The growth of the smartphone market in Kenya

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1 2015 Jumia Kenya // The Growth of the Smartphone Market in Kenya 1 The growth of the smartphone market in Kenya May 2015 Authored by: Sofia Zab, Head of Marketing, Jumia Kenya Abstract: The Kenyan smartphone market continues to experience substantial growth and it is easy to see why. The combination of a strong economic climate and increasing internet and mobile connectivity has created a favourable competitive landscape which has brought more brands and cheaper devices to the market. This white paper explores these trends and delves further into how consumers in this market are using and choosing their smartphone devices. The Smartphone Market is Growing Kenya is a country to watch: With a projected average GDP growth of 6.5% over the next three years 1 it can in 2015 lay claim to the title of the world s third fastest growing economy 2. Its mobile and Internet penetration are among the highest in Africa at 83% and 58% respectively of the million population 3. And a burgeoning middle class today makes up 22% of the country s population 4. The estimated number of Internet users stands at 26.1 million, making Kenya the 21st most connected population in the world. Of those, 99.9% access their Internet through mobile data 3. While feature phones still dominate, smartphones are catching up fast. In 2015 so far, 58% of all phones that were sold in the country, an estimated 150,000 devices monthly, were smartphones 5. This represents substantial year on year growth of 112% 6, compared to just a 3.6% increase in the feature phone category 7. Regionally Nairobi is still significant, currently generating over 42% of the smartphone sales in the country 5. Fig.1: Kenyan population by LSM Fig.2: Kenyan GDP growth, (projected) Fig.3: Internet, mobile and social media penetration figures: Global vs Africa vs Kenya

2 2015 Jumia Kenya // The Growth of the Smartphone Market in Kenya 2 Drivers of smartphone growth This incredible growth has been driven by medium- term macroeconomic and policy factors as well as more recent competition among telecommunications companies and handset makers. Starting in 2009, the Kenyan government has been investing in undersea fiber- optic cables, which continues to expand Internet penetration rates in the country at a rapid pace. According to the Communication Authority of Kenya, this new infrastructure has been the main driver behind a massive 25% YoY increase in Internet subscriptions in Q alone 3. At the same time, fierce competition between Telcos has been steadily decreasing the cost of data, with secondary Telcos aggressively challenging the incumbent leader Safaricom. Consumers, eager to take advantage of offers from different companies, are therefore investing in dual- SIM smartphones. These types of devices experienced a healthy YoY growth of 34% in Q Fig.4: Smartphone market figures in Kenya, 2011 vs 2015 comparison 5 A new brand landscape Kenya s economic boom and increasing Internet connectivity have made this economy a very attractive market for new entrants in the smartphone category. In recent years, the country has seen an influx of newer Chinese brands bringing high- spec, low cost devices to the Kenyan market. This has affected the competitive landscape such that it would not be an understatement to claim that the ballgame has completely shifted: in the MEA region, smartphones priced under $100 captured 5% of the market in This increased to 20% by Many new vendors have taken advantage of this golden price point and launched devices that have led them to be able to effectively challenge the dominance of established players. According to GFK, since 2011 the number of brands selling smartphones has increased from 15 to 22. This has driven incumbent brands to respond to the competition with their own new low to mid tier models. As a result, price points of smartphones have gone down across the board, making the technology available to a much wider segment of the general population. In Kenya, the growth in smartphone sales by number of devices was 90% higher than the growth in revenue in 2014, suggesting that average price points are dropping steeply 5.

3 2015 Jumia Kenya // The Growth of the Smartphone Market in Kenya 3 Survey of 576 Kenyan smartphone users In May 2015, Jumia.co.ke, Kenya s biggest online retailer, conducted original research based on a survey of 576 Kenyan smartphone users to delve deeper into how consumers in this market are choosing and using their smartphone devices. The survey responses were collected through Jumia s network, including callers to its customer service line and social media followers. They should therefore be regarded as a sample representing a typical consumer that e- commerce companies in Kenya might target. 36% of survey responses were Female and 64% male, broadly matching the demographics of Internet users in the country as a whole. The biggest age bracket was year olds, at 59% of responses, followed by year olds at 30% and year olds at 10%. Just 2% of the respondents, or 10 individuals, were aged over 45. Fig.6: Answers to When did you buy your last smartphone? Fig.5: Demographics of Jumia.co.ke s survey of Kenyan smartphone users The average number of smartphones ever owned by Kenyans is a whopping 3.1, with that figure being 24% higher for men. The biggest gender gap by age was found in the year old segment, with men having owned 47% more smartphone devices over their lifetime than women. This may suggest that men are more responsive to new technologies in that age bracket. However, this is not a concern at all when considering year olds, for whom lifetime smartphone device ownership is almost equal at 2.9 for women and 3.1 for men. Despite the fact that young people generally make less money, it is clear that they are willing to invest more to keep up with the latest consumer technology products. The survey results support the wider economic trend of rising smartphone sales: Almost half of all Kenyan smartphone users bought their most recent smartphone less than 6 months ago. However, it was the first smartphone for only 7% of respondents marks the year that first- time smartphone ownership ballooned, with 67% of users purchasing their first such device since then. This trend is strongest for year olds, 75% of whom waited until after 2012 to make the jump, while year olds were the clear early adopters with 45% investing before that time. Fig.7: Answers to How many smartphones have you ever owned?

