Feudal Marketing
by digby
Ad Age analyzes the economy from the marketing perspective. I think what’s most interesting about it is the blase way the article describes income disparity. It looks to me as if this information has been absorbed and … accepted. Business is adjusting as it will. Winners will emerge, losers will disappear. Customers … well, it depends on who you are servicing.
The rich — and marketers who cater to them — just keep getting richer as everyone else struggles through a so-called recovery. That fact of economics could reshape marketing strategies this year, and for years to come.
Last year, the only growth in spending came from people making $100,000 or more annually, said David Calhoun, CEO of Nielsen Co., speaking at the Advertising Research Foundation’s annual Re:Think conference in March. If anything, the disconnect between the haves and the have-lesses has only kept widening since. The ConsumerEdge Research monthly tracker, based on surveys of more than 2,000 consumers, helps illustrate this vividly.
Overall, its “Willingness to Spend” index of U.S. consumers has fallen fairly steadily from 103 in May 2010 (just before the so-called summer of recovery) to 96 last May, where 100 equals sentiment levels in December 2009. But willingness to spend has been on the rise lately among the high-income segment — that 16% of the U.S. population making $100,000 or more annually. Their spending sentiment index rose from 118 in December to 131 in May. Their index is down 6 points from 137 a year ago, but they’re the only income group more willing to spend now than they were in December 2009.
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One reason Procter & Gamble Co. is confident its current round of price hikes to recover commodity-cost increases will stick more readily than those taken in 2008 is that at least this year, wealthier folks are more confident. “You saw the whole affluent class come out of the market in 2008, and what we’re seeing now is a very strong resurgence of the affluent class,” said P&G Chief Financial Officer Jon Moeller at a Deutsche Bank investor conference in Paris June 15.
In one sense, nothing much has changed from the trend of the past three decades. Real wages have been largely flat overall since 1980, even as real GDP doubled. The top 1% of earners, as a result, have seen their share of total income double to 20%, even as their tax rates plunged. More broadly, the top 20% of earners have seen their share of U.S. income increase from 45% in 1980 to 50% in 2009 while the shares of every other quintile fell, according to Sanford C. Bernstein research.
For much of that period, however, middle- and lower-income people could grow spending faster than income thanks to loose credit and rising home prices — factors that disappeared in the Great Recession and show no signs of returning.
I have been telling my friends for the past couple of years that in the new servant economy the only smart place to put your entrepreneurial skills is to cater to the wealthy: that’s where all the money is. Hey, it worked for feudal Europe for centuries.
Update: I would also mention that in the article WalMart is particularly suffering. But they forgot the old Henry Ford maxim that you need to pay your workers enough to be able to buy your product. That race to the bottom has finally landed on their balance sheet. Their customers have migrated to the dollar stores and the downsized affluents who felt the squeeze for a while are back in the malls. They’ve got nothing.
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