Marketing: Old vs. New PrioritiesByRaymond D. Matkowsky
In the United States each month, retail sales have been stagnant, gone down, or have only increased slightly over the past few years. Of course, retail sales will spill over to the BtoB sector of the economy. There are three causes for this type of behavior and businesses must adjust their practices to this reality.
First of all, is the great recession of 2007. This was the most severe economic downturn that many people experienced. It taught them they were in too much debt. They had to struggle to keep their heads above water and many swore that they would not allow that to happen to them again.
This is the same experience that occurred after the great depression. Many families struggled. The children of those families swore that they would never allow that to happen to their families. Consequently, it wasn’t until the late 1950s, early 1960s that people began to spend freely again. It took one or two generations to overcome the effects of the great depression. It will take one or two generations to overcome the effects of the great recession.
The next cause is the severe miscalculation of the U.S. Federal Reserve Bank. The Fed lowered overnight interest rates to 0.25%. This lowers interest yields throughout the economy. The idea was to lower rates and make borrowing so cheap that this would stimulate the economy by increasing peoples’ spending. It did not work out that way because people already felt over indebted.
What it did do was increase peoples’ savings. The people most affected by the policy were retirees and those trying to build up their retirement savings. For years retirees were told to start accumulating interest early and then live off of their interest and never have to touch their principle. Very few present day retirees have pensions to fall back on. Interest rates are so low that people can no longer depend on interest rates to fund their retirement. Those without a pension must fend for themselves. Both groups believe they need a bigger cushion and are saving more.
The Fed policy has had one more unintended consequence. The Fed must raise interest rates sometime. They no longer have any tools to fight economic downturns if they don’t. However, they are very reluctant to do so because raising interest rates may crater the stock market. This would result in heavy losses by retirees, existing pension funds, and insurance companies desperately trying to get some return on their money. It is a catch-22 and the situation will not end well.
The third cause is simply, that not counting mortgages, the average household still has US$132,086 in debt. With mortgages this soars to US$263,259. Although this is less than the peak before the great recession, it is still very high. It is also not from people spending more than they make. It is from student debt. The average family has a credit card debt of US$15,310 and a student loan debt of US$48,986. Auto loans are the next largest at US$27,188. Other debt is a total of US$40,602. The Average U.S. family only has about US$4,300 in savings. This is not much of a cushion to guard against emergencies.
In September 2016 United States’ Labor Department reported unemployment at 4.9%. Near full employment, according to the government. As a retailer do not believe this number! The Labor Department reports a very restrictive number. True unemployment includes those out of a job and looking, those working part time for low wages because they cannot find full time work, and those that are discouraged and have given up looking. This number is 9.7% or 15.5 million work able individuals. This is the number that is most meaningful to a retailer.
Who Should You Appeal To?
Marketers have always tried to appeal to the 18 to 49 year old. They are the ones that spent with abandonment. This is also the group with the most debt and the highest unemployment levels. Do not forget this group, but give them a low priority. The 18 to 49 year olds include millennia and the Generation X people. This only leaves Baby Boomers. They may have less money to spend now, but they have more than the other groups.
Across the United States there are 77 million Baby Boomers. There are many more 65 and older people throughout the world. Boomers represent about 25% of the U.S. population. This compares to about 185 million adults under age 50. In 2010 this group spent US$2.9 trillion compared to US$3.3 trillion for those under 50. By 2030 there will be twice as many people over 65. One caveat, this group does not buy on price, they buy on value (to them).
What Should a Marketer Do?
First of all, forget what you have always done. The last few years of poor retail sales should be enough to prove the point. Try to attract Baby Boomers before any other group.
Secondly, convince them of the value of your product. Then convince them of the need for your product. For example, an elderly person may well need air conditioning for his or her health. Don’t try to convince them of the convenience, comfort, or gain of status. It will not work with most Baby Boomers.
Thirdly, make it easier for them to buy. There have been several techniques used in applying this. Some retailers advertise low or no interest financing, and some have extended the financing periods, making payments low. A few use a combination of both. Some such as sellers of gold and silver coins emphasize their potential for appreciation.
Shortly after World War II and continuing into the 1980s, companies such as General Motors, sold cars in a way that encouraged people to upgrade to more expensive vehicles. Buyers would start with a cheaper Chevrolet and then move to a Pontiac, Oldsmobile, Buick and finally a Cadillac. The Asian car makers used a slight variation of this technique by first importing inexpensive vehicles. Once the buyers were hooked on the brand, they began importing more expensive cars.
There are probably many more techniques that could be used. Remember however, with Baby Boomers, value is foremost! Other than that make sure each product has a clear point of focus that a consumer can latch on to.
If you have any further suggestions, do not keep it to yourself. Help your fellow readers!
If you have any questions, comments or suggestions drop me a line at rdm@datastats.com.
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