Is that the millionaire next door coming out of Target with an armload of home decorating items? Is that a Land Rover in the Kmart parking lot? Probably. At the end of the millennium, the buzz among upper-income shoppers is no longer how much they paid for an item, but how little.
"Twenty-five years ago, you'd buy something for ten dollars and brag that it cost twenty dollars. Now there's a sort of reverse snobbism-you buy something for ten dollars and brag that you got it for five dollars," says Kurt Barnard, president of "Barnard's Retail Trend Report," a trends and consumer spending forecasting concern in Upper Montclair, New Jersey. "It's now considered chic to save," says Barnard. "Aging baby boomers are thinking about retirement-they are trying to save money, not spend it. But they still want nice things for themselves and for their homes. So they are bargain shopping."
A recent study by Francis J. Mulhern of Northwestern University, Jerome D. Williams of Pennsylvania State University, and Robert P. Leone of Ohio State University, examined the effect of price and price-related promotions on the shopping public in and around a major metropolitan area. Using scan data collected from 35 liquor stores in the same chain, the researchers were able to gain insight into the true shopping patterns of people from a broad array of socioeconomic levels. "One of the advantages of our study is that we collected data from a chain of stores that had a monopoly in the area-it's not as if shoppers could spend their dollars across the street if the prices seemed better," says Leone, a professor of marketing at OSU in Columbus. "And because we were using register data, not self-surveys of shoppers, we know we were able to collect more reliable data."
The results of the study suggest that higher-income consumers are more likely to take advantage of bargain prices on certain products by stocking up, and by buying less of these goods when prices rise. On the other hand, lower-income shoppers may be less able to take advantage of discounts.
"What this means for retailers and manufacturers is that they may be able to see a certain amount of trading up from price tier to price tier, if they offer discounts at certain price points," says Leone.
If, for example, a top-line liquor is offered at a dollar-per-bottle discount, a consumer who usually makes a purchase from the mid-priced offerings in the same category may be enticed to trade up. "There's also the case where shoppers can be 'trained' to buy on promotion," Leone says. "If a product is promoted with frequency or in a certain pattern-let's say that it goes on sale once every three weeks-then shoppers may wait for the sale week and stock up with enough product to tide them over till the next sale."
This buying in quantity and waiting for sales is more likely to work among upper-income shoppers. "These are the shoppers who have the disposable income to spend on stockpiling items," Leone explains. "They can afford to buy three or four items at once on sale and use them up over the next few weeks. But lower-income shoppers may not be able to take advantage of such an offer-they may not have the cash on hand to buy three or four of the same item at once. They may not have the room to store the items, and they may not have the ability to transport that many products, especially if they are dependent on public transportation. As well, they may not be able to wait for an item to go on sale-if they need it, they need it, and they can't really wait for the price to change."
A second element of the study on price sensitivity looked at the differences in shopping patterns between African Americans and whites. "It was difficult to sort out income issues from race/ethnicity patterns," says Leone. "It seemed as if African Americans were less price sensitive than other consumers, although this may have been related to the fact that the African Americans in the area studied tended to have lower incomes." In fact, in those areas that had concentrations of higher-income African Americans, consumers showed higher-than-average sensitivity to prices. "Income, not race, is the dominant factor," says Leone.
Indeed, all shoppers with lower incomes are forced to buy products regardless of price for the most part, says Leone. They are already buying from one of the lower tiers, an area in which sales are rare. "If the item is on sale, of course they will buy it. But if it is not on sale, they will still buy it because there is no lower-price alternative. And if an upper-tier product is marked down, they may desire to trade up, but they may not be able to afford it."
Do retailers take advantage of lower-income shoppers by not marking down products in their price categories? "A retailer in an inner-city market has some basic factors he can't change-property is expensive, and the store is likely to have higher operating costs than some of the suburban stores. He can only do so much to change the prices-fewer promotions are possible if the store is to turn a profit," says Leone.
But there are some stores that appeal directly to the lower-income shoppers. "Now that Target, Kmart, Kohl's, and other discount department stores have become popular among upper-income shoppers, the discount department store industry is racking up annual sales of around $310 billion to $320 billion," says Kurt Barnard. One Connecticut-based chain, Ames, goes head-to-head with the other discounters, but tailors its mix specifically to suit the under-$25,000-per-year household income shoppers. "Wal-Mart, Kmart, and Target aim much higher to catch the attention of the bargain-shopping upper-income consumers," Barnard says. "But Ames gives lower-income shoppers a nice product mix of items that are up-to-date and fashionable at prices that suit their budgets."