Widening income gap marketing tips for brands

As economic uncertainty grows, job losses mount and recession fears multiply, the separation between high-income and low-income consumers is stark. That wealth gap is creating a divide between consumer segments, as the affluent continue to spend and lower-income shoppers spend less as they budget paycheck to paycheck. The disparity has grown since the pandemic, when credit card debt was low and financial obligations such as student loans were postponed, said Gary Stibel, founder and CEO of New England Consulting Group. “It’s all gone,” he said, noting that many consumers piled up debt in recent years with buy now, pay later services, for example. “You’ve now got this huge chunk of the population that is working two jobs and living paycheck to paycheck.” Data-Driven Marketing Playbook Join us May 22 in NYC to explore how data powers marketing Learn more here Experts agree that the income disparity will worsen, particularly amid ongoing federal layoffs and new tariffs driving up prices for everything from automobiles to footwear. Though consumers don’t yet know how high prices will rise, key metrics around job security, indicating concern level, have been ticking up, according to Katie Thomas, who leads the Kearney Consumer Institute. “Across segments and sectors, people feel this uncertainty and that’s what will drive a meaningful pullback in spend,” she said. Spending is already divided, with the majority of dollars coming from the affluent. A recent report on U.S. consumer spending from Affinity Solutions found that high-income shopping accounted for 54% of spending in February; middle-income shoppers comprised 31% and low-income shoppers covered just 15%. The gap is putting pressure on brands, which need to be precise with messaging and ad targeting, as well as carefully managing product assortments at a time when marketing budgets are strained. “If you look down the road as a marketer, you have to say we’re going to see an even greater income dispersion in the world to come,” said Tim Calkins, clinical professor of marketing and associate chair of the marketing department at Northwestern’s Kellogg School of Management. “And that has a huge impact on how you think about opportunities and deploying resources.” Below, Ad Age compiled five tips for marketers looking to advertise to an already bifurcated customer base. Amp up the value messaging Whether low- or high-end consumers, all appreciate getting the most bang for their buck, experts said. It’s up to brands to push marketing messaging that emphasizes value to appeal to consumers. And marketers should remember that “value” does not mean “price,” said Stibel, who pointed to restaurants such as McDonald’s and Chili’s as doing a good job of bundling meals under value-laden messaging. He added that many customers who buy McDonald’s value meals end up spending more anyway by trading up on certain items. Read more: McDonald’s value campaign stars John Cena View this post on Instagram A post shared by McDonald’s (@mcdonalds) In March, review site Yelp published its second annual list of the 50 fastest-growing brands, which included McDonald’s at No. 25. The review site found that 46% of the brands on its list offer value meals or menus or are retailers known for affordability, compared to just 18% of the brands on last year’s list. Both lists were compiled through Yelp’s blended metrics of new business openings, consumer interest and Yelp search results. Last month, a Toyota dealership in New Jersey emailed its customers with an offering of “Top Models Offering Exceptional Value.” “You want to be known for value—you don’t want to be known for price,” Stibel said. “It’s a slippery slope if you focus too much on price it’s a bottomless pit because someone will always be priced below.” Embrace a brand portfolio The best positioned marketers will have offerings on both ends of the spectrum—high-end, premium brands as well as lower-cost labels. This will also help companies compete with the growing number of private label brands, which are seeing renewed customer interest amid financial uncertainty. “If you want to have a big market share in a particular category, you really need to have different brands playing in different spots,” said Calkins, noting that consumer packaged goods are especially challenged by private label. He advised that marketers focus on ways to differentiate their brands. For example, messaging for high-end brands can focus on innovations such as organic ingredients and probiotics. You have to make sure you’re talking to people who are willing to pay the premium,” he said. “The real challenge is how you differentiate and make sure the higher-end products are compelling for customers with more resources.” @aldiusa When shopping at ALDI has never been a problem, why should you change? Just the right price for all my favorite fresh and quality products. Starting off this year (and every year) just right. 🤭 #ALDIUSA #ALDITok #NewYear #Grocery ♬ we are the people - r7ptor Of course, even the well-heeled will be looking to save on everyday essentials even as they splurge in other areas like concert tickets or travel. Thomas traces the behavior back to COVID, when the “stigma” around shopping for groceries at retailers such as Walmart disappeared. “Historically, grocery was an area where you would spend no matter what, but we see that’s the area people are going to optimize because they have options like never before,” she said, adding that a customer could buy low-end Aldi brand potato chips and then higher-end cosmetics at Ulta Beauty. “People are figuring out where they want to spend and save.” Target media by region Marketers should be as calculated as possible with where they spend their media dollars, experts said, to avoid wasted spending. The ability to target media to certain geographies will come in handy when brands are trying to address customers at certain income levels, Calkins noted. Brands can direct certain messages and host events in certain areas. “There are huge economic disparities in geographic regions and segments and that becomes an opportunity for brands,” he said. He added that media tools can also help brands appear out of touch by sending the wrong message to the wrong customer. “The problem is if you go to really affluent people with a message aimed for families that have fewer resources that message isn’t going to resonate, and vice versa —it can spin back on you and you’d appear tone-deaf.” Also: Inside TV’s big data tipping point Avoid the ‘mushy middle’ Many chains that target middle-income consumers have had trouble with brand identity by trying to attract too many at once. Kohl’s, for example, has seen its sales slide. “Mushy middle is the problem of trying to appeal to too many people,” said Thomas. “At some point, you have to strategically make a stronger choice [about] who am I really going after.” Of course, middle-market brands can still find success with the right kind of marketing. For instance, the Gap has gained attention with Gen Z in particular. Recent music-centric marketing efforts from the brand have helped return it to the cultural zeitgeist. Calkins noted that brands that have both low-end and high-end offerings in the same brand might see the former drag down the latter in terms of perception. Nike, he noted, has tried to do both, and it has not always been successful. “Theoretically you can do it but practically it’s tough to do,” he said. “It’s very clear that brands have to pick a lane.” Tone down the opulence During the 2008 recession, the idea of “stealth wealth,” in which affluent consumers kept their financial means under wraps, gained ground. Those consumers still purchased high-end items but were quiet about it so as to not appear tone-deaf when so many others were struggling to make ends meet. Lauren Beitelspacher, a marketing professor at Babson College, expects a similar situation of avoiding flashiness to happen in the coming months. “People will tone down the sharing of buying because these tariffs are going to hurt people and impact the things we buy every day,” she said, adding that high-end consumers will not stop buying but may slow down their social media shares. Brands may be equally sensitive and shy away from flaunting their high-end wares in showy displays of marketing to avoid looking tactless, experts said. Thomas said that brands also need to make their ads less overt in general amid consumer ad fatigue. “Some of that on-the-nose marketing doesn’t land like it used to,” she said, noting how consumers prefer subtle TikToks. “The way engaging with brands feels more natural and less like an advertisement, that’s what consumers will want to see from marketers going forward.”

5 marketing tips for brands dealing with the widening income gap

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