This week’s theme for the Nigerian Startup chronicles, aka “Why some Nigerian businesses fail,” is consumer biases. We hope that you are both entertained and educated by this story.
Two Nigerians who had lived abroad for decades decided to return home and replicate a foreign product idea in Nigeria. They pitched the idea to investors and said the product would bridge the gap in the market. The founders promised to deliver returns within two years so investors bought into the idea and provided funds.
After developing the product, the founders hired a marketing team. The team said the price point was too high so only the elite would be able to afford the product. However, they would rather buy the foreign version of the product when they travel abroad because of its prestige. More so, the brand did not yet have equity so the high-end consumers may be the early adopters. The team advised a price reduction to make the product more affordable to mid-low-income earners. They also advised the founders to go back to investors with revised projections that were more conservative.
The founders disagreed. They argued that their product could match international brands. So, the business went ahead to launch the product for the high-end market. During an interactive media session, a journalist told the founders that their product was elitist and was not the solution that would bridge the gap in the market as they claimed.
The founders called for a post-launch review meeting. The marketing team told the founders that the journalist buttressed their point of view and advised a price reduction again. The founders refused and said they needed aggressive marketing. They ordered the team to sign a reality TV star as a brand ambassador. The team argued that the proposed reality TV star would be a poor brand fit, but they insisted. One of the co-founders even asked the team to sponsor a particular radio show because “he loved the presenter’s voice.”
As a result, the company spent hundreds of millions of naira on the brand ambassador and ran an advertising campaign on television, radio, out-of-home and digital media. The campaign yielded a very minimal return on investment.
The sales report validated the marketing team’s advice. Sales were mainly coming from a particular region and demographic. The team advised that marketing campaigns should be concentrated in that region, but the founders insisted on a national campaign and said the team “wasn’t thinking big!”
At the end of two years, sales had not picked up, but investors demanded their funds.
𝐓𝐚𝐤𝐞𝐚𝐰𝐚𝐲
Cognitive biases play a role in consumer behaviour. Consumers do not always act rationally and intangible factors like status also play a role in how they make purchases. It is also important for entrepreneurs to understand adopter categorisation when positioning their products.
Finally, as Steve Jobs said, “It doesn’t make sense to hire smart people and then tell them what to do. We hire smart people so they can tell us what to do.”
Originally posted on LinkedIn.
