The new frugal consumers

We are awakening to a dollar-store economy. If you thought they appealed to only poor people you are wrong. While it’s true that low-wage earners still make up the core of dollar-store customers (42 percent earn $30,000 or less), what has turned this sector into a nearly recession-proof corner of the economy is a new customer base. “What’s driving the growth,” says James Russo, a vice president with the Nielsen Company, a consumer survey firm, “is affluent households.”  Saving money is indeed in vogue for everyone.

The affluent are not just quirky D.I.Y. types. These new customers are people who, though they have money, feel as if they don’t, or soon won’t. This anxiety — sure to be restoked by the recent stock-market gyrations and generally abysmal predictions for the economy — creates a kind of fear-induced pleasure in selective bargain-hunting.

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Rick Dreiling, the chief executive of Dollar General, the largest chain, with more than 9,500 stores, calls this idea the New Consumerism. “Savings is fashionable again,” Dreiling told me. “A gallon of Clorox bleach, say, is $1.44 at a drugstore or $1.24 at a grocery store, and you pay a buck for it at the Dollar General. When the neighbors come over, they can’t tell where you bought it, and you save anywhere from 20 to 40 cents, right?”  Why linger in the canyons of Wal-Mart or Target when you can pop into a dollar store? Dreiling says that 22 percent of his customers make more than $70,000 a year and added, “That 22 percent is our fastest-growing segment.”

Workers are consumers. Consumers are workers.  We’re slouching toward a double dip, and the stock market is imploding, because consumers — whose spending is 70 percent of the economy — have reached their limit.    It’s not just the jobless who can’t spend. It’s mainly people with jobs.

Median wages continue to fall. America’s median earners are now earning less (adjusted for inflation) than they earned ten years ago.

Every CEO of every company that continues to squeeze payrolls  needs to understand they’re shooting themselves in the feet. Where do they expect demand for their products and services to come from?They’re doing the reverse of what Henry Ford did back in 1914 — paying his workers three times what the typical factory employee earned at the time. The Wall Street Journal called his action “an economic crime” but Ford knew it was a cunning business move. With higher wages, his workers became his customers, snapping up Model-Ts and generating huge profits.

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Now we are learning that some brands are raising prices to sustain earnings with less demand.  This approach is surely going to backfire and drive more consumers towards other brands including private label products.

What does all this mean for marketers & brands ?

(1) Marketers, more than ever, have to make an emotional connection with consumers if they want to sustain their brands.  This means that they have to define clearly what they are selling (not benefits) but how their products either solve consumer problems or make them feel better about living through these stressful times.

(2) Saving money is in style for all income demographic groups.  Don’ think that your brand is immune to price sensitivity within your product category.

(3) Don’t try and fool consumers.  Some brands are holding prices on products while reducing the amount the product consumers get.  Be warned that a lot of consumers are smarter than that and they will hold your brand accountable for what they see as deceitful marketing.

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(4) Get inside your customers head and find out how to better segment them based on psychographics not just demographics then use the appropriate channel to deliver targeted messages.

(5) Even if you don’t have budget dollars for new media channels you need to improve every customer touchpoint.  This means continually measuring your brand consumer interactions and aligning the organization around making those interactions better.

(6) Finally branding today is more important than ever.  If you continue to offer discounts to get people to follow you on social networking than don’t be surprised if they come to expect discounting all the time.

Twitter: People follow brands on Twitter to get discounts first