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The ‘black diamond’ is here to stay

20 June 2008 Gareth Stokes

One of the most enlightening presentations at this year’s Masthead Professional Development day was by Professor John Simpson. Simpson is the director of the UCT Unilever Institute of Strategic Marketing. His presentation dealt with a section of the South

You might be surprised at what’s driving South Africa’s GDP growth

Over the last four years consumption has driven the country’s GDP growth. Retail therapy has kept GDP painfully close to the magical 6% mark through 2005, 2006 and 2007. At first glance it’s easy to attribute GDP growth to buoyant conditions in the mining sector. After all, locally listed resource shares have been going through the roof of late. But this is a common misconception. We’d like to remind readers that stock market performance and GDP growth are not necessarily correlated. Besides, the mining sector carries a rather insignificant 5.4% weighting in the country’s GDP calculation at present.

Now that we’ve established the importance of the consumer in keeping the economy strong we can analyse trends in that sector. What you’ll find is that the contribution made by BDM outstrips the contribution of all other population segments. Over the last few years white consumption driven expenditure has been practically stagnant; while contributions from the coloured and Indian segments is comparatively small. It’s the 2.6m ‘black diamonds’ who are driving consumption in South Africa as they set about attaining the middle class lifestyle we all aspire to.

BDM is the saving grace of the economy and a focus on this market segment will ensure you have a greater chance of success across many different industries. If you can reach these 2.6m people you will have access to 28% of South Africa’s consumption expenditure – or a massive R180bn in annual revenues. To succeed you are going to have to attain a better understanding of this grouping.

Different shapes and sizes

Many marketers make the mistake of placing all ‘black diamonds’ together in a single category. This is something that the Unilever Institute has steered away from. Over time they’ve created four sub-sections under the BDM banner. These include the Mzansi Youth, Start-Me-Ups, Young Families and Established groups. Most business is currently conducted in the latter two categories. But that doesn’t mean that financial intermediaries should ignore the Mzansi Youth and Start-Me-Ups. Each of these sub-sections has tremendous potential. With the right attention to marketing and education strategies a great deal of the disposable income in the Start-Me-Up category is up for grabs.

Young Families, on the other hand, are extremely stressed at the moment due to rising inflation, interest rates and the fact that so many are the only breadwinners in their families. More than 60% of them are single parents who rely heavily on family as their security blanket. Simpson notes that one of the major competitors to insurers is this family support structure. Despite the challenges this sub-sector accounts for R49bn of BDM revenue per annum.

The Established ‘black diamonds’ have already arrived in the middle class. They are focussed on the future – determined to educate their children, invest in property and plan for their retirement. This category accounts for R87bn in annual turnover. Simpson warned that culture is extremely important to the Established ‘black diamond’. He notes that “culture becomes more important to you the older and the richer you become.” And if you don’t understand your target market you’re dead in the water! He suggests that financial intermediaries are going to have to adapt their business strategies to make sure they benefit from this market segment.

The ‘black diamond’ is real – and here to stay

Simpson wrapped up his presentation with a few telling questions and answers. He said that marketers (and that means independent financial advisers too) could not afford to ignore a group which comprised 9% of South Africa’s adult population. And if you need any further motivation to expand your practice to encompass the ‘black diamond’s’ diverse needs then consider that 28% of the country’s consumption expenditure stems from this market segment. Ignore this at your peril.

All that’s left is for Simpson to wrap up on a positive note: “Our country – if we nurture and sustain the black middle class – will be a thriving economy as we go into the future.”

Editors’ thoughts:
The term ‘black diamonds’ has been around for quite some time. Although we agree that much of the domestic economy is driven by consumption activity we believe the emerging middle class is also suffering under current market conditions. Does your business have any specific plans to win business from the ‘black diamonds’? Add your comments below, or send them to [email protected]

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