Three Ways to Tap Hidden Consumer Spending Power

Most marketers believe they have done all they can to learn almost all there is to know about their customers and prospects. After all, powerful customer data integration (CDI) tools have placed unprecedented levels of new data at marketers’ fingertips. From income and age to transaction history and lifestyle data, marketers have ready access to the three traditional pillars of consumer insight: behavioral, attitudinal, and geo/demographic. Little wonder, then, that so many marketers are confident in the data and information they’ve been collecting, buying, and licensing.

But the vast majority of marketers today are missing a very key element of data: money. Its impact is so profound, money should be viewed as the fourth dimension of consumer insight.

And we’re not talking just about consumers’ income and homeownership and investments. We’re talking about the whole spectrum of consumer insight that can be gained by understanding the spending power of consumers.

So much money, so little knowledge
People are often more comfortable discussing religion or politics than they are talking about money. And money is as important in understanding and predicting consumer purchasing behavior as emotion, attitudes, and even past behavior.

Spending power is the next frontier of profitable and successful marketing. It’s at the heart of all consumer purchase behavior for products above commodities.

Consider these facts:

* In 1970 one out of every 27 households earned a six-figure income. Today the ratio is closer to one out of seven.

* Consumer spending accounts for 60%- 70% of the total economy. Forty percent of that, or $3 trillion, is spending on discretionary products and services.

* Consumers today spend proportionately less on basic necessities such as food, clothing, and shelter than they did 25, 35, or even 50 years ago.

So far few marketers have taken advantage of this new dimension of understanding. They’ve put up with using income and net worth as buried components of their current marketing systems. But those that isolate money and leverage it into their campaigns will increase their marketing ROI and pull ahead of the competition.

What is spending power?
Spending power is a measure that results from looking at three components:

1) liquid and nonliquid assets
2) disposable income (It’s not what someone earns; it’s what they have left)
3) home equity (The combination of an extended period of low interest rates, rapidly advancing home values, and the lending community’s aggressive efforts to help consumers put home equity to use in spending is fueling certain types of larger-ticket consumption).

With this information, not only can you better target your direct marketing campaigns, but you can also make more-accurate media selections.

Here are three strategies to help you better understand spending power and use the information to target customers and prospects who represent the greatest possible return on your marketing investment:

1) Tap into spending power by targeting customers who actually have more money to spend
Mr. Jones stays with the same hotel chain in Hawaii every summer for one week and takes three or four business trips every year. The hotel chain is pretty happy with Mr. Jones, whom it considers a good customer. But what the hotel doesn’t know is that Mr. Jones spends another two weeks skiing in Colorado, where he stays with a competing vacation resort property. If the hotel chain knew that, its communications with Mr. Jones might take a whole different tack, and Mr. Jones might be a whole lot more profitable.

Or consider two families, each with household incomes of $200,000—a comfortable living for most people. But Family A lives in New York City and has two children in private school. Family B lives in suburban St. Louis, where the children attend a good public school. Other factors such as family wealth and credit-card debt contribute to the vastly different purchasing patterns between these two families.

The goal is to be able to identify the spending power of individual households and to then design promotions that are economically and creatively appropriate. For instance, a customer with significant spending power who purchases from a specific catalog once or twice a year could be targeted with a premium club offer to encourage additional purchases throughout the year. Other customers with similar demographics but without the spending power might appropriately receive standard promotions, created at minimal costs.

People with higher levels of spending power show a much greater variability in their expenditures than do people with lower levels of spending power. This gap between what they do spend and what they could spend with a specific company holds significant potential for the marketer.

2) Tap into brand evangelism by separating the prospects who love your brand from the prospects who love your brand and can actually spend money with you
Companies have traditionally been pretty good at identifying target audiences of qualified prospects. By combining direct marketing strategies with a program that supports your brand, you can get many people to raise their hands and express interest. We call these people “brand viable”—that is, they respond positively to the brand. These are the people who may not be able to afford a Mercedes but aspire to ownership. That’s great— as far as it goes. But if these same individuals simply don’t have the discretionary income they need to actually purchase the product, what is the appropriate response for a marketer?

Certainly the best case is to find those people with high brand viability and high revenue value. They have a propensity to identify with a specific brand and have the potential to produce high revenue for your company.

These are the people on whom your business can and should invest its marketing dollars for the biggest potential return. These are the individuals who represent your business’s sweet spot.

For an example, let’s turn to today’s online world of paid search. Behavioral search advertising can do a pretty good job of identifying brand viables. Consider the (water!) surfer who goes on the Internet and “surfs” for Hawaii. He starts by clicking on scuba diving, resort recommendations, and tours and receives an ad for a top-of-the-line resort. He may have heard of the hotel—and may even aspire to stay there. So he clicks on an ad and asks for the fancy brochure. But his bank balance may make it an impractical option. So while a return e-mail with additional information is a cost-effective option for all respondents, the key is to be able to identify if the individual is “revenue valuable” before making additional marketing efforts—especially any involving expensive printed materials.

But this does not mean you should ignore people with high brand viability and lower revenue value. Quite the opposite. Smart marketers will find a way to appeal to them in lower-cost ways to minimize acquisition costs. And while the primary goal is to entice these individuals to purchase, the secondary goal is to maintain their interest for future purchases because they will likely be key drivers of long-term gains and can potentially serve key roles as influencers who can make a real difference in achieving and maintaining market traction.

This group is particularly important for marketers of products or services that span a range of price points. For instance, while the image of a BMW may be that it’s a luxury vehicle, the fact is that BMW price points range from the low $30,000s to more than $80,000. Brand evangelists who have $150,000 in income may be able to afford only an entry-level BMW, whereas brand evangelists with an income of $1 million have a lot more options. The problem is that most traditional income selects offer a select of $100,000-plus in income. That doesn’t help a BMW marketer. Once again, an estimate of spending potential can make the difference.

3) Tap into your prospects by identifying spenders from day one, whether they spend a lot or not
Prospecting matters for companies in business for the long haul. Responders who do not purchase immediately or who don’t spend quite as much money as they could represent a very important opportunity to extend the marketing spend beyond the usual campaign confines.

The time to evaluate a prospect’s spending potential is when he first responds to a marketing campaign. Knowing his spending potential may not predict short-term responsiveness or even purchases, but it will inform and predict value over the long run. View it this way: You’ve already spent a significant portion of your budget to attract the prospect to a particular product or service. So for a bit more, you can find out which of these prospects are worth the effort of continuing the dialogue. You would (and should) treat the prospects who have the spending power much differently than those who do not exhibit the potential to spend at a high level.

New targeting techniques exist that allow marketers to attach a spending power score to individuals, providing a powerful segmentation tool that vastly increases the efficiency and effectiveness of marketing expenditures.

Marketers in every industry, from automotive and telecom to retail and travel and hospitality, can gain unique value in efficiency and profitability by tapping into the spending power of their customers and prospects. Every marketer should consider the possibilities for their product or service.

Don Neal is president of Echelon Marketing Group, a McLean, VA-based provider of consumer marketing information and insight. To request a copy of the white paper upon which this article is based, visit www.echelonmarketing.com/3ways.