Capture the consumer
To survive the retail recession, businesses need to understand that they’re dealing with value-conscious, fickle, time-strapped and convenience-driven consumers.
06 November 2019 | Business
People are clever; consumers know what they’re doing. – Lynne Krog, Marketing & research specialist
This finding of the Roots 2019 Consumer Behaviour Survey is as applicable in Namibia as it is in South Africa, where the research was done, Lynne Krog, seasoned marketing and research specialist, says.
Speaking at a recent Business7 engagement, Food for Thought, Krog described the prevailing retail environment saying: “It’s a battlefield out there.”
When times are bad, less people are buying. And those people who are buying, are buying less, Krog says.
In an economy in its third consecutive year of recession, retailers in Namibia know that only too well.
The latest data by the Namibia Statistics Agency (NSA) shows that by the end of June this year, wholesale and retail spent 11 consecutive quarters growing negatively.
At constant prices, the sector’s contribution to the gross domestic product (GDP) has dwindled from 14.1% in the second quarter of 2016 to 11.6% in the same quarter of 2019.
Debt-ridden consumers are surviving on short-term loans, advances and credit cards, figures by the Bank of Namibia (BoN) indicate.
At the end of September, consumers’ personal loans and credit card debt at local commercial banks totalled nearly N$7.7 billion – about N$1.4 billion or 23% more than a year ago. Overdrafts exceeded N$3.4 billion, an increase of N$337 million or 11% within 12 months.
The latest statistics of the Namibia Financial Institutions Supervisory Authority (Namfisa) show microlenders’ total loan book at the end of the first quarter of 2019 stood at nearly N$5.8 billion, an increase of about N$850 million or 17.3% compared to the same three months in 2018.
Know your customer
The battle-scared consumer have the following characteristics – characteristics which retailers have to know and capitalise on to survive and grow in this tough market, Krog says.
“They’re more value conscious, so they’re looking for deals more. People are more fickle, so they’re going to be shopping across more retailers rather than just sticking to one. People are time-strapped and convenience driven.
“All this makes for a much more difficult environment for you to do business in,” Krog says.
It’s not just consumers at the bottom end of the market who are budget conscious and plan their shopping. The multi-million dollar research shows it is across the entire sample of LSMs - Living Standards Measures, a marketing and research tool used in South Africa and Namibia to classify standard of living and disposable income.
According to Krog, 88% of consumers in LSM 5 and 6 plan their purchases. This figure moves up to 89% for LSM 7 and 8. At the top end of the spectrum – LSM 9 and 10 – 90% of consumers now have a shopping plan.
Roots’ data show that people are buying less regularly than before. Those who buy clothes every two to three months or more often have dropped from 33% in 2013 to 25%. In comparison, those shopping for clothes every 4 to five months or every six to 12 months have increased from 51% in 2013 to 62%.
In the durable goods market the trend is even worse, Krog says. These market are “thinner”, meaning not very many people are in the market at any given time. “These are the industries that are going to be hit the hardest,” she says.
With more regular purchases, like coffee for instance, consumers will still buy, but they might cut their consumption. Maybe they’ll drink one cup of coffee per day instead of three, or start making it at home instead of getting take-out coffee, Krog explains.
An interesting phenomenon is the “lipstick factor”.
“When times are bad and you can’t afford a big holiday, you might treat yourself with smaller things like coffees coffees a day. Sometimes you actually see things like that picking up in bad times, but bigger, non-regular purchases tend to go down,” she says.
“The good news is that even when times are bad, life still happens. Things go on as normal – you’re fridge still breaks … things are still happening, they’re just not happening at the rate they did previously,” Krog says.
The trick is how retailers can tap into life that is still happening and get the sales that are still happening in order to grow.
“There’s this whole idea that you have loyal customers. They are loyal to you and they’re always going to shop at you.”
No true, says Krog: “You share your customers with other retailers, evidence shows. Always, you’re sharing. People aren’t loyal to you; you’re literally sharing.”
Her advice? Never rely on loyalty.
Evidence shows that even the retail group with the biggest market share has customers who shop elsewhere. “They shop at retail outlets according to market share.”
According to Krog, this is a very difficult trend to change. “It takes a lot of spend and a lot of hard work.”
Increasingly more consumers have loyalty cards. Research shows this has increased from 52% in 2016 to 72% currently, Krog says. “Also: more people have more loyalty cards.”
Retailers may think this is a good development as more consumers are “loyal” to their brand.
“Actually no, this just means that there are a lot of clever shoppers out there because they use the loyalty cards to get discounts. And what happens is that people who tend to have loyalty cards, tend to be heavy buyers or tend to be people who are going to be coming to you anyway.
“You’re giving discounts to people who are going to buy from you anyway. So your bottom-line is going to be affected by that.
“People are clever; consumers know what they’re doing,” Krog cautions.
“Tough times have real implications,” Krog says.
To win means more customers, slightly more often. “If there are less customers buying more often, that becomes even more difficult to do.”
She warns against market segmentation.
“You have to be incredibly careful not to segment your market. Taking very small group within your potential market and directing all your communications on them, means missing out on a whole lot of other people who are out there.
“It is very dangerous. It’s like writing a suicide note,” according to Krog.
Don’t focus on the “heavy buyers”, but less occasional buyers.
“If you focus on less heavy buyers, heavy buyers take care of themselves. They’re in the market anyway. Consistency moves the dial,” Krog says.
Penetration is the route to sustainable growth, research shows.
This means “building mental availability or power of the mind”. It means “being thought of when there’s a buyer in the market” and getting your brand into people’s minds.
Building physical availability doesn’t just imply bricks and mortar, but also pricing, she says.
“If you out price yourself, you’re going to lose a big segment of the market. Also you don’t want to price yourself too low so that you can’t sustain your business.”
A retailers brand is its best asset and one that it needs to “stick to as gold”.
Eighty percent of consumers use retailers’ inserts in newspapers to see what’s on offer, Krog says.
“If you’re not on the shelf, you’re not part of the planning. Over many years, people have developed the habit of knowing that this information is available to them in papers. When they make the decision to buy, they know that they can go there to find the place and price of where to buy.”
According to Krog, an effective media choice drives brand growth. “Papers tick all the right boxes,” she says.