Kenyan Consumers Shy Away From Funding Grand Hqs and Big Entertainment Budgets for Internet Providers

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Kenyan internet consumers would rather get high-quality technical services from providers that offer ‘no frills’ high-speed internet than pay extra for large marketing, entertainment and headquarter budgets, according to a month-long poll of Kenyan internet buyers run prior to the new round of subscription price rises from the country’s leading providers.

More than four out of five respondents to the social media poll in August 2018 said they did not want to cover the cost of lavish headquarters, executive entertainment, or hefty marketing budgets in their own internet subscription.

This preference for low-cost services is rising, as consumers find their budgets further squeezed by extra taxes and higher costs across multiple goods, including fuel and airtime.

“The association that Kenyan consumers typically have between high price and high quality is still there – as we saw in our poll from the 17 per cent who wanted to cover the extra HQ and marketing costs in their Internet subscription. But it is breaking down, as customers move to viewing home internet as an essential utility and seek only speed, reliability and service, without paying a premium for a grand brand,” said Andy Halsall, CEO of poa! Internet.

For the larger brands offering premium price home connections, hefty brand and glamour budgets are typically adding several hundred shillings a month to customers’ internet bills.

In 2017, for instance, one leading internet provider with a premium consumer home internet service spent Sh6.3bn on advertising and Sh1.5bn on property rental, transport and extra accommodation for its staff, generating billions in costs that needed to be recouped in its product pricing.

“For our largest providers, the cost of dedicated prime-location headquarters and billboards country-wide must necessarily then be built into the prices they charge for their internet, and such advertising isn’t cheap. Each billboard costs in excess of Sh70,000 a month, while print advertising is typically close to a half million shillings for one page for one day. Add to that parties, maybe at Carnivore or in Nairobi hotels, which typically carry a price tag of over Sh1m each. Inevitably, consumers must go with their providers’ decisions in funding all these extras out of their own pockets,” said Andy.

By contrast, poa! Internet, which is Kenya’s most rapidly growing internet provider, has opted for subdued offices and scant marketing in a bid to offer a top-quality technical service for minimal pricing.

“We have relied on word of mouth and a basic process of door-to-door salespeople in selling our Sh1500-a-month unlimited home internet. Yet our recent upgrades across Kiambu and Kawangware to 4Mbps see us offering the same speeds and reliability as our more expensive competitors – in a model that is clearly working based on our growth, which is now far faster than every premium-priced model,” said Andy.

This faster growth for low-cost suppliers has also been found globally, with Harvard Professor Nirmalya Kumar concluding that low budget companies tend to pull ahead of competitors because they deliver the basic product for lower prices thanks to superefficient operations that keep costs down.

In the UK, for example, 2017 research by GlobalData, a market intelligence company, shows the country’s retail market will be dominated by discount retailers by 2022, with low-cost sellers set to gain £9bn (Sh1,215bn) in sales over the next five years as consumers look for bargains.

In Kenya, this same model has seen poa! Internet offering home connections that are 20% to 70% cheaper than its competitors as part of its strategy to connect consumers in urban low-income areas and rural Kenya.