Data insights: Getting to grips with SA’s purchasing power dynamics

When it comes to effective media segmentation, the moment when feisty footballer Rod Tidwell shouts “show me the money” to his agent in the movie Jerry Maguire, may resonate with most marketers. Because now more than ever, businesses look to their brands to deliver more strategic clout that translates into sales.

At the core of socioeconomic segmentation and the socioeconomic measure (SEM) cluster model is the precision and agility needed to identify people with the potential to become purchasers, or even existing purchasers with the potential to switch brands. This is always a matter of balancing out the promise implied by a higher incidence of purchase and potential volume of purchase.

Watch | Purchasing power video below:

Incoming ratios in household income

Household income (HHI) provides the most illustrative assessment of purchasing power across the have and have-not divide in SA.

The “PPP (People, Products & Platforms) Fusion Study 2020” by the PRC, BRC and Nielsen reports an average HHI of R13,391. At R3,989, the traditional market known as SEM C1 has the lowest HHI and though it represents 11.4% of all households, it accounts for only 3% of the total monthly HHI in SA. This converts into a power a ratio of ƒ0,3 (total income % ÷ total household %). 

There is a progressive increase in earning power and implied purchasing power as we track up the SEM scale.

The middle market, referenced as SEM C3 (R9,114) is below and the upper-middle market of SEM C4 (R18,510) above the HHI norm. This relative per capita contribution is reflected in the shifting segment power ratios (SEM C3 = ƒ0,7 and SEM C4 = ƒ1,4).  With respect to income, the midpoint of inflection for the SEM model occurs at that point where SEM C3 transitions into SEM C4: between the 65th and the 66th percentile.

Hyperlink between employment and education

There is a strong predictive correlation between employment status and earning power. This module in the Market Segmentation SA series applies the broader definition of unemployment as being “all those who are not in paid employment or self-employment but who are currently available”, rather than the government’s narrow definition of unemployment which excludes those who are not actively seeking jobs.

More than 50% of adults in SEM C1 (traditional market) and SEM C2 (transitional market) are unemployed, and only one in every four adults works full or part-time. What is alarming is that when we interrogate the data for youth (age 15 to 24 excluding learners), 81% in SEM C1 are unemployed, compared with a statistic of only 24% youth unemployment in SEM C5 (elite market). The enormity of this challenge at a household level represents the most pressing task for the SA economy.

The link between education and employment is most evident. In SEM C5, 85% of adults have completed their schooling and 42% have a post-matric tertiary qualification of some kind. Employment is at its zenith (70%) among this well-educated tertiary qualification group. This goes a long way to explaining the unrelenting emphasis on access to university education in less affluent communities.

As an alternative to full-time or part-time employment, the informal economy dominates many sectors of the market. Only 4.6% of all South Africans are self-employed (9.7% in SEM C5) but of these, 85% operate in the informal sector. In SEM C1 and SEM C2, 92% of people who are self-employed operate in the informal sector. This informal sector orientation is also reflected by the low levels of formal banking in SEM C1 as only 51% of people in SEM C1 are banked, compared with 92% in SEM C5.

In the lowest SEM segment, one out of every three adults (35%) is dependent on state-funded social grants for survival.

Big click to online shopping

A look into shopping habits confirms the recent impact of online shopping on the local retail market. About one in 10 South Africans (8.7%) have shopped online in the past month. At this stage, two-thirds (69%) of all those online shoppers in the country are found in SEM C4 and SEM C5, and in this top cluster, 27.9% of people are monthly online shoppers. This has huge implications for advertising and media strategy in 2021.

In SEM data, segmentation for media strategy is more often than not a trade-off between targeting wealthy “high-incidence” segments and the middle market that invariably offers the largest volume of purchase. Analysis of a typical household FMW (fridge, microwave, washing machine) appliance mix illustrates this point. SEM C4 and SEM C5 will always have the highest FMW incidence, but SEM C3 accounts for 41% of all FMW appliances in SA. SEM C2 accounts for 38% more FMW appliances than SEM C5.

The implication of such dynamics is that advertising and media strategists need to go beyond the traditional “pitch it high and let it trickle down” approach. Brand custodians must recognise that there is a highly viable and active market outside high-end households in Gauteng, Cape Town and eThekwini — and more emphasis from advertisers should be placed on relative pricing and deep distribution beyond the top two SEM clusters.

It’s possible to perfect purchasing power ratios but this needs a media strategy and buying team with the experience to cut through the clutter of substantial market data and pinpoint the best audience fit for a business — as it is only when we reach this point — that we begin to talk about ultimate purchasing power.

In the next segment of this blog series for marketers, Ebony+Ivory reviews products in SA.

About the Ebony+Ivory Marketing Segmentation SA Series

Drawing data and insights from the most recently published industry database PAMS 2019 (released April 2020) and the Nielsen Fusion Study 2020 (released November 2020), we interrogate the SEM model through four lenses: People and Places, Purchasing Power, Products and Platforms.

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This article was paid for by Ebony+Ivory.