Just when you’d thought you’d recovered from the budget speech, here comes yet another insight into the state of the South African consumer. The TransUnion Consumer Credit Index offers a snapshot of the average South African’s credit health – a must-read if you’re looking to understand your customer base.
The good news is that household debt has been fairly stable, although it pays to put this in context: this kind of debt accounts for 74% of disposable income in South Africa. The bad news is that household cash flow is at its lowest level since 2009, thanks to higher inflation without a corresponding rise in income.
To translate all of this from Economist to English: credit health is stable but not particularly healthy, and consumers have less disposable income to throw around.
What this means for retailers
First, pat yourself on the back. Before 2014, there was a lot more unsecured spending and borrowing. The National Credit Amendment Act made it much more difficult to grant credit, and lenders have adapted to this new reality responsibly. Fraudulent and reckless lending is down as credit providers follow the due diligence, to ensure consumers can afford repayments.
That said, there are some obvious challenges. Lower household cash flow means consumers have less money to spend, leading to poor business growth. This impacts not just individual businesses but the economy as a whole. We only need to look at the poor recent growth figures from major brands (with the notable exception of low cost supermarket chains like Shoprite) to see the impact. And the CCI report suggests that retail sales volume growth will remain sluggish in the coming 12 to 18 months.
Looks like a depressing picture all around – it’s almost enough to have you reaching for the bottle, if only you didn’t have to pay more sin taxes on your favourite Cab Sauv. However, to slightly misquote a famous Churchill saying, “A disruptor sees the opportunity in every difficulty.”
The current situation is shining a light not just on consumers, but businesses – exposing who’s more relevant to their customers. And instead of simply asking themselves how they can stop the bleeding, they need to reconsider the value they add to consumers and the way they do things, even down to the business models through which they operate. They need to ask themselves what value they truly offer customers, to get them to willingly part with their increasingly precious money.
Even when household spending improves and consumers have more liquid cash to spend, the demands of the digital marketplace will still be there. With every passing year, customers will demand more value, omnichannel capability and real-time delivery of services from their brands. Don’t shrug your shoulders and think you can weather the storm. Rather use it as your burning platform to transform your organisation into a fully digital, data-centric one.
Doing it with data
How can you keep your customers happy if you don’t know what they want? Let’s go back to our earlier picture of the state of credit provision for a great example. Now, the NCA is great in that it prevents reckless lending, but it also has the side effect of preventing many South Africans from acquiring assets and taking out loans. This is especially true when you consider how many South Africans are currently unbanked, with no credit history to speak of.
Let’s take a hypothetical consumer who wants to buy furniture for his home. Sounds easy… except a few years ago, when he was unemployed, he was unable to make his cellphone payments for a couple of months. This makes him a credit risk, as his credit history is traditionally the only means to determine this, which implies that he likely won’t be able to take out credit for his furniture suite.
But what if we were to ask the right question – how can we reliably predict whether he can make the repayments – and gather the right data to give an answer? Perhaps by taking into account not just his trended credit data, but also alternative data sources that paint a more complete picture?
By applying data effectively, retailers could give customers like him what he wants, without incurring risk themselves or exploiting someone who can’t afford it. This strategy is one that’s paying off for companies around the world. Take that same thinking and apply it to other aspects of your business, and you can find out what works and what doesn’t for your customers, as well as how to better deliver your services to them.
To put it simply, what are you doing to deserve your customers’ attention? And how can you use the tools you have available – from alternative data to insights-driven marketing – to make yourself a necessary part of their life?