Consumers paychecks shrinking

  • Corporate profits have rarely swept up a bigger share of the nation’s wealth but the paychecks of employees is not keeping pace.
  • Hourly earnings have moved forward at a crawl, with higher prices giving workers less buying power than they had last summer.
  • Since the recession ended in 2009, corporate profits have grown at an annualized rate of 6.5 percent, but yearly wage growth has yet to hit 3 percent.
  • Workers’ paychecks account for much less of the nation’s total income since the last recession, and the profits of businesses account for more.

There is a lot of noise about full employment, but there seems to be a serious disconnect between full employment and financial satisfactory employment.  With wages pretty much stagnant and healthcare costs taking a bigger bite out of take home pay with rising energy costs consumers are feeling the pinch and the ripple effect is going to spread to CPG’s.

Some brands have been acting like consumers are enjoying the best of times, but I believe that we’re going to see more frugal consumers in the coming months.   I have already started to see more growth in private label products and some retailers are already talking about the dreaded “S” word to get consumers back in a spending mode.  However, with gas prices going up and health insurance costs rising, it’s leading to a cutback in discretionary spending.

According to the Times “regardless, there is plenty of evidence that workers have yet to receive their fair share of this most recent expansion — or even the previous one. Since the century’s start, labor’s share of the nation’s income has sunk to the lowest levels in decades.In 2000, when the jobless rate last fell below 4 percent, corporations pulled in 8.3 percent of the nation’s total income in the form of profits; wages and salaries across the entire workforce accounted for roughly 66 percent.  Now, the jobless rate is again fluttering below 4 percent. But corporate profits account for 13.2 percent of the nation’s income. Workers’ compensation has fallen to 62 percent”.

Ouch

What does this mean for marketing?  Strategically, it means that you’re going to have to fight for every customer and you’re going to have to exceed expectations to keep the customers you already have.

When I go shopping now I see more and more people comparing prices on everything from soft drinks to clothing.  Private label shelves in the supermarket are often empty while branded endcaps seem untouched.   I have also seen a decline in restaurant traffic in a lot of area’s with many offering specials to try and bring people back to empty tables.

Brand marketers should be anticipating the tightening of consumer spending and as such they need to work on the key brand promise of delivering a good product at a good price. One client of mine has already delayed two new product launches because they feel “the timing is not right”.

In addition to rising prices the political divisions within our country have put some brands on edge.  Starbucks, for example, closed down all their stores for a day of sensitivity training even though the employee who called the police on two black customers was terminated.

Should brands take a political stand?  That depends on the conscience of its management.  Calling out wrong doing, when it happens, can gather the support of consumers, but it can also alienate some people. I tell brands that you can never go wrong by doing the right thing.

With a trade war in full deployment and stagnant wages brands are going to feel the full effect.  Are you ready?

 

About richmeyer

Rich is a passionate marketer who is able to quickly understand what turns a prospect into a customer. He challenges the status quo and always asks "what can we do better"? He knows how to take analytics and turn them into opportunities and he is a great communicator.

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