South Africa is a price-sensitive market, and times are set to get tougher. Can small to mid-sized local technology retailers hope to compete with cut-price mass market retailers for a share of the local PC and technology spend?
In South Africa, mass market retailers – defined as those large retailers dealing in a broad assortment of goods – account for around 55% of the technology hardware market, followed by specialist and consumer electronics retailers at around 35% and furniture retailers and mobile phone specialists making up the remaining 10%, says market research firm GfK. By these definitions, retailers such as Game and Hi-Fi Corp are mass market retailers, while large but specialist chains such as Dion Wired are not.
Nicolet Pienaar, business group manager: Information Technology, Telecoms, Office and Photo at GfK Retail and Technology SA, says this balance has remained fairly stable for some time.
However, South Africa’s new junk status and pending price hikes on imported goods could change the status quo. “In South Africa, there’s still a relatively low penetration of notebooks, so a large proportion of local sales are to first-time buyers who purchase entry-level devices. In fact, there's around a 55% Celeron share in the local market at this stage,” she says.
This segment makes computer buying decisions solely on price, which is why local sales surge in line with promotional offers. In this segment, there's very little brand loyalty, limited understanding of the technology, and a significant need for support and service.
Buyers shop for special offers and seasonal conditioning and broadsheet advertising play an important role in driving sales.
“Black Friday, for example, has forever changed the local market,” says Berno Mare, product manager at GfK. “Black Friday last year was big, but this year we can expect it to be even bigger, with November sales exceeding traditional Christmas season sales surges.”
Junk becomes real
Pienaar says the pending price hikes are likely to take notebooks back out of reach of the entry-level consumer. “Where under R5 000 might have been considered the entry-level price until now, we can expect price increases of anywhere between 10% and 16%, and entry-level notebooks will approach the R6 000 mark.” This could drive consumers to retailers that offer compelling bundled offerings, value-adds and payment terms, she notes. “Furniture retailers and telcos have a tradition of offering payment terms, so we could see them growing their share in the market on the strength of this.”
Mare says the smaller technology retailer could still find opportunities for growth in the looming tougher economic climate. “The smaller business could focus on a niche area – such as B2B support or the gaming market.
They could also build their service offering to address the needs of the largest potential market – such as students or schoolchildren – taking products to target areas roadshow-style, or partnering with educational institutions to offer special deals.”
Building unapologetic brand value
James Maposa, business development director at brand consultancy Intergroup Brand Science, believes there are opportunities for mid-sized and smaller retailers to thrive, even though the South African market is increasingly price-sensitive.
“If mid-sized and smaller retailers can’t compete with mass merchants on price, they need to take a different approach. They might compete on unique offerings, possibly by stocking innovative local technologies, by offering enhanced service levels, or by developing a unique customer experience.
It’s also about location. Smaller retailers can’t compete with the giant retailers for prime locations, but they can enter under-served, smaller markets such as smaller towns, and grow in those markets before competing in the markets with more intense competition,” he says.
“Consumers want to save money where possible, but they don’t always opt for the cheapest product,” Maposa notes. Consumers typically seek a price-value balance, he says, and this is where the canny smaller retailer can step up to offer a strong value-for-money proposition. “What the customer looks for is a justification for a higher pricing point. So if your pricing is higher, you must justify this through a differentiator – for example a better customer experience, or the availability of niche or innovative products.”
Developing an ‘unapologetic brand value’ that justifies higher cost goods starts with linking the offering to the brand purpose, says Maposa. The retailer must ensure there’s consistency in delivering on its mandate too. “There needs be a collective understanding of the grand plan and how it should be operationalised, with top-down sharing of the vision and bottom-up sharing of how employees will deliver.”
The service delivered by the retailer, as well as the marketing and customer engagement, must all align with this brand value, he says. “Your marketing plan should speak directly to the customer you want to walk into the store. The customer must identify with it; it should provide an experience that endears the customer to both the product and retailer brands."