Income spend determines consumer dynamics, report says
INCOME distribution rather than average income is key to understanding market opportunity and consumer dynamics in emerging markets, allowing for targeted portfolio strategies.
This is according to a report released by Economist Intelligence Unit Canback, which looked into how sub-national differences and the composition of income brackets across geographies played a key role in identifying market opportunity.
Canback managing director Staffan Canback said that distribution data could be interpreted to inform risk management and mitigating strategies as well as understanding new customer segments for product reach expansion.
“The income distribution data allows companies to accurately assess potential opportunities and prioritise market expansion.
“While tapping into these opportunities can be challenging, companies can look to income distribution data for a deeper understanding of emerging-market dynamics,” Canback said.
According to the latest Standard Bank Consumer Trends report, income per person in South Africa grew moderately at 0.4 percent in real terms between 2011 and 2016.
The report found that total personal income was estimated at R3 trillion in 2016, up from R2.8trln in the previous year, a nominal growth of 6.5 percent year-on-year.
However, accounting for population size, an average adult South African was poorer in 2016 than in 2015.
The 2016 adult population was estimated at about 39.7 million, from 36.3 million in 2011.
Canback said that income distribution data could be incorporated into predictive models for a more detailed understanding of market dynamics and it was better to break down the data by city-to-city and province-to-province to highlight opportunities that existed than just fixating on average income.
“However, these market sizing models can be augmented to include factors outside income. Additional variables come in two layers: the first includes other macro data covering industry and trade dynamics such as category data, marketing spend or distribution coverage and the second covers micro data such as insights generated from consumer surveys, for example, usage and attitude surveys”, Canback said.
South Africa is regarded as having one of the worst wealth distribution rates in the world, with its share of wealth held by the top 1 percent earners having increased to 20 percent by 2015, with 10 percent of the population holding 65 percent of the country’s total wealth.