Income and Social Class

Decision to Spend

Consumer demand for goods/services depends on both our ability and our willingness to buy

Discretionary Income = the money available to a household over and above what it requires to lead a comfortable life

Research suggests $75,000 is the “magic number” for annual income

• Emotional well-being steadily rises as people get to this level but doesn’t significantly increase after that

Types of spenders:

1. Tightwads: those who hate to part with money and actually experience emotional pain when doing so

2. Spendthrifts: those who enjoy buying everything in sight

Money has complex psychological meanings – we equate it with success/failure, social acceptability, security, love, freedom, etc.

Consumer Confidence

Our expectations about the future affect our current spending, and eventually add up to affect a society’s overall well-being

Consumers’ beliefs about what the future holds are an indicator of consumer confidence

When consumers are pessimistic about their prospects, they spend less and take on less debt

When consumers are optimistic about their prospects, they spend more and take on more debt

Income Inequality and Social Mobility

Income inequality is one of the biggest issues currently

Plutonomy = an economy that’s driven by a fairly small number of rich people

• The U.S. has one of the largest income inequalities of all countries

Social mobility = passage of individuals from one social class to another

• Horizontal mobility: when a person moves from one position to another that’s roughly equivalent in status

• Downward mobility: when a person loses status of some kind

• Upward mobility: when a person gains status of some kind

In the U.S., the most social mobility is observed in the Northeast, Great Plains, and the West

The Great Recession and Materialism

The Great Recession – lasted from December 2007 to June 2009

• Largest drop in employment since the Great Depression

• Rather than the “buy now” mentality, we try to see where we can save

Many fashionistas have turned into frugalistas; they refuse to sacrifice style but will achieve it on a budget

It’s cool to admit getting deals rather than paying full price

Consumers are happier when they buy a bunch of smaller things over time rather than blowing it all on one big purchase

This is a result of…

Hedonic Adaptation = to maintain a fairly stable level of happiness, we tend to become used to changes, big or small, good or bad

• This means that over time the rush from a major purchase will dissipate and we’re back to baseline

Income-Based Marketing

Two factors contribute to an overall upward income trajectory

1. A shift in women’s roles

Mothers with preschool children are the fastest-growing segment of working people; many are in high-paying occupations like medicine and architecture

2. Increases in education attainment

Degree holders earn 80% more

Targeting High-Income Consumers

People tend to indulge in luxury goods while pinching pennies on everyday items

Three groups of consumers based on attitudes towards luxury…

#1: Luxury is functional – consumers use their money to buy things that will last and have enduring value; conduct extensive prepurchase research rather than emotional/impulsive choices

#2: Luxury is a reward – consumers tend to be younger and wish to signal their success (I’ve made it) to others by buying conspicuous luxury items like cars and homes

#3: Luxury is indulgence – smallest of the three groups and includes younger consumers and more males than the other two; the purpose of owning luxury is to be very lavish and self-indulgent; more likely to make impulse purchases

Old vs. New Money

Old money families live primarily on inherited funds (e.g. Rockefellers, DuPonts, Fords, etc.)

To achieve social prominence, you need a family history of public service and philanthropy beyond just money

Old money families distinguish themselves in terms of ancestry and lineage rather than wealth; making large donations achieves a sense of immortality (e.g. Carnegie Hall)

Nouveau Riche consumers recently achieved their wealth; along the lines of rags to riches which is a powerful force of motivation in our society

Many suffer from status anxiety

Targeting Low-Income Consumers (NOT ON TEST)

Social Class and Consumer Identity

Six social classes (identified by sociologist W. Lloyd Warner)

1. Upper Upper

2. Lower Upper

3. Upper Middle

4. Lower Middle

5. Upper Lower

6. Lower Lower

The proportion of consumers that fall into each category fluctuates over time

Social Class

Social class = describes an overall rank of people in a society

Tend to have similar occupations and lifestyles by virtue of income levels and common tastes

Homogamy = we tend to marry people in a social class similar to our own (not a hard and fast rule)

Social Stratification

Social Stratification = the creation of artificial divisions; some members of a group get more resources than others by virtue of their relative standing, power, or control in the group

Most groups exhibit a status hierarchy in which some members are better off than others (they may have more power or are simply more liked)

We tend to define someone’s “worth” by their occupational prestige

Affluenza = well-off consumers tend to be unhappy and stressed; just because someone has a higher social standing doesn’t mean they’re happier

Income vs. Social Class

Although we equate money with social class, they are by no means synonymous

So, is social class or income a better indicator of consumer behavior?

