Database Marketing: Use a Spending Index to Target Shoppers With Money to Buy

The challenge for today’s catalogers is to more effectively identify and target those prospects who have the capacity to buy and the propensity to purchase specific products. What’s the most effective way to get and maintain your share of wallet in a highly competitive multichannel market?

Many of the measures catalogers use in their targeting efforts, such as household income, tangible assets (house, car), spending habits, and traditional recency, frequency and monetary (RFM) segmentation, have either been fully exploited or just aren’t reliable indicators of a person’s capacity to spend. Thus, they don’t allow you to truly distinguish your ideal customers.

Effectively identifying and targeting potential catalog shoppers starts with an understanding of spending capacity, a much more reliable indicator than household income or other demographics. Why? Because it’s focused on discretionary income, that is, the money consumers have available to spendafter taking care of essentials such as food, clothing and shelter. This is money they spend based on their interests and lifestyles and, as such, is the true target for most marketers.

Consider, for instance, two households that both have $150,000 in income and two children, and are in the same lifestage. But one family lives in a small, rural town, and the other lives in New York City. Clearly they have substantially different spending power. In fact, the New York family may barely be squeaking by, and the small town family may have significant discretionary assets. Even if they happened to live in the same ZIP code, one family may have a child in college, a cost that can take up the bulk of a family’s discretionary assets. Beyond this, people are different, and spending patterns depend on their tastes, attitudes, where they live and their financial asset base.

From a cataloger’s perspective, these are all factors that can determine what each consumer can or can’t afford to buy and how he or she chooses to spend money. Our research has shown that the best prospects are those with both the discretionary funds to afford a cataloger’s productsand the propensity to buy those products.