Charlie Nelson
Director Foreseechange
www.foreseechange.com
September 2002
Retail spending growth accelerated in the 1990’s and yet some retailers have been consistently doing badly. Why the paradox? Perhaps they are mostly competing for a narrowing slice of the market.
Between 1985 and 1990, retail sales volume (real, or inflation adjusted) grew by 8.6%. Over the next five years, 1990 to 1995, volume grew by 13.8%. Growth increased further, to 15.3%, between 1995 and 2000.
Why the surge in growth?
Household Expenditure Surveys by the Australian Bureau of Statistics
consistently show that the people who spend the most, in aggregate and in most
discretionary categories, are between 45 and 64 years old.
And the proportion of consumers aged 45 plus increased dramatically from
1990.
Between 1946 and 1955, 1.92 million babies were born in Australia, 43% more than in the previous 10 years. In 1990, this baby boomer generation started reaching the peak of their spending power. Births increased by a further 19% between 1956 and 1965 and this means that we can expect at least another 10 years of very strong spending growth.
People aged 45 plus represented only 45% of spending in most categories in 1989, but this figure will grow to 55% by 2009. People aged 45 to 54 represented 20.5% of spending on recreation in 1989 and this had grown to 25.6% in 1999. The figures are very similar for food, clothing, and many other categories.
Spending peaks at ages 45 to 59 for several reasons;
l Income is highest at this age;
l A higher proportion of this high income can be used for discretionary spending than in younger age groups because commitments such as mortgages are paid off.
The baby boomer generation is not only vastly larger than earlier generations, but their inflation-adjusted earnings are also much higher.
Chart 1 shows the average spending by households by age of
reference person (equivalent to head of household). Spending on current housing declines at age groups over 25 to
34 as outright home ownership increases. This
leaves more money to spend on discretionary items and spending in most
categories peaks at age 45 to 54.
But older households tend to be smaller, because children have left home.
Chart 2 corrects for this and shows average spending per person.
Note that in several categories, spending per person peaks in the age
group 55 to 64. In some categories,
such as recreation, spending per person is higher for people aged 65 and over
than it is for people aged 25 to 44!
As shown in Chart 3, household income peaks at age 45 to 54 and then declines
with age. But differences between
age groups are less pronounced when we look at disposable income (after income
tax) and discretionary income (after income tax, rent and mortgage payments).
None of this information is new. Many articles have appeared over the past 10 years quantifying the opportunity of marketing to older consumers. See, for example, “Over 50’s to take over as big spenders”, B&T February 21 1997, an article to which I contributed.
Perhaps the best example of marketing to older people is
the Coalition parties federal election campaign in 2001. The Coalition won the election, but polling by ACNielsen in
the final three weeks of the campaign shows that the ALP voting intentions were
higher in all age groups below the age of 55.
But the Coalition had established such a large lead amongst the over
55’s that they led the overall voting intentions 51.8% to 48.2%.
Despite the obvious opportunity, I haven’t seen much
evidence of marketers trying to harvest it.
To find out why, I have spoken to a small, but diverse, sample of
marketing practitioners and academics. These
are some of the reasons given for not seizing the opportunity.
“By targeting younger people, we still communicate
with older people.”
This argument may have had some merit when the traditional family was still the dominant household type and media choices were limited.
ABS data shows that the fastest growing household types are couple only and lone households. By 2016, there will be more couple only households than couple with children households.
It is clear that younger and older people pay very
different amounts of attention to particular programs and advertising.
For example, Nielsen Media Research Panorama data shows that:
l Effort to view decreases sharply with age for programs such as The Simpsons, Friends, and Home and Away;
l Effort to view increases sharply with age for programs such as Blue Heelers, Getaway, and Money.
Younger people are more switchable than older people (on the basis of price) and more experimental and faddish. But this is a double edged sword.
Young customers that you win to your brand cannot be expected to remain loyal. You will have to spend heavily to retain them or win them back when they defect.
Older consumers can be switched, but more on the basis of quality and customer service. Once won over, less marketing costs are needed to retain them.
Nielsen Media Research Panorama data shows that while older
people are less likely to agree that they are attracted to new ideas than
younger people, strong agreement about liking to try new products does not vary
with age.
Companies are in business to make money, not give their
marketing staff and agencies a buzz.
That’s fine, but it limits your market potential.
Why not start a new brand with an older positioning?
I like to hear this sort of comment in a world where long
term planning is out of fashion. Yes,
younger people do have higher lifetime values (on average) but, as discussed
above, you can’t assume their loyalty. It
is important to have a portfolio of customers – some of whom will be “cash
cows” while others will be “question marks” or “stars”.
Most people over 45 are not “dogs” - and they can learn new tricks.
When I hear this comment, I ask the young person who said it to think of their parents. Almost invariable, they can talk about their lifestyle (often with some envy).
Most young brand managers and creative directors do know
older people and there is no shortage of market research on older consumers.
While consumer spending growth will continue to be buoyant, it will be a two-speed market. Growth in the population under 45 years of age will be stagnant, while there will be rapid growth in the over 45 population. If targeting and positioning strategies don’t change, the younger market will be increasingly competitive with skinny margins, while the older market will yield high returns to the enlightened few.
A recent AFR Boss magazine survey of top 500 companies identified the top two priorities as being customer satisfaction and expanding domestically. Neither of these objectives is likely to be achieved by targeting an increasingly small proportion of the market.
Increasingly, growth will come from the identification and
targeting of a portfolio of market segments.
This demands a correspondingly split communication strategy.
An excellent book has been written by Jean-Paul Treguer
titled “50+ Marketing”, published in 2002 by Palgrave.
He identifies the same marketing blindspot in USA and Europe and the same
boom in spending by people 50+. He
debunks several preconceptions including:
l The over 50’s feel old;
l They are physically and socially inactive;
l Their health is bad; and
l They are resistant to novelty.
Someone at The Economist has read Treguer’s book and an article titled “Over 60 and overlooked” appeared in the August 10th 2002 issue. The article points out that 95% of marketing and advertising budgets target the under-50’s. However, The Economist has not thought through the implications for central banks of the rapid growth in the older population (see my article on the looming impotence of central banks at www.futuretoolkit.com/nelson0902.htm).
The National Centre for Social and Economic Modelling (NATSEM) has recently released a paper that analyses trends in the income and wealth of older Australians. They found that the average wealth of older Australians almost doubled between 1985-86 and 1996-97. Their paper can be obtained from their website, www.natsem.canberra.edu.au.
Foreseechange, in conjunction with Worthington Di Marzio has commenced a program of research aimed at better understanding the needs and attitudes of older Australians. For more information, click here.