An economy in the pink: Companies are lining up to enter the gay market. Christopher Hird and Tracey Gardiner report

IT IS a market US big business feels it cannot afford to ignore. Witness the way that, when the furniture store Ikea launched an advertising campaign earlier this year featuring two people setting up home together, the couple were both men.

The 'pink economy', as it has come to be known, is based on a combination of the idea that gay men and women spend their dollars - or pounds - differently and that as a group homosexuals tend to have above-average spending power. They are arguments that British business is gingerly begining to accept, too.

Most of the statistical research on the issue is American, however. That seems to show that while the numbers of adult lesbians and gay men in the US are relatively low - 15-25 million people out of 250 million potential consumers, their income and consuming profile are relatively high.

Studies have shown that the average household income of a gay couple is dollars 63,100 - almost twice the national average. Moreover they are relatively big spenders, buying more CD players, going on more exotic holidays, dining out often and reading a lot more than the average. And best of all, they are very loyal consumers.

In a highly competitive market the research to date has suggested that the gay consumer is the perfect customer - a loyal, well-paid big spender. 'What do you call 14 million gay men and lesbians? A dream market,' as the Wall Street Journal put it.

To help corporate America to exploit this market, a succession of glossy gay magazines have opened. The earliest entrant was Out magazine. Established in the summer of 1992, it sells 100,000 copies every month, reckons on 350,000 readers and has seen advertising quadruple in the past two years.

The advertisers that support Out and the other glossy gay magazines read like a roll-call of American business: Apple Macintosh, Campari, American Express and Virgin Airlines.

The American telephone company AT&T has launched a mail shot especially targeted at lesbians and gay men. In Australia, a Toyota distributor marketed a family saloon as 'the family car', with a picture of two men and a dalmatian dog.

And in New York's Times Square, amid a sea of neon, Benetton's most recent advert dominates the scene. The image is of two men cheek-to-cheek.

According to Peter Fressola, director of communications for Benetton in North America: 'These are people frequently in dual-income homes without children, with high discretionary incomes, with high education levels.'

But that has proved to be a double-edged sword for some American businesses. Gay consumers were quick to realise that economic power could lead to political power. Large companies making products that were popular with the gay market found that they faced particular scrutiny.

In February this year, the Florida Orange Citrus Commission employed the anti-gay broadcaster Rush Limbaugh to promote the state's orange juice. Soon afterwards lesbian and gay groups started a boycott and sales of Florida orange juice fell by 10 million gallons in six months. Mr Limbaugh's contract was dropped, amid claims that this had nothing to do with the boycott.

In Britain, belief in the pink pound has helped to launch a number of gay lifestyle magazines. Attitude - primarily aimed at gay men - is owned by Northern and Shell, the publisher of Penthouse, Forum, For Women and Asian Babes. Attitude is Northern and Shell's most respectable title.

It has no adverts for sex phone lines, is distributed to high street retailers and has a glossy format. All this is aimed at pulling in mainstream advertisers, as in America.

Already one of the glossy gay magazines has been a casualty of over-optimism. Last month Phase closed after five issues. It faced a familiar small business problem - not enough capital to finance its early losses, which were much higher than expected because of the over-optimistic expectations of its founders.

The failure of Phase is symbolic of a more cautious approach to the pink economy in this country than in America. Research commissioned by Channel 4 Television suggests that such caution may be justified.

Conducted by Overlooked Opinions, an American market research company, the nationwide survey provides entertaining reading - lesbians keep cats, gay men prefer Levi's - but it is also instructive. Unlike the American image, in Britain lesbians and gay men earn about pounds 15,000, no more than the national average. The survey suggests that this is because they work disproportionately in the public and voluntary sector.

There are two important findings of relevance to British business. Although gay men are not more affluent than the average, lesbians are 30 per cent better off than other women generally.

Yet at the moment almost all the British marketing aimed at the gay consumer is targeted at men. And Diva, the lesbian magazine, has few adverts in it.

Second, as in America, British gay consumers appear to be very loyal. Moreover, some UK companies have realised that, although this market may not be large, the readers of these magazines are worth targeting as leaders of fashion - 'early adopters', in the jargon of the marketing industry.

'Advertisers know that significant numbers of the readers of those magazines are young, urban; they go out a lot, they go to clubs a lot and they drink a lot,' says Gary Duckworth, of the advertising agents Duckworth, Finn, Grubb, Waters.

This makes it a cheap way for companies like Smirnoff Vodka to reach their target audience of young drinkers. But that is very different from the way in which American companies have used overtly gay images - like the Ikea advert - to attract custom.

Phase magazine found it impossible to attract any adverts from banks, for example. 'I think that a lot of the attitude of advertising agencies has been pure homophobia,' says its former editor, Peter Cummings. 'They don't want to be associated with gay people. But if a bank said we support the gay market, they would get millions of accounts instantly.'

(Photographs omitted)

'Out' is shown on Channel 4 at 9 o'clock tonight.