Managing Director & Senior Partner
Johannesburg
In an era when digital technology and analytics are rapidly disrupting most industries, many large African companies in sectors such as financial services, telecom, insurance, and retail are heavily investing to build digital consumer value propositions centred around apps and ecosystems.
A key motivation is often that consumer needs, preferences, expectations, and habits are shifting rapidly. Modern consumers seek comprehensive solutions rather than merely purchasing products. Companies need to evolve how they serve their customers and move towards more integrated, user-centric digital solutions. They are rewarded with growth if they succeed. Examples include FNB’s banking app for consumers and small enterprises, Shoprite’s Sixty60 delivery service, and Luno’s investment platform for cryptocurrency.
Companies also aim to create new revenue streams through innovative business models and novel customer service approaches. M-Pesa and Mobile Money (MoMo) have revolutionized payments in many African countries and created new lines of business for the telecom companies that started them. Discovery, an insurance company, has been successful with Discovery Bank.
Another important factor is the fear of losing direct relationships with customers to intermediaries. By building digital offerings, companies aim to maintain control over customer interactions. Importantly, customer data allows them to tailor their offerings, drive higher revenues, and reduce attrition by increasing engagement. Insurance is an example: incumbent players are investing in direct-to-consumer offerings, such as Naked (Hollard), MiWay (Santam), and Pineapple (Old Mutual).
In some other markets this has already played out. The companies with the best data and the most effective ways of gaining insight from it are emerging as the winners. Global examples include Netflix, which transformed itself from a DVD-by-mail business into a data-driven entertainment platform, and PingAn, a Chinese insurer which adopted a highly successful digital-first business model.
However, many African companies have struggled to achieve good returns on their digital investments. Often, user interest in and uptake of their digital solutions have been lacklustre. Even when new digital offerings attract a significant number of users, the costs associated with inorganic customer acquisition (e.g. through advertising or incentives) often prove unsustainable, making it difficult to achieve favourable long-term per-user economics.
At the heart of these struggles is often a lack of product-market-fit. Many digital solutions are developed with a “solution forward” mindset, where companies start with a specific vision of what the offering should be. This is only natural. Established companies have important assets like technology, data, expertise, brand, and a customer base which can give them an “unfair advantage” over start-ups, and they seek to leverage these to their maximum potential.
However, once solutions are developed in this way, the value proposition often fails to resonate with customers. Users may try the new offering but fail to adopt it organically because it is too difficult to use, the value proposition is unclear, the addressed need is not pressing enough, or an easier alternative is available.
To improve their chances of launching successful digital solutions and to avoid sinking large amounts of funding into ultimately unsuccessful ventures, African companies could learn from digital-native companies that have successfully introduced and scaled digital consumer value propositions. These companies, often found in hotspots like Silicon Valley and Shenzhen, share some characteristics that contribute to their success. There are three common themes:
Emulating these three traits is not trivial. It generally requires profound changes in a company’s operating and governance models, culture, ways of working, and employee value propositions. This can be particularly challenging if companies need to unlearn some of the habits and patterns which have made them successful previously, such as:
These are not easy changes to make. They often present management teams with uncomfortable choices. But the rewards are enormous: African companies that can adopt and embrace digital-native characteristics greatly improve the odds of transforming their businesses, establishing new sources of competitive advantage and, in some cases, achieving a step-change in their valuations.
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