An obituary for the age of mass affluence

Advertising Age reported that the only American income group that increased its spending last year were those earning more than $100,000 a year.  Everybody else is economizing and cutting back.  Consumer demand, according to Advertising Age, is being driven by “a small plutocracy of wealthy elites.”

A recent research report by a firm called Digitas, self-described as “the leading global integrated brand agency,” writes off two-thirds of the people even within the $100,000-plus category.  Unless you are taking in $200,000 or more by age 35, you’re not worth bothering about, Digitas says.  And if you aren’t taking in $100,000 or more a year in your 20s, you have little chance of reaching the $200,000 level.

Digitas recommends that business should concentrate on selling only to the Affluent, Wealthy and Rich, and to the Emerging Affluent, since they have a chance of becoming Affluent, Wealthy or Rich.  The rest don’t count.

During most of the 20th century, it was a proud boast of the United States that the vast majority of the population had access to the same kinds of goods and services as the very rich.  They all could afford similar, though not identical, goods and services – automobiles, refrigerators, TVs, annual vacations at the seashore or in the mountains.  You could not tell the difference between a wealthy person and a middle-class or working-class person by looking at them.

This is still true to an extent.  But unless something changes, we’re moving toward an economy more like that of France in the age of Louis the Fourteenth, in which the vast majority of the population labored at low wages to serve the desires of a wealthy minority.

Advertising Age reported that with the middle class struggling to survive, consumer spending is being driven by the rich and very rich.

The wake of the global economic recession has shown a spotlight on the yawning divide between the richest Americans and everyone else — inflation-adjusted incomes of most American workers have remained more or less static since the 1970s, the income of the rich (and the very rich) has grown exponentially. The top 1 percent alone control nearly 40 percent of the wealth.

And while the social and political effects of this inequality may be cause for concern, the accrual of wealth among the very few is of great consequence for marketers, since 10 percent of U.S. households “account for almost half of the consumer spending” and represent about one-third of total GDP, according to the American Affluence Research Council.

Simply put, a small plutocracy of wealthy elites drives a larger and larger share of total consumer spending and has outsize purchasing influence — particularly in categories such as technology, financial services, travel, automotive, apparel and personal care.

It turns out a major predictor of wealth is one’s earning a high income in his or her 20s. Those below the age of 34 in households earning between $100,000 and $199,999, identified as the “Emerging” tier, have a far greater chance of eventually crossing the golden threshold of $200,000 than those who achieve household income of $100,000 later in life, identified above as “Aspiring.”

Before the downturn, luxury marketers embraced the concept of “mass affluence.”  Buoyed by fatter stock portfolios and exploding equity in real estate — and encouraged by easy credit — a larger portion of the population, mainly in the Aspiring tier, considered itself wealthy enough to buy luxury goods.  But in 2011, these consumers no longer “feel rich,” and they are not particularly likely to graduate into affluence later on (and thus are not a particularly promising future market for luxury brands to seed). In 2011, those in the Aspiring tier firmly self-identify as middle class.

The real growth for luxury brands will come from those in the Emerging tier. These young, ambitious consumers are already involved in jobs that will likely launch them into affluence later in life. Because they have fewer household expenses (such as mortgages and children) than those in the Aspiring group, they have enough disposable income to develop an early taste for luxury goods and services that will develop further later in life.

The Emerging tier has also widely adopted interactive and social media, while more affluent groups increase their use of media filters and are therefore harder for marketers to reach.  Thus the Emerging tier presents a golden opportunity for luxury brands to reach consumers who will likely be wealthy in the future — before they begin to more actively police their interaction with advertising.

via Advertising Age.

Advertising Age reported that companies that sell to people who earn $100,000 or more a year did very well last year, while companies that sell to the mass public were struggling.

The $100,000-plus households who traded down to Walmart at the beginning of the recession have been returning to their old shopping haunts.  But more of Walmart’s core consumers have been trading down to smaller sizes, lower-ticket items and closer locations amid rising gas prices — all offered by dollar or drug stores.  The result: Eight straight quarters of declining same-store sales for Walmart with a ninth a real possibility.

Estee Lauder, whose consumers on the whole earn 19% higher than the U.S. average, according to Bernstein research, has been thriving with double-digit organic sales gains the past year.  CEO Fabrizio Freda revealed at the Consumer Analyst Group of New York in February that the company has been looking into raising prices, not because it particularly needs to, but because research suggests it can.

Almost every other consumer marketer, however, has been sweating the details of how much they can raise prices without affecting volume and losing share.  Avon Products, with the income of its consumers nearly 26 percent below average, faces perhaps the biggest challenge.

But the income disparity of consumer bases could even factor into such seemingly unlikely places as the cola wars.  Coca-Cola Co.’s consumers have incomes 3.7 percent better than average, according to Bernstein, while PepsiCo’s consumers’ incomes 1.3 percent above average and Dr Pepper Snapple’s consumers’ incomes are 1.3 percent below average.

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 percent of earners, as a result, have seen their share of total income double to 20 percent, even as their tax rates plunged.  More broadly, the top 20 percent of earners have seen their share of U.S. income increase from 45 percent in 1980 to 50 percent 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.

via Advertising Age.

Click on Who’ll Be Rich? Those Under 35 With $100K in Household Income for the complete article on the the consumer divide in Advertising Age.

Click on Consumer Divide Will Help Decide Marketing’s Winners, Losers  for the complete article on last year’s sales results in Advertising Age.

Click on Affluence in America: the New Consumer Landscape for Digitas’ press release on its study.

Click on Madison Ave. Declares ‘Mass Affluence’ Over for comment by Sam Pizzigati of the Institute for Policy Studies.

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