration (battle!). The market’s lifecycle stage would influence how much capital to be deployed and where to spend it e.g if a market is getting saturated, existing and established players are likely to be watching their costs critically and thereby competing on a cost basis. 

A new entrant should, therefore, consider how to enter the market more efficiently and with a better cost profile than the established players. I would consider outsourcing all non-critical factors of production, I would deploy technology to further cut costs and would subscribe to some of my services from a shared platform so that I can pay per use and therefore get more mileage for my spend.

An entrant can still make good money in a declining market provided the market is not going obsolete eg the typewriter /typing services market. How? New users can be found for the same product (eg baking soda), new audiences can be found (LP players), and an entrant can enter, buy up other players and make a consolidation play.

Any technology that allows the product or service to be provided cheaply, that extends the use cases and that takes the product into new markets would be very helpful. 

Q4: Whereas big organizations have the means to hire researchers to help them determine the situation in their markets, how can an SME do this? What should they be looking out for?

An SME can get market research done professionally by experts but at a much lower cost. However, if the said entrepreneur would like to do it in-house, he/she would need to :

· Talk to established market players to get a sense of typical market volumes and velocity (the speed at which products are bought and how long it takes from production to getting the product to the end user. Other useful information around market trends and growth levers

· Collect data and do desk research from/with relevant institutions eg FIIRO, SON, Customs, Tax authorities, CAC (Business Registration desk), MAN etc

·  Market Immersion/apprenticeship.Go out there and spend a day or a week or a month shadowing those who are already involved in this business.

Q5: Imagine there is a business owner out there reading this and saying to him/her self, “it is clear to me that I entered the market at a wrong time, and it is affecting my business what can I do now?”

·     An SME needs to determine if growth is still possible in that market. Identify growth levers and assess realistically. Observe what the competition is doing particularly the most successful ones in the same segment. What are they doing differently?

·     Review and ruthlessly strip out costs across the value chain

·  Carry out a product/business/value reengineering exercise putting innovation at the centre. Ask yourself what innovation can I bring that will raise the stakes or change the dynamics of this market or revolutionize my space/segment? And finally, ask yourself, can I sell and recoup my losses? Do I have existing assets that can lend themselves to a quicker entry into a related market?

·     Please note that it is difficult to brand your way out of a sinkhole. No point spending unnecessarily

Q6: Is there any other information you think an SME should be aware of regarding this topic that we have not covered?

Customer intimacy and engagement is very key. Know who is buying your product and why. Continually look for more creative ways to deliver value to the customer as efficiently as you can. Don’t waste money over-delivering certain features while ignoring the most critical purchase levers.

Conclusion

There you have it, is your market in its infancy, or is yours a growth market, are you playing in a mature market or are you sensing that you are in a declining market? Don't be too quick to make a judgement call as it might still be possible to make it if you change your strategy.

Share your thoughts with us and who knows our feedback might just set you off on the right path to profitability.