The Year of the Consumer Part 2: A shift in mindset

We’re looking forward to hosting the third annual Stitch Scale Summit on 3rd October in Johannesburg. As discussed in Part 1, the event is centred around the theme: The Year of the Consumer. We'll explore the shifting mindset of today’s consumer in South Africa and the driving forces influencing their purchase decisions. 

We’ll be joined by some of South Africa’s leading enterprises, financial institutions and thought leaders who will also share how they’re innovating on their approach to customer acquisition and retention.

Trends, behaviours and drivers that characterise the South African consumer today

The hermit consumer and the long-tail legacy of lockdown

In the current post-pandemic era, terms like hermit consumer have been coined to describe the noticeable shift and growing imbalance among the types of things consumers are spending money on, based on behaviours that have carried over from the pandemic. These tendencies are more noticeable in markets where lockdown was more intense.

The increase in time spent working from home, anxiety around overly crowded spaces, continued fear of infection and a desire for ‘revenge travel’ in the absence of lockdown restrictions have precipitated a massive shift in priorities for consumer spending. Globally, this shift is estimated to cost businesses around $600 billion a year.

Naturally, during lockdown, spending on services - from haircuts, to hotel stays, to gyms - declined dramatically. Other luxuries like dining out, sports games and in-person entertainment also took a hit. But the crawlback has not been quite as fast or as even as many in these industries might have hoped. 

Rather, people are spending a lot more time at home, and as a result spending more on things - including items for the home, food and goods delivery and equipment - and online activities such as betting and gaming. Insights from Goldman Sachs show the difference globally in share price between businesses that benefit when people stay home, vs when they go out.

Companies benefit when people:

In South Africa, where lockdown was particularly prominent, these behaviours are on display. Spending on food, including groceries, takeout and dining out, for example, increased in most South African cities by an average of 8% in 2023 and 16% the year before, according to the SpendTrend24 report from Visa and Discovery Bank.

In retail, businesses are responding, as the race toward better, more effective and on-demand delivery rises, and new entrants like Amazon bring change and competition to the market. This is driven both by consumer demand and a response to larger influences like potential interest rate cuts, which can impact consumer spending.

As well, the channels consumers use to shop and make a payment are beginning to shift. According to the SpendTrend24 report, “South Africans are increasingly using their mobile phones to pay for goods instead of physical cards, with adoption rates matching or surpassing those of international cities.” 

This points to the potential for continued adoption of newer digital and alternative payment methods for those that pay digitally – especially those that offer a more seamless mobile shopping experience, such as Pay by bank; direct bank APIs like Capitec Pay and Absa Pay and more.

In particular, digital wallets including Apple Pay, Google Pay and Samsung Pay have skyrocketed in popularity, allowing for a fast, seamless one-click purchase experience on mobile or desktop, easily linking other data such as address and contact information, to make the process even more seamless for the consumer.

Expectations for a better, more engaging retail purchase experience are higher than ever

According to the 2023 PWC South African Retail Sentiment Index, “consumers are placing greater expectations on the integration of in-store and online experiences and how enabling technology can be used to drive retail personalisation…[However], consumers still seek human interaction and value customer service related to both physical and digital experiences.”

According to PWC’s survey, 55% of respondents said they would stop buying from a company that they otherwise liked after several bad experiences, and 8% after just one bad experience. In an increasingly competitive retail landscape, these consumers have plenty of choices about where to turn in the event of a negative experience.

But what constitutes a negative shopping experience? According to our recent consumer survey in the e-commerce space, clear delivery timing, closely followed by a fast and easy payment process, ranked highest in priority, influencing where customers choose to shop.

What makes a digital shopping experience good (or bad)?

Rising expectations have also led to a deeper focus on omnichannel optimisation, where physical and digital shopping intersect to engage shoppers across the purchase journey. According to PWC, while consumers shopping online regularly research products and read reviews, nearly two in five do the same in store using their smartphones. This is paving the way for innovators like Bash to take a new approach to the intersection between online and offline retail.

Additionally, services such as click-and-collect and on-demand delivery are fuelling increased purchasing via digital channels by enabling a seamless and highly convenient customer journey from start to finish. And with an easy, fast and reliable refunds process, the potential for buyer’s remorse is limited, further removing barriers to purchase. 

The desire for local, intentional products, services and experiences

One trend that continues to surface specifically in South Africa is that of an increasingly conscious and intentional consumer. According to PWC’s survey, despite economic challenges and a desire to save on costs, “85% of South African consumers are still willing to pay more than the average price for products that are produced or sourced locally, made from recycled, sustainable or eco-friendly materials (83%), and produced by a company with a reputation for ethical practices.”

Similarly, a 2022 survey from Nielsen revealed that “55% of South African consumers prefer to buy locally made products from small businesses in their area.” This is promising for local SMEs and sustainability-focused businesses, where perceived quality is higher, and the intention for giving back is seen as added value. 

TikTokification of news and social media + the role of influencer marketing

One potential driver pushing adoption of more local products is the increased role of influencer marketing and social media on purchase decisions. Today, conversational and social commerce is more prolific than ever. Consumers are more likely to make decisions based on what they see on platforms like Instagram from large - or, increasingly, medium and micro - influencers who customers trust to be genuine and who are often promoting local finds. 

Ad spend in the influencer marketing arena is predicted to see an annual growth rate (CAGR 2024-2029) of 10.29%. According to Influencer Marketing Hub, the influencer marketing industry today has grown to be worth $21.1 billion.

