business news in context, analysis with attitude

American Demographics reports that US citizens are the world’s greatest spendthrifts, as a group spending more each week “than the annual gross domestic product of Finland.”

During 2005, in fact, the average American household spent $1500 each week – adding up to a whopping $78,000 in expenditures for the year. Of course, not all of that spending was in cash, which also accounts for people’s expanding credit card debt.

“Some fraction of that consumer spending is, of course, the result of our basic need for food, clothing, shelter and transportation,” American Demographics writes. “But really, how many households need two homes, three vehicles and four TVs? It’s clear that a great deal of, if not most, consumer spending is driven by desire, not need.”

Of course, this level of spending has helped to keep the US economy relatively healthy, the magazine notes. “Real - after inflation - consumer spending in the U.S. rose 23% in the past 10 years, while the number of households was up only 14%. If spending had risen at the same rate as households, those families or other household types would have spent $109.50 less a week than they in fact did in 2005. That seemingly small sum, when added up, would have subtracted more than $640 billion from consumer spending, and the U.S. economy would now be in a deep funk.”

The magazine suggests that there are three trends that can be worrisome when considering future growth of the economy: 1) lower income households are growing at a faster rate than their more affluent brethren, 2) while there is rising affluence, there also is rising poverty in the US, which means that the middle class is shrinking and the health of the economy becomes almost completely dependent on the upper middle class and upper class, and 3) not enough men go to college, and the fact is that people without college educations make less (and therefore have less to spend) than college graduates.

However, there also are three positive signs: 1) women have increasing economic power, which tends to be good for consumer spending, 2) so-called “mass affluence” is expanding, with more people willing to spend lots of money for stuff they want and/or need, and 3) baby boomers are aging, which means they will tend to have more discretionary income to spend and, in all likelihood, longer lives during which to spend it.

The other healthy sign is the fact that the US population continues to grow, which means that anything can happen. American Demographics predicts that on September 15 of this year, the US population will hit 300 million.

While “stagnant wages, rising poverty, lack of health insurance and the growing army of undereducated men are serious problems,” the magazine writes that “increasingly wealthy and influential women combined with more affluent and aging baby boomers will look at the problems described above and craft solutions in new and creative ways.” The best news of all, it says, is that the US economy is increasingly knowledge-based…and knowledge can help a society analyze and overcome its problems.
KC's View:
These are our customers. Understanding them is the first step in serving them. And that means understanding them in fundamental ways that are both tangible and intangible, not just seeing their reflection in a spread sheet with sales numbers.

It means going beyond demographics.

We remember what we heard a speaker say recently: Demographics is the study of what makes people the same. Psychographics is the study of what makes them different…and ultimately, we believe, is a better tool for figuring out a pathway into consumers’ souls.

To us, that may be the greatest challenge of serving the American consumer. We’ve become a culture that is able to generate enormous data on almost every customer we have, and yet we take refuge in mass marketing because it is ultimately easier and cheaper. For many companies, though, catering to the mass no longer is the best option – there are other companies that do it better and more pervasively…which means another, more nuanced approach has to be taken.

It is time for the knowledge-based retailer to serve the knowledge-based society. Some technologies, such as RFID, will make this easier…which is one of the reasons Wal-Mart is so committed to it, by the way. (Think of the powerful, knowledge-based marketing engine that Wal-Mart will have once its RFID efforts really get traction, and it owns banks and can issue credit cards/smart cards to its customers.)

But there also is a cultural leap for many retailers to make. This ties into something that we often speak about in this space – the need for retailers to become not just a source of product, but a resource for information. This means understanding not just what information the consumer wants and needs, but also really, really understanding the consumer.

Retailing only gets harder. But the upside potential, for thought leaders and agents of change, seems enormous.