Matt O’Grady, President, Nielsen Claritas
New data makes it clearer than ever: the U.S. is in a white-collar recession.
In the news and in our minds we understandably think of lower-to-middle income households as being the hardest hit victims of the housing, credit crisis, and the ensuing loss of jobs. But as we look back on a full year of recession, surprising patterns emerge that indicate higher-income households have been proportionately hit harder.
Since the beginning of last year, there has been a shift in household credit, according to an analysis of Nielsen’s Aggregated Consumer Economics (ACE) Indicators-a database of ZIP+4 level economic and financial data calculated as averages of individual credit records. Upscale households-those that earn upwards of $100,000 a year-have seen their overdue credit card balances increase by a hefty 40 percent, or more than $2,500 per household. Households with more modest incomes-less than $50,000-have seen an increase of just 14 percent.
With numbers like these, last year’s best customers don’t appear to be this year’s best customers.
What explains the change? One possibility is over-extension. White-collar workers accustomed to year-end bonuses didn’t see them in the first quarter of 2009. The big purchases they made… the growing reliance on credit cards to cover day-to-day expenses… the expectation that it could all be paid down when their bonuses arrived… were disappointed when the bonuses didn’t come, and many jobs were lost. Plus, facing reductions in income, their predicament only worsens as they rely on credit to cover expenses.
Indeed, the outlook for such households relying on credit to get by is not pretty. The ACE analysis also quantifies what people perceive anecdotally: credit has shriveled. Overextended consumers decreased their acquisition of new credit cards and new lines of credit by 18 percent since the first quarter of last year. For their part, credit card companies decreased their efforts to sell new lines of credit by 19 percent, both in terms of new credit cards or new loans.
Moreover, according to recently published reports, credit card companies have cut back further by reducing credit lines for cardholders who have no record of risky behavior, and increasing interest rates for those carrying a balance.
With regulation impending on the credit card space, there is even more change ahead. As this turbulent market settles, marketers should consider targeting downscale households with select, low risk products such as payday advances, pre-loaded gift cards or pre-approved loans of less than $1,000, instead of focusing on upscale households which are customarily the most profitable. But they shouldn’t walk away from the affluent market. Historically, the $100,000 and over household is 30 percent less likely to have a bankruptcy on their file than a mid-scale household.
Marketers who recognize and react to opportunities are the ones who will be positioned for the biggest and quickest turnaround. The key will be in staying close to the customer-no matter how counter-intuitive market developments are-and matching the right offer to the right customer at the right time. Those fundamentals never change.