Low pay, big business

Marketing: a costly failure to understand the needs of the poor

POOR consumers command considerable spending power - an estimated pounds 7l.7bn this year alone. Yet few British marketers understand the differing priorities of high- and low-income consumers as the gap between rich and poor continues to grow.

That's the conclusion of The Rich and the Poor in Britain, a report published by the market research company Mintel last week. And it is a view endorsed by a growing number of marketing professionals, who warn that business could suffer if companies fail to adequately address the differing needs of their consumers.

The rich are defined by Mintel as the top 20 per cent of earners, with an average gross household income of pounds 42,818. They account for an increasing share of total UK household spending - 39.7 per cent, or pounds 149bn this year, Mintel predicts. And when it comes to earnings, they enjoyed a 48 per cent share of UK income last year, up from 43.2 per cent three years ago.

In contrast, the poor - classified as the bottom 40 per cent, with an average gross annual income of pounds 6,088 - accounted for a 13 per cent share of total UK income last year. This was down from 15.5 per cent in 1992, according to the report. Their share of household spending remains relatively constant.

The spending priorities of each group are as different as their spending power. The poor are more conservative consumers, Mintel found. Many express unease at new technology and are sceptical of green and healthy eating messages.

Home and car ownership are regarded as less important for a good quality of life by the poor - only four in ten believe they are essential, compared to six in ten rich consumers. The poor are also less likely to agree that money is best off in the bank - only 53 per cent believed this to be true, compared with 65 per cent of the rich. If given extra money, the rich are more likely to go on holiday, while the poor are more likely to spend it on household goods.

"If required to reduce spending, the poor tend to cut back on a wider range of items to make ends meet," says the Mintel project manager, Emma Besbrode.

So it is a mistake to assume that the priorities of low- and high-income earners are the same, she adds. "It's not just a question of Brand X or Brand Y. Often the competition for a business is something entirely different, such as the choice between going on holiday or saving money in the bank."

This is endorsed by Creenagh Lodge, chairman of the brand specialist CLK, who believes the multi-billion-pound spending capacity of lower-income consumers is often overlooked by marketers. "The Eighties was a decade of 'yuppification', based on the assumption that everyone would become middle class," Ms Lodge explains. In contrast, the challenge for the Nineties is to address lower-income earners who have been left behind.

"The first thing a business does is look at its valued customers, who generally turn out to be middle class," Ms Lodge says. "The danger is the lower social groups will be left out. Because they represent such a large chunk of the population, companies must recognise that while the margin is low, the volume is high."

A number of businesses are starting to address this. CLK recently worked with the Liverpool Victoria Friendly Society, which wanted to rebrand itself to its predominantly Northern, working-class customers. "Getting the right branding was critical," Ms Lodge says. "We found working class people are more confident in a brand that declares itself. Value and function do not necessarily trigger purchase. These are not people prone to reading the financial pages."

Thorn EMI is now targeting low-income consumers with Crazy George, a rent-to-buychain launched last year. Crazy George is about providing access to consumer durables for customers who are deprived access through conventional high street means.

Thorn's director of community affairs, Jim Donovan, explains: "We provide products on a retail basis with rental-style service and weekly payments."

Customers may return a product if they can no longer afford to buy it. Payments may be suspended and the product held in store until their financial circumstances improve. Thorn has opened 14 stores and plans to double this number by the end of next year.