It depends on the type of product – do people buy it largely for its functional value or for its symbolic value

Income vs. Social Class

• Social class is a better predictor for symbolic aspects with low to moderate prices (e.g., cosmetics, liquor)

• Income is a better predictor for major expenditures that don’t have status or symbolic meanings (e.g., major appliances)

• Both social class and income predict purchases of expensive, symbolic products (e.g., cars, homes)

Social Class – China

An economic boom is creating a middle class of more than 130 million people

• Projected to grow to more than 400 million in 10 years

Brands are important in signaling higher social status (e.g., Louis Vuitton, Maserati, Hugo Boss, Prada)

• Nike is named China’s coolest brand and symbolizes success to Chinese consumers

Social Class – Japan

Highly brand-conscious society where upscale, designer labels are very popular

“Office ladies”: Single, working women are largely responsible for fueling Japan’s luxury-goods spending

• Typically live with their parents which gives them more money to spend on goods

Social Class – Middle East

Searching for the latest Western luxury brands is a major leisure activity for those with money

Like China, there is a growing middle class of more than 150 million people

Young economy; more than half of people are younger than 25 years old

Many high-end retailers have stores in the Middle East to cater to the market (e.g., Saks Fifth Avenue)

Social Class - UK

England is extremely class-conscious

• People traditionally divided into upper, middle, and working classes

• Dominance of inherited wealth has faded in the traditionally aristocratic society

• UK was hit hard by the Great Recession and a new emphasis on frugality has altered people’s priorities

Social Class – India

India’s economy is booming and affluent consumers prize higher-end global trends

Soon there will be about 267 million middle-class Indian consumers; more than half of population is younger than 25 years

Celebrities have a very strong influence on consumers’ purchasing behavior

Status Symbols and Social Capital

It’s getting harder to link certain brands/stores with a specific class

e.g., affordable luxuries

Rising incomes in other countries along with decreasing prices for consumer goods creates an explosive demand for luxury products

Mass Class = hundreds of millions of global consumers who enjoy a level of purchasing power that allows them to afford many high-quality products

Brands that target this market: H&M, Zara, EasyJet, L'Oréal

Taste Cultures, Codes, and Cultural Capital

Taste Cultures = describes consumers in terms of aesthetic and intellectual preferences

People’s tastes can vary based on social status

THIS IS ON THE EXAM

Codes = the ways consumers express and interpret meanings

THIS IS ON THE EXAM
THE REST ISNT

Marketers use codes to target certain consumer markets with messages they can relate to

1. Restricted codes: focus on the content of objects, not on relationships among objects

2. Elaborated codes: more complex and depend on a more sophisticated worldview

Code differences extend to the way consumers approach basic concepts like time, social relationships, and objects

Social and Cultural Capital

Social Capital = showcase for wealth that causes exclusivity (e.g., glamping)

• Those with social capital have access to exclusive networks where business and political deals happen

Cultural Capital = a set of distinctive and socially rare tastes and practices (e.g., etiquette lessons and debutante balls)

• Knowledge of “refined” behavior that admits a person into a realm of the upper class

• Allows the elite to hold positions of power and authority

Status Symbols

Status symbols = items that we purchase that signal to others our wealth

Invidious distinction = we use goods to inspire envy in others through our display of wealth or power

Conspicuous consumption = people’s desires to provide prominent visible evidence of the ability to afford luxury goods

Quiet vs. loud signals

How are gift-giving habits affected by conspicuous consumption?

Parody Display = reverse strategy by separately avoiding typical status symbols

e.g., purchasing new “old ripped jeans”

Signaling to Others

Brand Prominence = level of loudness in signaling

Four types of consumption groups based on status signaling