Note: Vijay Mahajan is the author of Africa Rising: How 900 Million African Consumers Offer More Than You Think (Wharton School Publishing, 2008).
There is little doubt the current financial crisis will eventually affect people in all corners of the world in some way or another.
However, even as the world faces an economic downturn, Africa is a market that in the long run should not be ignored by any company looking for growth. An example of a company that has achieved extensive sales in Africa is Korean manufacturer LG Electronics, and it is just one of the success stories in my book.
African markets are dominated by traders who are interested in selling products rather than building brands. Some companies might believe that the markets are not attractive enough, but LG's experience shows there are tremendous opportunities in using marketing communications, distribution, service and an understanding of buying habits to organize the markets.
Although it only arrived in African markets in the past decade, LG has made rapid progress by actively organizing the market. LG's experiences in Morocco illustrate its astute use of promotions and communications to organize the market. When LG arrived in Morocco in 2000, Sony was already the dominant brand, but it was sold only through traders rather than the dedicated dealers. Since 2000, LG has had an annual growth rate of almost 50% in Morocco, driven in large part by its promotions centered on Muslim holy days. The company organized promotions for refrigerators during Eid-al-Kebir, or Festival of Sacrifice, when devout Muslims traditionally sacrifice a lamb, on the tenth day of the last month of the Muslim calendar. In 2007, LG sold 30% of its refrigerators during this period.
LG recognized that Ramadan is an important time for sales of televisions because it is a time when many new television programs are developed. LG created promotions for Ramadan, and by 2007, this holiday period accounted for 25% of its sales of televisions and other appliances. LG has also tapped into the returning diaspora. In the summer, Moroccans living and working abroad swarm back home, their pockets full of cash, so LG organized big promotions for these returning workers and family members.
Tourism in Morocco is also driving demand for flat-screen televisions in hotels, airports and airlines. LG now makes 12% of its sales during the June tourist period. The company also organizes a woman's day every year.
In discussions with Ali Lakhdar of LG in Morocco in 2007, I leaned that in addition to promotion, LG organized the market through communications and branding. It was the first to make substantial investments in media, including outdoor billboards and event sponsorship. LG became one of the top television advertisers in Morocco.
In 2001, the company launched the LG Soccer Cup. This helped to position the brand as aspirational, going after the top of the market and to those who aspired for it. In 2003, it launched the LG Hope program in Morocco with Korea University's volunteer medical team, offering free surgery for youth suffering with cleft lip. It also built 100-branded mini-shops within electronic shops and a premium showroom in Casablanca.
LG's unaided awareness in Morocco reached 71% by 2006, according to Nielsen studies. By 2006, LG had captured more than a third of the market for digital displays and 40% of the market for digital appliances, as well as 15% of the market for mobile handsets.
The company has taken the strategy in Morocco and has implemented it across other countries in Africa. Of course the problem with being the pioneer in organizing the market is that it makes it easier for competitors to follow the same path. In addition to competitors, LG faces threats from smugglers who do not pay excise tax and counterfeit items from China. New low-priced brands such as Goldvision, which is manufactured in Morocco to avoid excise tax, have targeted the mid-market.
LG, therefore, has to keep organizing the market to stay ahead. More recently, the company focused on stepping up after-sale service. It built 30 service centers throughout Morocco, organizing the service market and promising customers that appliances will be fixed within 24 to 36 hours. Outside of the city, it will be fixed within 36 to 48 hours. By organizing marketing and communications, LG has built a significant business and presence across Africa.
Vijay Mahajan is Professor of Marketing, McCombs School of Business at the University of Texas at Austin. He is the author of Africa Rising: How 900 Million African Consumers Offer More Than You Think (Wharton School Publishing, 2008). http://www.whartonsp.com/bookstore/product.asp?isbn=0132339420