Isana Cordier | Head of Consumer Goods and Services | Absa Corporate and Investment Banking | mail me |
Whilst listening to a recent presentation by Absa’s equity analyst Samantha Naicker titled ‘Navigating the Maze’ on South African Food Producers, I stumbled on a theory dubbed ‘The Lipstick Effect’. As defined by Wikipedia, when consumers face an economic crisis, they will be more willing to buy less costly luxury goods but will continue to spend money on small indulgences.
Thus, when consumer trust in the economy is dwindling, they will buy goods that have less impact on their available funds but still make them feel good about themselves and life in general.
However, despite lockdown levels easing, the COVID-19 crisis has not led to the traditional ‘Lipstick Effect’ witnessed in past eras. As a result, the theory of spending more on less costly luxury items that will make you feel better about yourself has seemingly failed – well, when it comes to lipstick, at least.
The crisis has resulted in different behaviour from consumers than anticipated. They opted for spending money on home improvements and home entertainment rather than luxury feel better goods such as make-up and perfume. As a result, home environment became the primary focus of spending and ‘necessary’ for survival. Based on our card spending data, the trend continues, whilst the return to ‘normal’ pre-COVID-19 world of work, travel, and social interaction, remains elusively out of reach.
I started thinking further about the drivers of consumer behaviour and how the pandemic has also accelerated online and omnichannel retail beyond expectations. Looking at our data, it is clear that while e-commerce was starting to gather some traction, the lockdown was the catalyst for a step-change in adoption. While foot traffic in malls is starting to pick up, there’s an apparent increase in the number of people whose behaviours have shifted to online. It now has become a habit consumer’s have adopted.
Considering the aforementioned, it is noticeable that consumers are effectively the ultimate drivers of trends and change. The South African economy (and many economies globally) face several significant structural challenges, for which we require such change. Furthermore, it is becoming clear that we will need to start thinking differently about how we influence behavioural changes to drive consumer adoption of necessary trends, technologies and industries for much-needed future growth.
‘Buy Local’ initiative
One of the long-standing criticisms of the South African government is that it has failed to identify strategic sectors and industries to support and capacitate. Is this because we often try to be all things to all people and fail to identify industries that we can excel in or those critical in the local economy regarding job creation or export revenue potential?
Over the last few years, there has been a focus on establishing sectoral Master Plans with a combination of tax and financial incentives to attract…
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Read the full article by Isana Cordier, Head of Consumer Goods and Services, Absa Corporate and Investment Banking, as well as a host of other topical management articles written by professionals, consultants and academics in the August/September 2021 edition of BusinessBrief.
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