How are South African consumers reacting to the recession? – Paul Egan
As South Africa officially sank into recession in early 2009, the UCT Unilever Institute of Strategic Marketing and Bateleur Khanya Research Solutions (BKRS) undertook to find out how South Africans from all walks of life are responding to the economic downturn. Targeting LSMs 5 and above, the study surveyed 2 500 people from across the country’s major metropoles. Many of the issues were explored further through a series of focus group sessions and video interviews.
It was clear from the study that the rapidly changing economic landscape was fundamentally altering consumer decision-making and behaviour. However, it was equally apparent that not all consumers were being impacted to the same degree. Many are really feeling the pinch while others remain cautious because they are living in what they perceive to be very uncertain times. It is also a case of different strokes for different folks when it comes to strategies employed by consumers to ameliorate the effects of the recession.
Ironically, almost no one was able to give our field workers an accurate definition of a recession. However, all respondents were able to articulate exactly which symptoms of the recession were ailing them – especially skyrocketing food, transport and energy costs. They were also quick to voice their fears of retrenchment and to report their conscious decisions to cut back on luxuries.
Another major finding was that in many instances it is people’s perception about the recession – rather than reality – that is fuelling a massive change in their buying habits. Even though many South Africans are feeling the consequences of the recession, many others claimed they had not yet experienced the impact of the current economic crisis. Despite this, nearly 80 percent said they have become more cautious with their spending, and 59 percent say they have changed their shopping habits, as a result of the recession.
The harsh reality is, however, that most consumers are being squeezed, although to varying extents. To understand these differences, Project Reboot segmented the LSM 5 + market into six groups, namely: Strugglers, Youth, Pre-family, Young families, Older Black middle-class and Prime Timers.
It is also important to note that each segment is experiencing the recession differently. Thus, marketers need to understand how to best provide what each group needs to help their consumers and ensure the success of their brand. The findings clearly revealed two segments of the population that are more recession-resistant – the affluent and over 40-year-olds (Prime Timers) and the Pre-family segment. Pre-families have no financial obligations involving children, while the former are at a stage of their life where they are largely debt-free.
The research demonstrated that two overriding factors are motivating consumer behaviour in this climate: financial flexibility, which determined how much room respondents had to manoeuver with regard to spending, and; confidence levels which dictated their personal experience of the recession and their expectations of the future.
Those at the lower end of the earning spectrum (LSM 5 to 7) – termed Strugglers in this project– are being squeezed the most. We estimate that almost half of economically active South Africans could now be considered ‘Strugglers’.
Strugglers are despondent and have no room to manoeuver financially. They have limited choices and no financial flexibility due to the fact that food, transport and energy costs keep rising. Their wages and salaries are fixed and this means they have to cut back on all non-essential categories of spending, as cutting food or transport costs is not always possible. Even when there are interest rate cuts, these savings are offset by increases elsewhere – especially in transport and food.
The value proposition is being scrutinized as never before by Strugglers as they are not able to take purchasing risks. This group will remember disappointments and unfulfilled promises long after the recession has passed. In this time of huge uncertainty and flux, the opportunity exists to capture hearts and minds by empathizing with consumers’ hardships and by focusing heavily on value and price. Consumers are putting a high emotional price on brand integrity and deserving brands are likely to enjoy long-term brand loyalty.
The Youth Market
In stark contrast to the despondency of Strugglers is the Youth market (18-25 year olds, LSM 8+), which although not financially endowed, is blessed with enormous optimism and confidence in the future. As young adults who are either studying or have just entered the job market, this group is used to living in relative state of permanent recession – often reliant on student loans and parental handouts.
In general, we found that the Youth market is operating differently in a tighter economic environment, but that they are used to being flexible in order to maintain their lifestyle. As an innovative cost-saving strategy, many young adults are holding on to their student accounts even though they are now working.
Although this segment may have a ‘short-term’ mindset, they are extremely marketing literate and are quick to pick up on marketing communications and are highly critical of advertising they perceive to be patronizing. One of the main lessons we took away was not to ‘talk down’ when communicating with this segment – tell it like it is and you will more likely to cut through the clutter to get their attention.
This group (LSM 8+, 25 to 40, no children) generally has a reasonable amount of financial flexibility and relatively high confidence levels.
Pre-families have fewer financial commitments and are free to indulge and think about [themselves]self, but are aware that their financial flexibility is being curtailed. However, maintaining their lifestyles is still very important to them. They voice their relief that the effects of the recession are only being experienced at the edges of their lifestyles. We noted that their socializing behaviour is beginning to change, with many choosing to socialise at home, and put major purchases – such as new cars – on hold.
The lesson for those targeting the Pre-family segment is not to compromise on your brand image, but do what you can to make it more affordable.
As with the previous group Young Families (LSM 8+, children under 12) also have a reasonable amount of financial flexibility and relatively high confidence levels.
The main insight gained from Young Families is that family values and children’s needs govern decision-making. Their financial flexibility is more limited and they are the sector most dependent on credit. However, Young Families make emotional trade-offs in relation to the needs of their children, for example, forgoing luxuries as opposed to paying for services and products they perceive as necessities for their children.
The way they socialise is also beginning to change with more time being spent at home. They are becoming increasingly financially savvy and are moving in greater number from using credit cards to using debit cards, for example.
The Older Black Middle Class
This group (black, LSM 7 +, 40 +) is entering a consolidation phase as they enjoy the comforts of a middle-class lifestyle.
Respondents in this sector reported an increasing awareness of the need for financial consolidation and are rationalising their financial services and insurance products to get the most value for money. They are also focusing on repaying debt and are reluctant to accumulate further debt.
These consumers still readily respond to products and services they perceive and experience as embodying excellent quality and giving real value. Self-image and brand status are still important motivating factors, but acknowledging and speaking to the consolidation phase the Older Black Middle Class are entering, will definitely pay dividends.
Financially astute Prime Timers (WCI, LSM 8+, 40-69) have had the benefit of living through previous recessions. They are very aware of its repercussions, despite not being personally affected by the current downturn.
Their philosophy is to ‘wait and see’ and they are employing holding strategies to ride out the recession. This segment has the lowest reported level of debt and is the least likely reduce their monthly debt repayments.
Brands need to acknowledge that for Prime Timers experiences are more important than ‘things’ and that exceptional service and customer treatment are not only expected, but demanded.
For Prime Timers and Strugglers alike, our research has crystallized that it is crunch time for all economically active South Africans. What is certain in these uncertain times is that we have entered a defining moment in our history and the ramifications of this recession will be felt a long, long time after it fades from memory.
As the grip of the recession tightens and South Africans tighten their belts accordingly, there is no choice but to rise to the challenge.
Paul Egan is a Managing Consultant, UCT Unilever Institute of Strategic Marketing. Paul has an MBA from Stellebosch University and has also worked for LondonWaste, Telewest, Barclays and the Qualitative Consultancy.