4 2015 Jumia Kenya // The Growth of the Smartphone Market in Kenya 4 Usage Habits are evolving We asked smartphone users what activities they use their device for. The most popular activity was chatting and social networking at 78%, higher than calling which was named by 75% of users. E- mails and online browsing both accounted for 69%, followed by the data heavy activities falling under entertainment: 57% of respondents played games, listened to music or watched videos on their smartphone. 49% of users claimed to use their smartphone for online shopping, pointing to the fact that the sample was taken from the network of Jumia.co.ke, Kenya s biggest online retailer. In a recent IPSOS survey, 1% of all Internet users countrywide claimed to pursue this activity 8. The least popular activities were online banking at 26% and checking weather, sports scores or the stock market at 25%. The latter however had the biggest variation among the genders: 113% more men claimed to use their smartphones for this than women. Unsurprisingly, the year bracket is much more likely to use their smartphones for academic purposes: 33% above average. Conversely, this age group was also 33% less likely than average to use their smartphone for online banking. Another outlier was that year olds were not keen on using their smartphones for entertainment purposes, with 26% fewer people naming this activity compared to the sample size taken as a whole. Fig.8: Answers to: What do you use your smartphone for?

5 2015 Jumia Kenya // The Growth of the Smartphone Market in Kenya 5 Frustrations When asked about their biggest frustrations with smartphones, the answer was clear for all: 78% of respondents named battery life as the feature most deserving of improvement. This was followed by 47% who stated memory and 36% that mentioned program crash and general instability as problem areas that they experience. The youngest demographic distinguishes itself as the most critical year olds selected an average of 3 smartphone issues they are frustrated by, while for others the average was around 2.5. This age group is also 35% more likely to be frustrated by data privacy concerns, 24% by program crashes and 22% by camera quality than the average. Fig.9: Answers to: What are your biggest frustrations with smartphones? Purchase drivers When it came to main purchase drivers, Jumia asked respondents to name their 3 most important out of 6: Price, Brand, Memory, Camera, Size and Battery life. It is clear from the responses that Kenyans are savvy consumers looking to get the best features for their money. The top 3 purchase drivers were memory at 72%, battery life at 59% and camera at 56%. Fig.10: Answers to: What are your biggest frustrations with smartphones?

6 2015 Jumia Kenya // The Growth of the Smartphone Market in Kenya 6 The brand of the device was only mentioned by 44% of respondents as being one of the most important considerations. Females however were 15% more likely to list brand than males, and 10% more likely to list the camera capabilities. And though screen sizes have been steadily increasing in recent years, Kenyan consumers seem to be happy with what s on offer, with only 33% considering this feature key to their purchase decision. When looking at these purchase drivers by age group some interesting and perhaps counter- intuitive insights emerge. The age bracket named price at a 5% lower rate than the total sample size, while year olds were 14% more likely to be swayed by price. This older segment also cares 11% more about the brand of the. For the youngest demographic, Memory, Camera and Battery life are all 12% more important compared to the overall share of responses prioritising these features. Putting the data into practice For Kenyan consumers, quality is king. Our survey results support the wider economic trends: Kenyans are above all looking for value for money. This means that they are willing to shift brand loyalty if they can find better features and service for a better price. Brands wishing to get ahead must therefore keep innovating on their smartphones features, put attention into great after- sales support and get creative in order to win the price war. In recent years, interesting examples of industry partnerships have emerged that have enabled device makers to further strengthen their value proposition to Kenyan consumers. 1. With Retailers (Eg: 6 top smartphone brands have partnered with Jumia.co.ke for a week long sales promotion called #JumiaMobileWeek in June The online retailer invests in marketing on the brands behalf, allowing them to keep prices low.) 2. With Telcos (Eg: Jumia has partnered with Airtel during its #JumiaMobileWeek promotion to give consumers 6GB free data on all deals that are part of the sale) 3. With App & Content producers (Device makers should consider partnering with app companies to pre- install content that will add value to the consumer. Eg: Samsung partnership with Dropbox for free cloud storage) Sources: 1. World Bank forecasts Kenya s GDP growth at 6pc for 2015, March 5, The 20 Fastest- Growing Economies This Year, February 25, Quarterly Sector Statistics Report (Oct- Dec 2014), Communications Authority of Kenya 4. IPSOS, Media CT, Interview with representative of GFK East Africa 6. MEA Smartphone Market Rockets as Cheap Devices Spur Surge in Demand, International Data Corporation, April 26, 2015