Over-indexing by black consumers is missed learning opportunity for marketers

By Ken Smikle

Target Market News

(April 21, 2010) One of the under-reported and consist patterns in the spending habits of African-American consumers has been in how they've outspent their white counterparts in key categories.

For the last 15 years, Target Market News has been reporting on the expenditures of African-American consumers in the annual report, The Buying Power of Black America. In the report's 100-Plus Index section, we have highlighted all the categories which black households over-indexed, or outspent white households. Over the years, some revealing and undeniable patterns have been seen.

There are a number of items, for example, in food and apparel products in which black households have always spent more per capita than whites. This fact comes from data collected in the annual Consumer Expenditure Survey conducted by the Department of Commerce, and is the source of data reported in the Buying Power report. The CES is celebrating its 30th anniversary this year, and the so-called "over-indexing" by black consumers in the food and apparel categories has been true for the past three decades that the survey has been taken. Some of the other items that always shown over-indexing include:

- Personal Care Products and Services
- Men's and Boys' Footwear
- Telephone Products and Services
- Computer Internet Service
- Home Repair Equipment and Services

The concept of over-indexing by African-Americans, however, has been misleading, and has distracted marketers, advertisers and others from seeing a unique opportunity in the American marketplace. Consumer expenditure indices have always compared what black households spent against the spending of white households or the general population. Thus, when the CES shows blacks have an index of 124 on purchases of men's suits, it means African-Americans spent 24 percent more for that item than whites did.

A curious marketer or manufacturer might wonder, "Why do blacks spend more for men's suits than whites?" A better question would be, "Why do whites spend so much less than blacks?" And why does this happen year after year? Research would likely show a very different perception between the two races about clothing purchases in general.

For African-Americans clothes are not simply a necessity, but an investment in changing how the world is predisposed to see you. Racial stereotypes, self esteem and being a trendsetter all factor into apparel purchasing decisions for African-Americans. This should cause marketers to re-examine the psychographics of all of their customers. It will likely yield better insights and ideas into the role of cultural, racial and generational differences in consumer behavior and today's opportunities.

Asking questions about why blacks outspend whites can be especially important during a down economy. Conventional wisdom holds that price generally trumps other product benefits with today's consumer. African-Americans, who as a group, historically have had less income than whites, are none the less spending more for the things that have always been priorities in their homes and lifestyle. Understanding why these products are important to them may provide a competitive advantage when price is a sensitive issue for everyone.

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