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Understanding #BlackFriday And South African Consumer Behaviour

Understanding #BlackFriday and South African consumer behaviour

Irrespective of its domestic origins, Black Friday is a cash cow for local retailers. BankservAfrica (the continent’s largest automated payments clearing house) recorded R2.5 billion worth of transactions on Black Friday in 2o17. The 4.7 million card transactions that it cleared on the Friday were double the daily average.

South African retailers Takealot and Checkers both claim to have debuted the concept of Black Friday in South Africa in 2012 and 2014, respectively. Takealot is generally regarded as the local pioneer of online Black Friday, with Checkers being the first to do so in brick-and-mortar format.

On a broader scale, data from Facebook indicates that Black Friday is the busiest online shopping day in South Africa. Survey data shows that nearly nine out of 10 South Africans know what Black Friday is. In order to benefit from changing buying patterns, retailers are extending their Black Friday offerings to a week or more leading up to the day and the days thereafter, including the ensuing weekend leading up to Cyber Monday.

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Retailers are also responding to the fact that Black Friday generally occurs ahead of private sector payday on the 25th. While salaries are likely to be paid out on the 23rd this year due to the 25th falling on a Sunday, this is the exception. (Black Friday falls on the 23rd this year – the earliest since 2012.) It has been suggested that South African retailers should collectively reschedule Black Friday to after the 25th. However, this is unlikely to happen, as local companies would risk losing business to international Black Friday promotions that would continue on the day after Thanksgiving.

Are South African consumers in a better financial position compared to 2017?
Wallet squeeze have seen South African consumers growing increasingly sensitive to prices and promotions over the past several years. However, this has also made shoppers more susceptible to large price discounts on non-essential products.

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Does the local economic climate allow for South African consumers to indulge in Black Friday promotions? What is the state of household finances in this regard?
There are both negative and positive considerations in this regard. On the negative side, the most recent gross domestic product (GDP) data indicates that the South African economy was in a recession during the first half of 2018. Higher frequency data also suggests that private sector activity also deteriorated during the third quarter of the year. South African consumers are also currently experiencing record-high fuel prices. The retail petrol price increased by a cumulative R3.32/litre during the April–October period as a result of higher internal product prices and a weaker exchange rate. Partly as a result of higher fuel prices, headline consumer price inflation has increased from 3.8% year-on-year (y-o-y) in March to 4.9% y-o-y in August and September. Around 0.6 percentage points of this increase was associated with an increase in value-added tax (VAT) in April this year.

On a positive note, the narrowly defined unemployment rate is currently below the 14-year high levels seen in 2017. Despite the recession, total employment increased by 1.2% y-o-y during the third quarter of 2018. (Admittedly, this was driven by job growth in the informal sector.) Consumer confidence returned to net positive territory this year after four years in net negative territory. The recovery this year is linked to the appointment of a new national president, a cut in interest rates, better rains in the drought-stricken Western Cape, significant wage increases for public servants, and a slowdown in food price inflation. A 25 basis points cut in interest rates during March and deflation in the price of imports (excluding crude petroleum) have also benefitted consumers at the retail level. Inflation adjusted retail sales increased by an average of 1.5% y-o-y during the third quarter. Sales of household furniture, appliances and equipment increased by a significant 9.1% y-o-y, suggesting improved consumer spending activity.

Despite these positive factors, financial planners and savings experts are warning South African consumers to not indulge in the allure of mega discounts – especially when such purchases are made on credit. According to the National Credit Regulator (NCR), four out of 10 credit active consumers are in poor standing – i.e. accounts are three or more months in arrears. With both positive and negative developments over the past 12 months affecting the broader economy, it is up to individual households to evaluate their financial capabilities in the face of heavy Black Friday discounts.
Some might even suggest using available funds to invest, rather than spend. Listed retail shares generally rise on Black Friday. And unlike equity trading in major markets like the USA and Japan being limited on Black Friday, the Johannesburg Stock Exchange (JSE) has a normal trading day.

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Behavioural economics helps explain consumer indulgences on Black Friday.
Ever wondered why South African consumers discover their inner shopping maniac on Black Friday? According to PwC’s Strategy and behavioural economists, rational decision-making abilities are at their weakest on Black Friday, as marketers can easily leverage consumers’ cognitive make-up to get them to spend more.

The following is a list of the top behavioural traps that consumers should be wary of as they navigate the frenzy of the upcoming Black Friday sales:
1. Framing: Globally, retailers have generated a hype around the Black Friday phenomenon. Although Black Friday is relatively new in South Africa, local interest is at all-time highs. Framed as a once-a-year sale, we view it as an extraordinary event and associate it with extreme price cuts.
2. Scarcity and loss aversion: Panic spreads when shoppers fear they may miss out on the best sales deals. Retailers commonly spark consumers’ interest by highlighting limited stocks available for a limited time only, which raises the perceived value of these goods – after all, rarity and value are deeply intertwined.
3. Herding: We find comfort in fitting in with the actions of others, which has its roots in our own evolution. However, the actions of others can also drive us to irrational behaviour.
4. The halo effect: One exceptionally good sales deal can create the perception that all of the retailer’s deals are also steals by association.
5. Confirmation bias: As consumers, we are likely to factor out any additional costs associated with our shopping trip on Black Friday, including transport and parking costs, time and effort.
6. Initial pain: It hurts to spend an initial R50, but it is much easier to spend a further R10, R20, or even another R100 after that initial purchase. The amount of pain we experience decreases with every extra rand after the initial payment, paving the way for excessive spending on things we would otherwise not purchase on Black Friday.
7. Sunk cost fallacy: Once we have started to invest, we tend to struggle to close out investments that prove unprofitable. On Black Friday, if we have already made the initial upfront investment of getting up before sunrise, driving to the mall, finding parking and waiting in line for the store to open, we will be inclined to buy more than we initially came for.

Article by PwC Strategy & economists Lullu Krugel, Christie Viljoen & Maura Feddersen with contributions from Nina Kirsten and Genevieve Frydman
Images: Shutterstock

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