Money talks
Affluent consumers are more likely than the average consumer to splurge on big brands and luxuries, be they large or small. But the household income level that marks the cutoff between \"the haves and the have nots\" is not so clear.
Going by U.S. government definitions, the affluent designation still begins with the top quintile – households boasting an annual income of about $100,000, explains Pam Danziger, president of Stevens, Pa.-based Unity Marketing, which specializes in consumer insights for marketers targeting the affluent consumer segment.
But where that household is based and the associated cost of living, as well as the number of people in that household, also play a role in determining affluence, notes Todd Hale, senior vice president, consumer and shopper insights for New York-headquartered Nielsen. He adds that Nielsen classifies the \"high end of high\" as households with annual incomes of $200,000 or more.
No matter how a retailer defines affluent consumers, however, it should not have difficulty identifying them and pursuing them as customers. After all, affluent households tend to be clustered together, Danziger says.
Worthy of pursuit
Convincing affluent consumers to shop a specific store banner is one thing. Convincing them to buy that banners private label products is quite another. And are they even worthy of retailer pursuit on the store brand side?
\"I think whats really important to understand is that the affluent shopper doesnt have to shop at a discount,\" Danziger says. \"They are the ones in the economy with discretionary income, and we find that they spend, on average, two to three times more than a middle-class household.\"
That being said, affluent consumers are smart shoppers and will buy at a discount if they are not forced to sacrifice quality, she adds.
\"I look at Costco as being a perfect example,\" Danziger says. \"Their [Kirkland Signature] house brand offers significant value, and the quality is superb. ... So if you want to sell more to the affluent shopper who can buy more, then make sure you really offer the high quality.\"
For store brand decision-making purposes, it also helps to look at consumer attitudes and actual buying behaviors. In a study, Nielsen asked consumers if they believe store brands are a good alternative to name brands. The number of respondents who indicated that they strongly believe that statement fell as income rose, Hale says, showing that lower income consumers are more likely to be connected attitudinally with private brands.
Susan Viamari, editor of Chicago-based IRIs Times & Trends newsletter, points to insights gleaned through the market research firms recent MarketPulse survey. The survey found that 34 percent of consumers with household incomes of $100,000 or more were buying more store brands today than before the economic downturn began (compared to 41 percent of consumers with household incomes between $55,000 and $99,000 and 45 percent of the population overall). But wealthier shoppers have roughly the same propensity for continuing to buy store brands as the economy improves as consumers with household incomes between $55,000 and $99,000 and the population as a whole.
\"Though wealthier shoppers are not quite as strong private label buyers versus others,\" she says, \"there is still a sizable portion of the population making such purchases, and more than half show no intention of dialing back as the economy improves.\"
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Actual buying behaviors also are telling. Nielsen figures show that private label share of spending (dollar sales) falls as household income rises – from a high of 21 percent among households with incomes under $25,000 to a low of 15 percent for households earning $200,000 or more. But that picture is a bit misleading, Hale explains: The store brands dollar buying rate actually increases with income.
\"The reason private label share falls off as income rises is not because of the spending level on private brands,\" he says. \"Its because more affluent households spend so much more on brands. ... The average brands-buying rate among those households with incomes of $150,000 or more is about 44 percent greater than the two lowest groups.\"
Make that connection
Retailers certainly have an opportunity to court affluent consumers with store brand offerings, but they will have to tread carefully, considering everything from the channel of trade and the category to the packaging. On the channel side, Hale notes, almost all income levels shop at grocery stores, and shopper penetration within drugstores and mass merchandisers is similar among all income groups. But affluent consumers have a much higher penetration in the club and specialty channels.
\"So youve got to be smart about it,\" Hale says. \"I would argue that theres probably opportunities to leverage private label among the more affluent in what retailers refer to as either their national brand equivalents or their premium private labels, and not their low price-entry points that might appeal to low-income households.\"
In doing so, however, Hale advises retailers to go beyond national brand in quality and invest in innovation.
\"I think theyve got to think about stretching themselves beyond what the brands are doing today.\"
Although wealthier shoppers tend to be more optimistic than other shoppers when it comes to their personal financial situation, Viamari points out that 73 percent of them believe their position will stay the same or deteriorate in the coming year instead of improving. As a result, they, too, are engaging in smart shopping habits such as coupon clipping, list making and the purchase of store brands. So it makes sense that these shoppers also would be willing to purchase new store brand products that help them stick to their frugal behaviors.
\"Key rituals today are home-based eating/drinking and self-administered health and beauty care,\" she says, adding that 31 percent of consumers with household incomes greater than $100,000 are eating out less often today, and the same number are going to the salon or spa less often. And more than one-fifth of them are self-treating for simple ailments.
\"Marketers of store brands that serve each of these rituals must consider wealthier shoppers as part of their target market,\" Viamari says.
And because affluent consumers are just as likely to preplan in relation to shopping as other income groups, she says retailers must reach outside the store with their store brand-related marketing messages.
\"Wealthier shoppers are more likely to use new media versus the average shopper,\" Viamari adds, \"so this is a good way to reach them.\"
And mind the marketing message, Danziger stresses.
\"If you look at affluent consumers, they are really at the top of the food chain in terms of income. They are business managers, making business decisions,\" she says. \"They dont leave their business smarts at the office when they come home at night, and they like to be respected and rewarded. Positioning your brand as the smart shoppers choice is the way to go.\"