Consumer Spending & Your Company
Consumer spending and associated habits are essential to understand for any business in order to generate revenue and sustainable growth in a given marketplace.
In simple terms, where a household or individual chooses to spend disposable income falls under the umbrella of consumer spending, sentiment or confidence. How much an individual willing to spend on products which are not deemed essential with disposable income, differ greatly from income bracket, familial status, and even changes seasonally.
Spending patterns, although complex, give businesses owners and investors the ability to target potential customers, set price points for products and services and target specific markets or demographics to sell to. Strategically allocating resources such as ad spend, or timing of a product launch separates the great companies from the rest.
Access to key information about the consumer is essential for top performing brands we all know and love, extensive research is conducted to ascertain consumer spending patterns and buying power before any product is launched to the public. Every Item sold needs a buyer, and in today’s world that buyer has access to countless products daily at their fingertips, and with a finite amount of capital to spend, your product needs to meet their needs and affordability.
Overall consumer confidence can be measured a variety of ways. On a broader level the Consumer Confidence Index (CCI), prepared by the Conference Board (CB), and the Michigan Consumer Sentiment Index (MCSI), published by the University of Michigan, are the most common and widely used indicators of consumer sentiment both indexes are based on household surveys and are reported on a monthly basis.
The key here is to find more granular data such as spending patterns in the categories of your business or product type, as well as taking into account seasonality, income brackets, and locality. Once ascertained a company can successfully market their product or service to the right people at the right time.
Overall the American consumer has remained robust, throughout a period of high inflation and high interest rates, discretionary spending has continued at a stable pace, particularly in recreational technology-focused goods such as software, consoles, computers and phones. With net wages not increasing significantly and prices rising due to inflation the consumer has been forced to borrow their way into obtaining most discretionary purchases.
Buy-now-pay-later services, credit cards, have been a crutch for the consumer. Credit card debt is the highest all time at a national and personal level. According to data released by the Federal Reserve, credit card balances increased by $45 billion in the fourth quarter of 2024 to $1.21 trillion the highst total all time.
The average credit card balance per consumer rose from $6,380 in the third quarter of 2024 to $6,580 in the fourth quarter of 2024.
The big debate among investors and retailers is how long is this sustainable for? Answer: not forever.
Data released recently shows credit delinquencies on the rise, especially among lower income households, who are more reliant on borrowing. Credit card loan delinquencies are over 50% higher compared to 2023 climbing to their worst rate since the 2009 financial crisis. Auto loans are showing close to the same statistics as well.
With that said the American consumer has still remained particularly resilient, with more and more borrowing options available and higher-income individuals still driving over 60% of consumer spending the market is still there to sell to, for now. Businesses have been successfully navigating this by extensive market research, understanding their customer in order to set fair and competitive pricing, producing high quality products to maintain their customer base and by implementing the use of buy-now-pay-later services to their stores. Examples of such include Klarna and After-Pay which allow consumers to buy products with interest, in most cases merchants are paid in full up front however these carry a higher transaction and service fees.
Research and outreach to potential clients and the ability for businesses to understand the market is essential for sustained success. Understand your consumer, who you sell to makes all the difference.
For more information and advice contact us.
- Vincent Calace
Founder & CEO Venture Business Development