The marketer is highly interested in the formula concerning what constitutes a market, what people have available to spend. Before we examine income levels, however, we need to understand what is meant by “income” because there are several concepts of this term not all of which are equally in evaluating a market.
Personal income is income from wages, salaries, dividends, rent, interest, businesses and professions, social security, and farming.
Disposable personal income is the amount available after deducting taxes, for personal; consumption expenditures and savings.
Discretionary income is the income available for spending after deducting expenditures for necessities of fixed items such as food, clothing, transportation, shelter, and utilities. The Census bureau and the Conference Board have defined discretionary income at least 30 percent greater than the average income of households grouped by comparable size, location, and age.
Operationalism of the concept of discretionary income however has been difficult because of the word necessities. Specification of this amount requires arbitrary as to exactly what is necessary. For example, how much of your money spent on food is “necessary” and how much is “luxurious”? Also, complex adjustments are necessary for household size, area of residence, and other demographic characteristics. Not only are these decisions and adjustments difficult but they may require information not available or uncollectible. Consequently, a more useful concept may be that of subjective discretionary (SDI) which incorporates the idea of how satisfied people are with their life and with their perceived economic well being. It can be measured by obtaining people’s agreement or disagreement with such statement as the following.
1) We have more to spend on extras than most of our neighbors do.
2) Our family income is high enough to satisfy nearly all our important desires.
3) No matter how fast our income goes up, we never seem to get ahead.
People who score high on this scale are saying that they have enough money to buy what they think they need, and then some. Those scoring low are indicating that they have a tough time just making ends meet. In an application of this concept, researchers found that (1) SDI, as opposed to total family income (TFI), was more highly correlated with life satisfaction, and (2) SDI could contribute beyond demographic factors to predictions of consumers purchases. In addition, researchers were able to characterize lifestyles of individuals with varying levels of SDI and TFI. Tables are made to present profiles of male consumers’ lifestyles according to their TFI and SDI, illustrating how this psychological concept adds a useful dimension to marketers’ understanding of consumer behavior.
One of the most significant developments of this decade and beyond is the changing nature of income levels in the United States. Our nation is becoming a more affluent country, with the pattern of income distribution becoming an inverted pyramid as shown. In other words, there will be relatively fewer poor families and more wealthy families in future years there are at present.
The number of families that have moved into the affluent income levels has increased dramatically in recent years. It has been estimated that the top 5 percent of US families hold over 40 percent of all wealth, while the top 20 percent of families have three times the net worth of the lower 80 percent. Less than one fourth of US households account for almost one half of all income. For many business people, this higher income group is a market of considerable significance.This group is an important audience for a wide array of quality goods and services that appeal to the needs and fancies of the very well heeled (sometimes referred to as the carriage trade) In fact many industries are heavily dependent on this market’s patronage. Such items as boats, second homes, quality photographic and audio equipment gourmet foods, elegant cars, and top of the line products in general are aimed at this income class.
The income elite market is of increasing interest to businesses because there are many households in this bracket than were a few years ago. In 1970, approximately 6.5 million households had an annual income of $ 50,000 or more (in1985 dollars) while in 1985 there were over 11 million such households, a 70 percent increase.
Who are these income elite, sometimes referred to as the Americans Super class? Basically they are likely to be households containing the middle aged, with older children working wives and those who are college educated and working in managerial and professional jobs.
The upscale market is growing rapidly such that some predict the class market will become a ‘mass market’. Companies are adopting strategies to deal with such a market. For example, General Electric Co, faces a mature life cycle stage in many of its home appliances. To counter the basic problem of replacement demand. GE is extending its top of the line offerings in product categories by upgrading the devices with electronic features to appeal to more upscale customers.