Recent research by leading agencies has identified that informal trading can make up north of 40% of the economy in some regions, raising a few eyebrows from big brands who are looking to get their piece of the informal market pie.
The Informal Market
Insight
Leveraging the consumer spend of the grey economy
For as long as we can remember, the informal market has been significantly neglected by big-brand marketers due to failure of understanding this market.
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In this edition of Point Forward, we dissect the informal market and share insights on how your brand can leverage the power of the “survivor market”.
The Informal Market
The informal economy is made up of multiple trading disciplines that range from:
Walk-in outlets
Counter service stores
Table-top hawkers
Walking street vendors
The informal market has notable job creation and income generation opportunities, as well as the means to meet the needs of consumers who fall under the Lower LSM bracket by providing cheaper and more accessible goods and services.
Notable drivers of informal trading include:
Excessive cost and regulatory barriers of entry into the formal economy
Increasing demand for low-cost goods & services
Limited educational and training opportunities
Migration motivated by economic hardship and poverty in foreign countries
Did you know? Half of the world’s informal economy is in 7 countries which as USA, China, Japan, Italy, India, Russia and Brazil.
Big Brands vs. The Survivor Market
Big brand marketers often ignore traders outside of formal retail chains because they struggle to classify them.
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US DOLLARS INCOME PER MONTH
The survivor market encompasses people who live in households with a total income of less than USD$420 p/m, and like everyone else, the market also seeks premium products that will reward them in some way or the other.
Thirty-four million South Africans fall under the Survivor Market segment.
The stigma that consumers under the survivor market only seek cheap products is not wholly true. Price sensitivity only comes into play when consumers compare brands that are perceived to be quality brands or products. Learn consumer purchasing decisions of the survivor market and the dynamics of brand loyalty versus price sensitivity.
Research has shown that the informal market buyers associate society status with certain brands and their perceived quality, hence consumer demand exists for premium products that are ordinarily targeted towards higher LSM segments.
The Top 5 commonly purchased items in informal trade: Bread, Airtime, Cigarettes, Drinks and Sweets.
It’s not Formal vs Informal, it’s Formal + Informal
The “Us vs Them” and “PLU effect” (People like us) are narratives that have been at the helm of differentiating the formal and informal sectors. This differentiation has resulted in unequal marketing efforts that lean more towards the formal sector, leaving the informal sector neglected. Brands need to make strides to ensure that these sectors co-exist, and that marketing efforts are spread out relatively evenly.
Not sure where to begin? Consider these approaches if your brand is looking to tap into informal market:
Build trust by fostering close relationships with informal traders
Be cautious of the “Us and them” mentality
Understand the needs of the market (Find out how suited your product is for the market & customise it accordingly)
Understand what media the informal market consumes and push your marketing communications through that media. Choose the language of your marketing communications strategically
Think longevity. Product lifespan is a major factor in informal consumer purchasing decisions
Engrave your brand in the minds of the next generation of breadwinners from an early age