The cost of (transporting) gold
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Category Archives: distribution
e-reader (reader) demographics changing
Bain performed research on current and likely future demographics of e-reader users.
The current situation:
early adopters of digital reading devices and multipurpose tablets mostly are already heavy readers. In numbers, they are more often men than women. They also describe themselves as more affluent than average and tend to be in their 20s and early 30s. This group values the flexibility of reading in different settings and the new devices’ ease of use
Their view of the future:
Readers who told us they are considering purchasing digital devices in the near future are mostly women and are older than 35 years of age.
and
Books won’t go away any time soon. Several indicators from the study show why. First, respondents who have adopted digital formats say they continue to read printed books. This attachment to paper formats also holds for younger generations, even though they were born in the digital era.
Some of this makes sense to me. Obviously my own direct experiences are of South Africa rather than the developed markets surveyed by Bain. I see more and more Kindles on JHB-CPT flights, exactly the demographic that can afford and most values the portability of the Kindle.
It’s fairly obvious that heavy readers will be more likely to purchase an e-reader since they would be more likely to purchase books, read books and ultimately see the value in an e-reader, so no surprises there. The youngish demographic also makes sense as early adopters are typically younger and less wedded to lifetime patterns. Affordability and competing devices (PSPs, iPads, iTouches etc.) with more game options and broader entertainment possibility limit teenage adoption of the devices.
And in South Africa?
My limited, ultra-informal sample from flights in South Africa showed a split between men and women not much different from typical air-travellers, but a demographic closer to 40 than 20 to 30. Continue reading
Not growing up
The New York Times has a fascinating article about “Why are so many people in their 20s taking so long to grow up?“. It deals with the broader issue of how and when young adults move through phases of adulthood and how this has changed over the last 40 years.
It’s based on US research, so the parallel to South Africa isn’t perfect. On the other hand, it may prove predictive for our population.
A few snippets (it’s a long article, but well worth reading the whole thing):
- The median age at first marriage in the early 1970s was 21 for women and 23 for men; by 2009 it had climbed to 26 for women and 28 for men
- Definitions of adulthood vary widely – people can vote at 18, but in some states they don’t age out of foster care until 21. They can join the military at 18, but they can’t drink until 21. They can drive at 16, but they can’t rent a car until 25 without some hefty surcharges. If they are full-time students, the Internal Revenue Service considers them dependents until 24; those without health insurance will soon be able to stay on their parents’ plans even if they’re not in school until age 26, or up to 30 in some states.
- Definitions of adulthood are clearly not just a function of age. (and so our marketing to them should consider more subtle measures than simply age ~ David Kirk) Continue reading
Eskom – industrial versus retail tariffs
Moneyweb has an interview with Eskom CFO. For me, the point made about the reasons for differences between retail and industrial tariffs is worth highlighting. This is another example of where common perception is off.
(Incidentally, Eskom tariffs are currently 68 cents for residential, 28 cents for big industrial)
From the moneyweb interview:
PAUL O’FLAHERTY: What is one of the myths of this industry is that the key industrial user does subsidise the residential user – that’s a fact. And the reason for it, even though it seems on the tariff that you quoted, that can’t be – it is true because the cost of delivering electricity to someone living out in the sticks is a lot more than delivering it to a transmission station right next to a mine, for example. So there’s a significant cost differential in actually getting electricity out there, and therefore the key industrial users do actually subsidise the residential users.
Interconnecting confusion
Interconnect fees and the reasons for their reduction are possibly the most misunderstood “big” news story over the last twelve months.
The hype and hoopla around this topic is fueled by our feelings as consumers of being charged too much big big monopoly companies. So I should start by saying that I’m not saying that we are paying too much. I’m not saying that because I don’t know enough about the costs of providing cellular services in South Africa. Maybe we are, maybe we’re not. Also, I’m not saying there aren’t monopolistic practices in the market – again I simply don’t know. Given the other stories torn from inside companies by the sharp teeth and salivating jaws of the Competition Commission, it’s understandable that many suspect consumer-unfriendly play by most large South African companies, particularly those in industries with a small number of players.
