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How to Use Income and Expenditure Data to Enhance Your Business Strategy

February 27th, 2017

Insights into who consumers are, what they spend their money on, where they live and their earning power are truly critical to business success. This information helps companies understand market potential, target consumers within appropriate income bands and devise long-term strategies, helping a business decide to enter a prospective market, the products and services to offer and price points to match.

For example, income data allows for detailed analysis of social class composition, households in specific income bands, income by decile, age, sex and urban/rural location and the middle class.  Expenditure data provides a picture of consumer spending patterns with a breakdown by location, income, household size, age and economic status of the household head as well as type and tenure of households.

While income and expenditure data helps businesses make decisions on market entry strategy or product development, many are unsure where to find this information. While some data might be accessible through the Bureau of Labour Statistics, World Bank and similar sources, unfortunately, these sources may not provide a holistic view of consumers’ income and spending habits.  Ideally, an organisation that specialises in economic, consumer and industry research trends would be able to provide insights on income and expenditure, alongside other consumer characteristics to provide a clearer view of consumer habits and preferences. An added benefit to utilising a single research provider is that it makes it easy to cross-compare data-sets and gain a better view of consumers on a local or global level, thus allowing a business to make sounds decisions based on the information available.

Euromonitor International’s market research database, Passport, provides data on consumer income and expenditure bands, identifying income and wealth distribution, consumer purchasing power and spending patterns in target markets.

Top 5 uses for Passport Income and Expenditure

Passport Income and Expenditure answers critical questions on size and segmentation, strategy and innovation

1. What are the size, purchasing power and potential of the middle class or any other consumer segments in a country?

For example, a consumer goods business interested in entering the Chinese market needs to gauge the size of the consumer segment with the best long-term potential. Euromonitor’s Income and Wealth Distribution Model shows that in China, the number of adults with an annual disposable income below US$10,000 and total wealth of less than US$20,000 (the bottom-bottom segment) will be the largest consumer segment in 2030, but it is declining steadily over the 2016-2030 period. By contrast, the middle-middle segment is set to expand robustly by 201% over the same period to reach 153 million adults in 2030.

Selected Income-Wealth Segments in China: 2016-2030

Source: Euromonitor’s Income and Wealth Distribution Model

Note: Income thresholds: Bottom < US$10,000 <= Middle < US$30,000 <= Top; Wealth thresholds: Bottom < US$20,000 <= Middle < US$200,000 <= Top. Data are forecast, in constant 2015 prices.

During the same period of 2016-2030, the country’s top-top segment – comprising of adults with an annual disposable income over US$30,000 and net wealth exceeding US$200,000 (in constant 2015 prices) is also expected to record a healthy expansion by 159% to reach 13.6 million in 2030.

Although China in 2030 will remain a substantial market for budget goods, the expansion of the middle and top income-wealth segments in the country will generate abundant commercial opportunities for businesses offering both mass-market and luxury products and services.

2. What is the average spending pattern in a country and that of a specific income type?

Using the Philippines as an example, the essentials of food, non-alcoholic beverages and housing accounted for 54.2% of consumer expenditure in 2015, higher than the Asia Pacific regional average at 41.3%.

Average Spending Pattern and Spending Pattern of Decile 5 in the Philippines: 2015

Source: Euromonitor International from national statistics

Note: Deciles are calculated by ranking all of the households in a country by disposable income level, from the lowest-earning to the highest earning. The ranking is then split into 10 equal sized groups of households. Decile 5 refers to the middle-income 10% of households.

In 2015, essential spending as a share of total expenditure by middle-income households (decile 5) in the country stood at 50.5%, which was lower than the national average and gave decile 5 a higher-than-average discretionary spending power.

Yet, Euromonitor’s consumer expenditure data shows that food and non-alcoholic beverages absorbed a larger share of decile 5’s budget compared to the national average, reflecting the high priority that Filipino middle-income households place on the essentials of food and non-alcoholic beverages. Food and drink businesses targeting the middle class in the country will do well if they offer high-quality products to this consumer segment.

3. What is the potential for a new product?

China is set to experience a dramatic decline in the number of poor consumers – that is, those living at the so-called bottom of the pyramid (BOP). Euromonitor International forecasts the number of adults living at China’s BOP will fall by 189 million over the 2016-2030 period, which means that the equivalent of Brazil’s entire population will exit poverty and enter the Chinese middle class. Businesses that can win the loyalty and trust of today’s Chinese BOP consumers will be rewarded with a new, substantial consumer base.

Euromonitor’s income and expenditure data demonstrates a strong correlation between the rise in middle class households and consumer spending on homeware products. In other words, China’s expanding middle class, on the back of a shrinking BOP, will increase demand for homeware products.

Of all homeware categories, ovenware recorded the fastest growth in retail value in China during 2010-2015 and is set to continue to be the most dynamic category through to 2030. To a consumer goods business, this means considerable potential for new homeware products in general, and for ovenware goods in particular, to cater for the growing demand of the Chinese middle class.

It is imperative that businesses consider income and expenditure data when making decisions on market entry and pricing their products and services. For further information on using Euromonitor International’s income and expenditure data in your business strategy, contact us today.

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An Hodgson

An Hodgson joined Euromonitor International in 2006. She manages research into income and expenditure as well as industry, infrastructure and environment. Her strategic analysis helps businesses gain important insight into global, regional and key emerging market trends and thereby allowing them to make more informed commercial decisions.

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