South Africa’s political climate is currently noisy, and our economy is responding as it is expected to. In reviewing how these changes impact the pharmaceutical industry, we will consider consumer confidence measures. Consumer confidence as a key indicator was developed in the mid-20th century and formal studies are published from the 1980’s. Consumer confidence is established by researching a representative sample size of the population, and evaluating individuals’ view of their own financial situation, the short term health of the economy and long term growth prospects. The below graph represents consumer confidence measures trended over a 10 year period. South Africa has been in the lowest band from 2015 as compared to the past 10 years.
A low consumer confidence indicates that people are concerned about future economic performance and the impact this will have on their earnings. According to the World Bank, Sub-Saharan Africa needs 100 billion dollars annually to stimulate 2.6 percentage points of economic growth. The continent is currently only able to raise half of this (1), mostly through debt financing.
How will a low consumer confidence result influence the way people spend their money? Purchasing habits change as people retract spending and make money saving adjustments i.e.) buy less food or food of a lower quality, cut back on health insurance and education expenses. They choose to reduce debt as poor economic performance presents the risk of the cost of debt rising beyond affordability. In recent studies of consumer confidence, the low income households have a bleak outlook on the future economic performance. Their households have also taken the highest impact. The lower income households are more vulnerable and with food inflation at 7%, their disposable income immediately reduces as they spend a much larger portion of their income on food. Since these households are already on staple foods, reducing the amount consumed is more of an option than switching brands.
The higher income households are typically more buoyant due to stable and regular forms of income. They also have access to financial instruments that could possibly offer value in poor economic times, and are therefore more optimistic about the future.
Consumer Sentiment is an important economic indicator for retail as there is a direct correlation with sales. Low consumer sentiment, means lower willingness to spend and perhaps constrained economic growth. We know that a drop in consumer confidence immediately impacts durable goods, but how will this impact the pharmaceutical industry in South Africa?
The impact that a recession has on the health care industry differs across countries and depends on many factors. A study done in 2010 by the World Health Organisation, to analyse the impact of the 2008 global recession on pharmaceutical demand (2) across countries, showed that the pharmaceutical consumption in South Africa, in both the private and public sector grew, although not at the same pace. This makes sense, as government does not offer sick leave grants and during times of illness, South Africans will find the cash to outlay on medicines to reduce the impact on their ability to earn. The purchase decision tree on healthcare changes slightly, giving price a higher value than brand and therefore generics become more popular.
Traditionally pharmacies where seen as the place to go when you’re feeling sick or if you have a script. The role of private sector pharmacies has changed. People look for preventative medicines or supplements to support immunity and reduce the occurrence of illnesses. This also reduces the reliance on doctors and prescription medication. The proportion of these higher income households that seek preventative solutions are likely to continue these purchases. However, should illness strike, these consumers will try to save on the doctors fee and self-medicate.
Low income households typically make use of government facilities for healthcare, and are likely to have a higher occurrence of illness due to poor diet as a result of affordability choices. Higher illness rates reduce work days and creates a cycle of variable income making it harder for this segment to recover. Compounding the impact is when Governments are forced to cut back on their budgets when tax revenues decline due to poor economic performance, reducing the availability of medicines. This vulnerable class would either move to the more expensive private pharmacies or turn to natural/traditional remedies.
Changes in consumer behaviour within the health care industry needs to be reviewed at a macro level as it is a decision with high importance that has many components that influence. Creating growth for brands needs a thorough understanding of the social and human elements behind the drivers of consumer behaviour. Here are the 3 points that precedes a standard marketing approach when operating in the health care and pharmaceutical segment:
1. Review business, medical and public health objectives concurrently. This provides an aligned base to build your marketing plan from. In also ensures that you factor in regulation and health care policies that may apply.
2. Differentiate your product or services value offering. Even during recessionary times, consumers will be willing to stretch their affordability further to purchase a product that offers superior quality. Customer experience is also a differentiator and might enjoy higher levels of importance if it satisfies a consumer need. E.g.) same day delivery, or telephonic orders will offer immense value to someone without a car.
3. Construct your marketing and communication plan so that your brand message reaches consumers before they have a need to use it. In an informative study conducted by Michigan State University (3) on the purchasing factors that influence the decision to purchase generic drugs, advertising was listed as one of the key influencing factors.
Therefore, stimulating demand in the health care industry requires consideration of the full purchase decision tree in conjunction with economic factors and regulation. For further insight into consumer drivers review the purchase decision tree researched in 2013 by a medical doctor. It ranks importance per consideration factor before the decision to purchase is made.