Marketing financial services to the previously excluded in South Africa
Date
2011-03-17
Authors
Arthur, Theo Donavon
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Abstract
Limiting access to a company’s services or discouraging the demand coming
from certain customers is not an uncommon practice. Suppliers of services and
goods often select a target market that would provide a minimum expected
value and exclude the rest. In the financial services sector the lower income
segment have always been excluded on the basis that they do not provide this
minimum expected value (Sharma, 2003). In South Africa, however there is a
renewed interest in targeting this lower income sector. This renewed interest in
targeting the lower income sector in post apartheid South Africa is not just
because there is value and benefits to companies who target this market
(Prahalad, 2004), or the recognition that financial service development causes
growth and poverty alleviation (Porteous, 2004; Beck, 2004), but it is also in
place to address the imbalances caused by an apartheid system.
Although South African financial service providers find themselves with similar
challenges of a developing economy, the South African environment is a unique
one. Practices of exclusion have not just segmented on the basis of income,
minimum value expectations, education and status but also on race. In reentering
this market, many providers are finding themselves unprepared for the
challenges of this once excluded sector.
Whilst cost, accessibility, insufficient discretionary income and literacy have
been identified as the key factors that hinder the consumption of financial
services, the Financial Sector Charter of 2003 identified that the South African
financial sector had failed to increase participation of the previously excluded
and limited access to its services (Crotty, 2005; Prahalad, 2004; Barr, 2004;
Sharma, 2003). By committing to the targets of the Charter many of these
financial institutions, which include banks, long - term insurers, short - term
insurers, re-insurers, collective investment schemes, investment managers,
retirement funds and licensed exchanges, find themselves targeting a market
which they previously excluded. A further challenge to financial service
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providers in South Africa is that little research has been conducted on the
unique situational variables that impact the South African economy.
The purpose of this study is therefore to identify and explore the challenges that
the previously excluded market presents to financial service providers who wish
to re-enter this market in South Africa. It also investigates the appropriateness
of segmentation tools and assesses how best to target this market.
The research methodology employed focussed on a literature review which
aimed to identify the factors that influence financial service consumption. It then
discusses the various segmentation models and the best strategy to target this
market. Focus groups were used to gain insight and understanding of this
market. Data was then collected and analysed.
The findings and discussion highlight that it is imperative to understand the
changing demographics, social and cultural influences and the impact of
historical practices prior to providing financial services to a market that was
previously excluded. Factors that are unique to South Africa i.e. self exclusion,
crime, non traditional market instruments and costs were also identified. These
factors are discussed in this study.
It is hoped that this study will assist providers of financial services in formulating
strategy that would increase consumption of its products and services and in so
doing contribute to the growth of the economy whilst addressing the imbalances
of the past.
Description
MBA - WBS
Keywords
Financial services