However, it’s not just humans that are having an impact on consumer choices. One of South Africa’s better known influencers over the last few years is not a human at all, but an AI-generated bot called Kim Zulu, managed by the local Avatar Agency and considered South Africa’s first virtual influencer. Today, Kim partners with major international brands, from Mercedes-Benz to Puma, to promote their products. What does this say about South Africans’ propensity and openness to being influenced?

While the influencer themself is one part of the success story here, the type of content they post also plays a significant role. With the rapid growth in popularity of bite-sized, video-first content via TikTok and Instagram Reels, other platforms like LinkedIn are beginning to follow suit by prioritising highly engaging video content over traditional static posts. Engaging content that invites consumer opinions - like polls, comments and recommendations solicited by influencers - allow the customer to play an active role in voicing their favourite brands, and allow for real-time reviews and research based on the experience of direct peers in an open forum.

This can have a far-reaching impact beyond marketing, including the ability to reach wider, previously excluded, audiences. According to a study by SAP, digital influencers “could provide accessible educational content and healthcare information. By providing information using visually-engaging and interactive formats, this could be beneficial to those with limited literacy and those faced with language barriers.”

The desire for conversational commerce and 1:1 engagement

Beyond interactions with influencers, today’s consumers are simultaneously seeking more 1:1 engagement and attention - even if not with humans. With more “hermit-like” or isolated behaviour also comes increased loneliness and feelings of solitude, often referred to as the loneliness epidemic. According to research, 40% of South Africans report feeling lonely often, always or sometimes.

In response, there has been rapid growth in adoption of innovations such as virtual chatbot apps, or AI companions, with whom consumers are developing real relationships, despite the knowledge that they are not in fact speaking with humans on the other end. This genre of tech is considered by some to be the fastest-growing part of the AI industry.

When it comes to purchase decisions, more brands are turning their engagement channels – such as customer support chats or social media DMs – into full service channels that enable a customer to move through the entire purchase journey via chat, from selection to customisation to payment itself. Also known as conversational commerce, some have gone so far as to create a persona for their chatbot that feels more like a friend and helper - such as Duolingo’s Duo or Lemonade Insurance’s Maya.

In these journeys, simple and seamless payment solutions such as payment links, which can easily be shared via any chat, are critical to keep the consumer engaged and increase their likelihood of completing a transaction, without the need to break their existing experience for a payment to be made.  

The role of the payments experience in engaging today’s consumer

The incumbent financial institution

Trust factors in the purchase experience today as never before. With so many choices about where and how to spend their money, concern over fraud and shorter attention spans, consumers are increasingly savvy and likely to look elsewhere if they have a bad payment experience, sense issues with security or are unable to use their preferred method to pay.

Banks and incumbent financial institutions have been stepping up to find new ways of meeting the needs of their increasingly digitally-savvy patrons. The advent of real-time or rapid payments, such as RPP in South Africa, and the ability to pay directly from a bank account is driving an even greater shift toward digital payments.

Notable, of course, has been the launch of direct bank APIs, such as Capitec Pay, Absa Pay and Nedbank Direct EFT, allowing customers to pay merchants and service providers directly from their bank accounts, alongside rapid payment solution PayShap which is enabling instant P2P transactions.

As well, banks are increasingly leveraging their brand and trust with consumers to influence where they shop. Banks are partnering with local retailers, with campaigns like  #AbsaRewardsBDay or partnerships with fuel providers in which consumers are offered loyalty rewards or cash back for shopping with particular retailers. This indicates the continued role bank relationships play in shaping consumer behaviour and decisions.

New, alternative payment methods are emerging to offer more choice and flexibility

From contactless payments and digital wallets, to the option to pay with crypto, and the growing interest in Buy Now, Pay Later (BNPL), South Africans are increasingly open to trying new payment methods, even as cash continues to play a critical role.

In our recent surveys, we asked consumers which payment methods they prefer to use across industries, from e-commerce, to travel, to online gaming and insurance…

What payment methods do  South Africans prefer?

…as well as which other payment methods they would prefer to use, given the opportunity.

If you could pay for your premiums with any of the following methods, would you prefer to use them?

As more South Africans than ever invest in cryptocurrency and become more comfortable with alternative assets, demand is also growing rapidly for the opportunity to use their crypto to pay for goods and services directly, through methods like Pay with crypto.

If you own cryptocurrency, 
would you prefer to pay for online purchases with your crypto?

Above all, a fast, seamless and trustworthy payment process remains paramount, no matter the platform, app or site a consumer is using. As more and more brands invest in optimising the customer experience and creating more engaging, flexible and seamless checkout processes, others will need to follow or risk falling behind.  

Designing customer journeys for a wider array of consumer preferences and use cases

If the last few years has shown us anything, it’s that sometimes two seemingly similar consumers might behave in very different ways based on their lived experience and their current mindset. As preferences continue to shift and expectations rise, businesses need to consider how to accommodate for every facet of their audience.

In the payments space, we often think in terms of use cases: how does money need to move in order to achieve a particular goal? At Stitch, we spend time looking at data across the payment journey and engaging with real end users to go a step further, considering both the consumer and the payments use case when recommending an optimal payments solution for the enterprises we support, and when understanding how to continue to optimise the existing journeys.

At Stitch, we take a highly consultative approach with client support. We look at every edge case, every possible flow and every customer segment to understand and account for the various ways in which consumers might engage on our clients’ platforms and choose to pay.

Just as the products our clients offer are never one size fits all; just as businesses are constantly thinking about new ways to engage and retain their customers, we believe that as a vital piece of the customer journey, the payments experience should be crafted to match. And when a customer is ready to make a purchase, reliability - dependability - on the payments solution should never be a question.