What I am saying is that most of what you read in the news about interconnect is horribly misguided.
The biggest misconception is that interconnect fees are an expense for cellular providers, and that the removal of this expense would allow them to reduce tariffs to consumers. Well, it is an expense, but it is also a source of revenue. Every time one company pays an interconnect fee, another company is receiving it.
Interconnect does not change the total amount of profit within the cellular industry. It may redistribute it a little, and there may be negative medium term competitive implications arising from interconnect, but lower interconnect won’t automatically increase profits that could allow competitive price lowering for the benefit of consumers.
TechCentral has an interesting article: Bain warns consumers not to expect cellular price cuts. Of course, it also include some done-to-death flawed statements (whether from Bain or inserted by the zealous staff writer) such as:
Because new players have few customers at first, most calls on their networks will be to networks of other operators. High interconnection fees make it difficult for them to enter the market.
It’s not that this statement is incorrect (it is in fact correct) it’s just that it is horribly misleading because it only presents one side of the story. I’ve reworded it to provide the stunning insight: Continue reading
More medical trouble
After my last post around common misunderstandings of how medical schemes operate, I saw a Fin24 article on South African medical schemes that are below the required minimum solvency.
What Fin24 readers had to say
Nolulamo Matutu from Fin24 writes:
Acting CEO of the CMA Patrick Matshidze told MPs 18 schemes have fallen below the prescribed solvency ratio of 25%.
Clearly, these 18 schemes cannot pay all the claims we all would like in an ideal world.
However, more interesting to me than the article itself (fairly balanced and factual) were some of the comments written below. Clearly the misconceptions are still strong!
Fed Up had some strong views:
I’d like to see them look at medical aids the other way and see how many of them are making huge profits, some make billions are rands profit which in my opinion is really just ripping people off, medical aids should be non-profit as the less they pay out the more people suffer. Also medical aid is such a bad word, it should be called what it is medical insurance.
I wonder who be the one to break the news that medical aids are non-profit? Continue reading
How to spot competition
photo credit: richardmasoner
It’s been widely reported that the Competition Commission has been proving an alledged bicycle cartel. Retailers alledgedly agreed to increase prices to improve margins. This is not a strongly competitive market, which makes it quite an attractive market and good margins and profits should be available.
Vodacom and Cell C have joined MTN in offering discounted calls in a pre-paid price war. The was the result expected from Virgin with their rather unsuccessful foray into our market, with promises of shaking up the industry and cutting prices. I don’t know how much credit they deserve, but this shows that strong competition is brewing in this market.
Cellphone penetration in South Africa is very high by any standard. Thus the market growth from here on out will be moderate. With increasing competition, decreasing margins, limited growth prospects, the significant barriers to entry don’t seem like enough to keep strong returns to this sector.
As an aside, Vodacom reported increased spend per subscriber on their prepaid book, but more cautious spending on the postpaid or contract base. It will be interesting to see how this develops over time as our market characteristics change.
So, in spite of regular complaints from forum posters (not this website) that cellphone companies (along with banks and motor distributors) aren’t competitive, it seems there is at least some clear evidence of intense competition in the mobile telephone market.
Chavez – economic terrorist
Chavez is promising to take over rice processing plants in Venezuela because they have been refusing to sell rice at the price set by government.
Hyperinflation is starting to show it’s head, as a function of government policies around money supply. The article I referenced claimed that that is the reason for supply shortages and queues, although I don’t quite understand the direct link. Chavez’s response is to impose price controls to ensure citizens can purchase staples such as rice at an affordable price.
What, like price restrictions haven’t been analytically and empirically proven to increase shortages? Chavez is just another in a line of South American leaders to draf their countries into poverty and economic malaise. For all his popular support, he will ruin Venezuela.