Changes in Income

In recent years, American consumers fell into a consumption frenzy, fueled by income growth, a boom in the stock market, rapid increases in housing values, and other economic good fortune. They bought and bought, seemingly without caution, amassing record levels of debt. However, the free spending and high expectations of those days were dashed by the recent economic downturn. Today's "tapped-out" consumers are now repaying debts acquired during earlier spending splurges, sweating out increased mortgage and household expenses, and saving ahead for children's college tuition payments and retirement.

These financially squeezed consumers are spending more carefully. Value marketing has become the watchword for many marketers. Rather than offering high quality at a high price, or lesser quality at very low prices, marketers are looking for ways to offer today's more financially cautious buyers greater value—just the right combination of product quality and good service at a fair price.

Changing economic conditions can have a big impact on even the most successful companies. For example, the recent economic downturn took a big bite out of sales and stock prices at Apple, the computer maker that's also found a large market in music-related products. Premium digital devices, such as the iPhone and iPod, account for more than 40 percent of Apple's sales. In a troubled economy, such products are often the hardest hit. When Apple issued lower-than-expected sales forecasts, its stock price hit an air pocket. "Apple sells premium products, and every [sign] we get on the economy is a negative one," said an analyst at the time. "[Not even] Apple's products are immune to that." Said Apple CEO Steve Jobs, "Our stock is being buffeted by factors a lot larger than ourselves."35

Marketers should pay attention to income distribution as well as income levels. Over the past several decades, the rich have grown richer, the middle class has shrunk, and the poor have remained poor. The top 1 percent of American earners get 21.2 percent of the country's adjusted gross income, and the top 10 percent of earners capture 46.4 percent of all income. In contrast, the bottom 50 percent of American earners receive just 12.8 percent of total income.36 This distribution of income has created a tiered market. Many companies—such as upscale department stores Nordstrom and Neiman-Marcus—aggressively target the affluent. Others—such as discount retailers Dollar General and Family Dollar—target those with more modest means. In fact, such discounters are now the fastest-growing retailers in the United States. Still other companies tailor their marketing offers across a range of markets, from the affluent to the less affluent. For example, many high-end fashion designers whose designs sell at sky-high prices to those who can afford it now also sell merchandise at prices that the masses can manage.37

High-end fashion designer Isaac Mizrahi, pioneered the "fashion for the masses" trend by offering a line of clothing and accessories at Target. Now, other designers such as Nicole Miller and Stella McCartney are offering less expensive lines at retailers like JCPenney and Swedish-owned H&M. And Vera Wang, known for her $10,000 wedding gowns found in boutiques and upscale retailers such as Bergdorf Goodman, offers a line called "Simply Vera—Vera Wang" at discount retailer Kohl's. In one fall collection, a Vera Wang gold brocade skirt that is nearly identical to a skirt that fetches $890 at a high-end department store will sell for $68 at Kohl's.

Economic environment: To capture India's growing middle class, India's Tata Motors introduced the small, affordable Tata Nano, designed to be the country's Model T—the car that puts the developing nation on wheels.

Engel's laws

Differences noted over a century ago by Ernst Engel in how people shift their spending across food, housing, transportation, health care, and other goods and services categories as family income rises.

Author I Today's enlightened Comment | companies are developing environmentally sustainable strategies in an effort to create a world economy that the planet can support indefinitely.

Natural environment

Natural resources that are needed as inputs by marketers or that are affected by marketing activities.

Environmental sustainability

Developing strategies and practices that create a world economy that the planet can support indefinitely.

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