Subscribe

Subscribe to our AI & Digital Transformation E-Alerts.

""

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:

  1. User-centric mindset: Digital natives often have a relentless focus on the user of their product, adopting a “user backward” mindset and constantly seeking to achieve the critical product-market fit. They research their customers’ needs well and often. They also engineer their solutions so that they can meticulously measure how users interact with them. They analyse where users spend time, where they encounter difficulties, and where they drop off. This focus on user behaviour and engagement metrics allows them to fine-tune their offerings continuously. This is easier for companies in large homogeneous markets like the US and China, and tougher in Africa. Uber, for example, is continuously working to adapt its offering to local preferences and fend off competitors. It offers different payment options, ride-sharing features, pre-booking options, etc. in different African markets.
  2. Learn fast and adapt: Successful digital-native companies employ a highly adaptive approach to product development. If a feature or solution works for users, it is quickly amplified. If it does not, it is promptly modified or discarded, even if it was central to the initial design. This approach requires a fully agile methodology, with short development sprints and the flexibility to pivot direction rapidly based on user feedback. Code development is often at the center, but it goes far beyond that. Agile companies need to make management decisions faster, allocate budgets more dynamically, and reconfigure teams when demands shift.
  3. Focus on the “flywheel”: Successful digital companies often hold (and evolve) a strong hypothesis on what will drive organic (i.e. self-sustaining) user adoption and growth. While African companies often hold up comprehensive platforms like WeChat and Alipay as the ultimate goal, it's important to recognize that these ecosystems grew over many years. At the beginning they had a narrower capability, sufficient to support just a core set of use cases that initially attracted and engaged users – allowing these companies to get their “flywheel” spinning.

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:

  • Governance: Management teams often need to relinquish some control and delegate power to enable faster decision-making closer to the user – this requires organizational trust and a high degree of strategic alignment.
  • Metrics and targets: Companies often focus on seemingly “safe” metrics like revenue and profitability. But, as many of the world’s most successful digital ventures have shown, focusing on user growth, user engagement, customer acquisition costs, and measures of product-market-fit typically is more effective in the early years.
  • Talent: Bringing in the right mix of outsiders with new skills and different mindsets is often critical, and targeting these individuals often requires a new employee value proposition.

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.

Subscribe to our Digital, Technology, and Data E-Alert.