Retailers will have to increasingly demonstrate that they offer customers value for money if they want to attract and retain the country’s “cautious consumer”, research from management consultants McKinsey & Company suggests.
“Our research shows that the perception of value for money is by far the biggest factor influencing South African consumers,” note the South African authors of McKinsey’s country report on its Global Consumer Sentiment Survey, which explores how consumers’ sentiments towards their financial prospects affect buying behaviours.
The online survey was conducted in September 2015, analysing a relatively more affluent and urban population in South Africa and across the globe. The global survey involved more than 22 000 respondents from 26 countries. The data is age- and income-weighted, with category-specific results weighted by purchase incidence.
Despite the fact that South Africa’s consuming class grew to nine million households in 2015 – accounting for $191 billion in household spending – annual growth in household spending has remained a moderate 2.8% over the past five years and 1.6% in the past year, according to McKinsey.
Under tremendous financial pressure, South Africans have “had to dig into savings or make purchases on credit”, McKinsey finds, with survey respondents electing to delay purchases or cut back on spending in a precarious economic environment.
This caution is not unique to South Africa, with 28% of global survey respondents saying they are finding it more difficult to make ends meet than they did a year ago and 26% saying they live paycheque to paycheque.
Globally, 53% of consumers are worried that they or someone in their household will lose a job in the coming year. This increases to 68% in South Africa.
Source: McKinsey Global Consumer Sentiment Survey, 2016
Searching for sales
The survey highlights four traits identified among South African consumers that McKinsey believes consumer goods companies should bear in mind.
South Africans are, says McKinsey, proactively searching for ways to save money; remaining loyal to brands only if the price is right; trading down to save money; and shopping across different channels to find value.
South Africans haven’t necessarily dumped their preferred brands, but are now “shopping around to find retailers that sell these brands at lower prices”, McKinsey finds.
“Some are also purchasing in smaller quantities, waiting until the brands are on sale, or buying only with discount coupons,” note the authors.
The consumer goods categories with the highest trade-down rates are pasta, bottled water and household cleaning supplies.
Source: McKinsey Global Consumer Sentiment Survey, 2016
“A small fraction of South Africans bucked the trade-down trend: 5% decided to upgrade their purchases in certain categories – in particular, alcoholic beverages and cosmetics. This indicates that higher-end brands in these categories can thrive even in a depressed economy, so long as they can persuade consumers that they are worth the price premium,” says the report.
South African respondents also said they had shifted spending away from informal traders and more towards modern retailers in order to access a broader range of products at lower prices.
What should consumer goods companies do?
Retailers and consumer goods companies need to be seen to be offering value for money, says McKinsey.
Value is not only about low prices, according to the firm, and can be communicated through targeted promotions, “consistent value communication across all consumer touch points” and “price investments” in items that consumers are most likely to shop around for.
“Any price premium needs to be explicitly linked to well-defined benefits.”
Companies should use sophisticated data tools and analytical talent, including revenue-growth-management (RGM) capabilities, to ensure accurate customer data informs business decisions, says McKinsey.
Companies should also be “crystal clear” about who their target consumer is, rather than trying to appeal to the “generic consumer”.
“Winning retailers don’t try to differentiate themselves in every possible dimension, but rather in only one or two,” says McKinsey.
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Source: Money Web