Direct Selling: Get Off the Offer Bandwagon
There’s an economic concept known as the “wealth effect.” In essence, the wealth effect postulates that as consumers’ portfolios expand in times of strong economic conditions, their spending increases. In other words, as people’s wealth increases, their spending increases regardless of disposable income. Think in terms of “richness” and “wealthiness.” If consumers feel wealthier (i.e., strong portfolio accounts), even if they are less rich (i.e., they have less disposable income due to, say, joblessness or higher gas prices), they tend to maintain or increase their existing levels of spending. Conversely, as consumers feel less wealthy, they spend less, despite available income.
To direct marketers, this is huge. Because direct buyers are often in the middle and upper-middle classes, these consumers are among the subset of Americans who make up a substantial portion of the U.S. stock holdings through their corporate-sponsored and personal retirement accounts. These are the consumers who have seen their portfolios sink in the past year. These are the consumers who feel the least wealthy right now. And these are the consumers who, in the face of decreasing wealth, are changing their spending habits in a big way.
It’s not that they aren’t buying; it’s that they’re buying differently. Here’s some proof.
- December 2008 same-store sales for Wal-Mart were up 4 percent, and annual sales topped $100 billion for the first time ever.
- November 2008 same-store sales for Dollar General were up 10 percent.
- Target and Macy’s each saw December same-store decreases of 4 percent, and Nordstrom’s year-over-year same-store December sales were down 8 percent.
Notice a pattern? Value is in. Not just low price, but value.
What did direct marketers do to capitalize on the changing spending patterns? Eager to protect sales, they became discounters. They tried to jump on the offer bandwagon to get a piece of the action.