Perreault−McCarthy: Basic
Marketing: A
Global−Managerial
Approach, 14/e- Demographic
Dimensions of Global
Consumer Markets
Text © The McGraw−Hill
Companies, 2002146 Chapter 5
that almost everyone lives like they do. A marketing manager who earns $125,000
a year may have no clue what life is like for a family that lives on $25,000 a year.
The 1999 median family income of about $48,950 is a useful reference point
because some college graduates start near this level. And a young working couple
together can easily go way over this figure. This may seem like a lot of money at
first—but it is surprising how soon needs and expenses rise and adjust to available
income. America’s middle-income consumers have been hit hard by the spiraling
costs of health care, housing, energy, cars, taxes, and tuition bills. More than ever,
these consumers look for purchases that offer good value for the money spent. Some
high-living marketers may not understand that these consumers needto pinch their
pennies, but that practical reality now explains much of the buying behavior of
lower and middle-income markets in the U.S.^17In market-directed economies, consumers are free to make choices in the mar-
ketplace. But with little income, education, or opportunity to become informed,
many consumers in the lowest income groups have few real choices. Some market-
ing managers struggle over whether to serve these markets. A credit company, for
example, may find customers willing to pay a high finance charge to borrow money.
And the high rate may be needed to cover the risk of unpaid loans. But is it
exploitation to charge a higher rate to those who can least afford it and who really
have no other choice?^18We’ve been using the term family incomebecause consumer budget studies show
that most consumers spend their incomes as part of family or household units. They
usually pool their incomes when planning major expenditures. So, most of our dis-
cussion will concern how families or households spend their income.Families don’t get to spend all of their income. Disposable incomeis what is left
after taxes. Out of this disposable income—together with gifts, pensions, cash sav-
ings, or other assets—the family makes its expenditures. Some families don’t spend
all their disposable income—they save part of it. Therefore, when trying to esti-
mate potential sales in target markets, we should distinguish among income,
disposable income, and what consumers actually spend.Most families spend a good portion of their income on such “necessities” as food,
rent or house payments, car and home furnishings payments, and insurance. A fam-
ily’s purchase of “luxuries” comes from discretionary income—what is left of
disposable income after paying for necessities.
Discretionary income is an elusive concept because the definition of necessities
varies from family to family and over time. It depends on what they think is nec-
essary for their lifestyle. A cable TV service might be purchased out of discretionary
income by a lower-income family but be considered a necessity by a higher-income
family. But if many people in a lower-income neighborhood subscribe to cable TV,
it might become a “necessity” for the others—and severely reduce the discretionary
income available for other purchases.
The majority of U.S. families do not have enough discretionary income to afford
the lifestyles they see on TV and in other mass media. On the other hand, some
young adults and older people without family responsibilities have a lot of discre-
tionary income. They may be especially attractive markets for electronic gear, digitalDisposable income is
what you get to spend
Discretionary income is
elusive
Can low-income
consumers protect
themselves?
Spending Varies with Income and Other Demographic Dimensions