The money trap: why your customers’ income levels don’t matter (so much)

Familiar labels like ‘rich versus poor’ are much harder to work with now, says Michael R Solomon. Wealthy people aren’t all the same, and neither are those with lower incomes so it’s no longer so easy to make simple black/white distinctions among your customers

‘If you can’t afford a Cadillac, buy a Chevrolet.’

The pioneering marketers at General Motors invented the concept of market segmentation when they created separate divisions to meet the needs of drivers with different preferences and resources. Since that time, the common wisdom is that customers who share certain basic characteristics will gravitate to products and services that cater to their common needs. For years, we’ve been able to get away with putting our customers into neat little cages, as we grouped them according to fairly broad ranges of age, gender or income.

But today many of us no longer accept the labels marketers assign to us, and with good reason. We just don’t conform to the assumptions they make about what we do, think and buy. As I discuss in my latest book many of us look a lot more like consumer chameleons, who frequently change our ‘colours’ or identities depending upon the contexts in which we find ourselves.

That’s why familiar labels like ‘rich versus poor’ are much harder to work with now. Wealthy people aren’t all the same, and neither are those with lower incomes. What’s more, your business may miss valuable opportunities if you only focus on the customers you think you know. I learned this lesson myself when I worked in retail; on many occasions I made the mistake of ‘sizing up’ customers based upon how well they were dressed and groomed. Eventually I realised that many times a customer who looked like he needed a shave and a new tailor actually had a lot of money to spend, while another who looked like he was oozing money was in reality on his last dime. And it turns out that some affluent consumers practice what we call parody display, where they deliberately adopt symbols we associate with people who don’t have such deep pockets, such as ripped jeans and trucker hats, in order to make an ‘ironic’ statement.

Add one spoonful of psychographics

Income is the way many of us ‘keep score’ in our consumer society. Even a person’s credit score sometimes doubles as an admission card, when dating sites like Datemycreditscore.com use it to screen potential suitors. But demographic variables like income only go so far. We know from both research and common observation that even wealthy people don’t all fit the same mould. And our assumptions about what the rich want may be warped by media depictions of tycoons who live in opulent mansions.

Many affluent people don’t consider themselves to be rich. They may indulge in some luxury goods while they pinch pennies on everyday items. One study found that the typical millionaire is a 57-year-old man who is self-employed, earns a median household income of $131,000 USD, has been married to the same wife for most of his adult life, has children, has never spent more than $399 USD on a suit or more than $140 USD for a pair of shoes, and drives a Ford Explorer (the humble billionaire investor Warren Buffett comes to mind).

We need to get a lot more nuanced in order to make meaningful distinctions among our clientele. For example, consider two 40-year-old men who live in a big city; both make $150,000 USD per year. One is a college professor, and the other is a plumber. Most likely, any similarities end there.

The simple dichotomy of Haves versus Have Nots deserves more nuance. SRI Consulting Business Intelligence divides consumers into three groups based on their attitudes toward luxury.

  1. Luxury is functional – These consumers use their money to buy things that will last and have enduring value.
  2. Luxury is a reward –  They use luxury goods to say, ‘I’ve made it.’
  3. Luxury is indulgence – The purpose of owning luxury is to be extremely lavish and self-indulgent.

Hello HENRY’s

A singular focus on actual income also obscures the important dimension of aspirational consumption, where people prioritise the acquisition of status symbols that telegraph their wealth to others – even if they’re not actually wealthy yet. Some marketers talk about a psychographic segment called the ‘HENRY’s,’ short for ‘high earner not rich yet.’ These are younger consumers who earn reasonably good incomes, but still feel broke because they fervently pursue the markers of an affluent lifestyle. Henry’s will cut corners in some areas in order to spend lavishly in others; they will shop at budget stores like Forever 21 or TJ Maxx, but still be first in line when the Gucci store opens. These folks may not be the prime customers now for upscale items, but they are your golden goose down the road.

The rise of mass class

Furthermore, in many developing countries the wall between the elite and the masses has come down in terms of the ability to procure apparel, cosmetics and other status markers targeted to the so-called mass class. It’s not uncommon for consumers who bring home fairly low incomes to splurge on a few expensive trinkets. Of U.S. women with household incomes under $75,000 USD, three-quarters own a bauble from Tiffany & Co., and one-third have purchased something from Bulgari. Visa projects that by 2030, 60% of all new consumer spending will come from middle class households.

Rising incomes in many economically developing countries, such as South Korea and China, coupled with decreasing prices for quality consumer goods and services, create explosive demand for luxury products or at least ‘affordable’ versions of these goods. This change fuels demand for mass-consumed products that still offer some degree of panache. Companies such as H&M, Zara, EasyJet, and L’Oréal have risen to the challenge to feed this appetite for mass class products.

Don’t ignore the bottom of the pyramid

It often makes sense to target consumers who have the resources to spend on costly products that command higher profit margins. And our current economic system tends to encourage the accumulation of wealth among the relatively few: The most affluent 1% of people worldwide control more than half the globe’s total wealth.

However, in the last couple of decades a lot of multinational marketers who used to eschew lower-income marketers have figured out that there’s a lot of profit – and societal value – in targeting the so-called ‘bottom of the pyramid.’ Although poor people obviously have less to spend than do rich ones, they have the same basic needs as everyone else. And, of course, the market size is huge: Although there are 6.6 billion consumers in the world, only 1.5 billion of them possess enough purchasing power to buy $10,000 USD worth of products for themselves and their families. The other 5.1 billion people – 78% of the global population – are low-income consumers. So, for example General Electric (GE) designed the Lullaby baby warmer with feedback from Indian doctors and nurses who advised on practical changes to turn a high-end product into one that parents with limited incomes can access.

The moral: In today’s fragmented and rapidly changing society, it’s no longer so easy to make simple black/white distinctions among your customers. It’s all about shades of grey.

Michael Solomon is a Global Consumer Behaviour Expert and the author of The New Chameleons: How to Connect with Consumers Who Defy Categorization, published by Kogan Page.

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