Is Amazon the next answer to declining US incomes?

There is an assumption in marketing and media planning that the social class scheme – ABC1C2DEF – is an adequate way to capture vast sections of the Irish population.

But there are serious problems with this scheme, from what is records (the occupation type of the head of household), to who it records (the head of household), to what it represents (a job title that may have little link to assumed income).

In marketing today, it’s clearly a mistake to assume that the much coveted ABC1 ‘audience’ is more affluent and has more disposable income than the deplorable C2DE’s. And anyway, most media planners plan for people like them.

In reality, age, lifestage, social capital, values, everyday experiences (and, yes, social class in a deeper sense) are just a few of the much better ways to understand media audiences. For example, a 38 year-old lawyer may be earning a packet, but he might be indebted up to his eyeballs with no money for a new suit. An electrician might be raking it in, with tonnes of money to spend on his expensive tastes.

This discussion relates to a much deeper story. A story of political economy. Of inequality, and its future.

Household coping strategies and the decline of the US class

It’s now uncontested that, since the 1970s, real incomes have been falling in the USA.

Tracing the sources of the US’s high levels of inequality, Robert Reich identified three coping mechanisms which American households resorted to in order to maintain their living standards.

The first was women entering the workforce, beginning in the 1970s and accelerating from the 1980s. Of course, this wasn’t a bad thing – it was a welcome outcome of the feminist movement and greater women’s access to higher education. However, the data shows this mechanism served to prop up stagnant or declining male incomes more than generating economic independence for women.

Once the first coping mechanism ran out of steam, the second coping mechanism that kicked in was employees working longer hours. Now that both men and women were breadwinners, the main way for most to compensate for falling wages from the late 1990s was to work more – often up to over 50 hours a week. Over time, though, this benefits of this mechanism were gradually eroded.

The third coping mechanism involved people dipping into savings and getting into debt to compensate for lower spending power, which really accelerated from the early 2000’s. During ‘The Great Prosperity’ in the 1950s-60s, households could save 9% of their income per year. As wages declined into the 2000’s, maintaining living standards meant exhausting savings, relying on credit cards and investing in property. Basically, getting into huge debt. By 2007, the average US home owed 138% of it after tax income.

Nothing has arrested this trend since Donald Trump was elected US president promising to bring jobs and wages back for his base.

Most credible economists agree that the jobs that went aren’t coming back. It’s a harsh lesson of economic history, but since the industrial revolution first started putting people out of work, most of those jobs never came back.

Amazon: the next coping mechanism

Reich’s story is one of one coping mechanism after another running out of road. The backstory is constant downward pressure on real household incomes.

The question for me has been, what will be the next coping mechanism?

It does appear that lessons have not been learned and the causes of the crisis have not been fixed. The recent IMF global stability report said as much. Thomas Piketty’s Capital presents economic evidence that inequality is destined to get much worse. Some have declared a new gilded age as the number of billionaires bloom.

These three coping mechanisms are not quite dead, but neither are they alive. The world is looking for a solution beyond where we’ve been.

I believe it’s very likely that fourth coping mechanism will be Amazon, in the USA at least.

Scott Galloway is one of the clearest voices in the world on what Amazon is doing. In a brilliant lecture, he puts it succinctly: Amazon and consumers have conspired to kill brands. Their model is built on eliminating the cost of branding and returning that to the consumer in lower prices and more money in their pockets.

This conspiracy is backed up by a titanic distribution system, use of big data and predictive logistics, the scale and cash pile to acquire and develop new technologies faster than the competition and determination to monopolise the future.

For example, their purchase of Whole Foods provided Amazon with a supply chain, which they could then forward integrate with their online shopping and delivery platforms and self-checkout technologies. Combined, this enabled Amazon to radically drop Whole Foods’ prices by up to 43%.

At the same time, Amazon is taking on everyday consumer goods like batteries and nappies with their own-brand versions. And their investment in voice technology short-circuits visual brand cues, making consumers more reliant on Alexa’s cheaper own-brand alternatives.

This is huge for cash-strapped households. Amazon literally delivers them the chance to maintain or even improve living standards by shopping with them.

OK, but how does this play out?

This seems great, but what does it look like in the long-term?

Kant’s moral philosophy may be instructive here. His categorical imperative  held that for an act to be ethical, you should be able to apply it universally without contradiction. If I want to kill someone, I must ask myself, ‘what if everyone killed everyone?’ This doesn’t work, therefore killing is wrong.

Similarly, what does it mean were Amazon to become the everything store, everywhere? If Amazon truly is out to kill all brands, monopolise all markets, where would we find ourselves?

If Amazon is the next coping mechanism for declining living standards, if the other three have run out of steam, why would this fourth mechanism be any different?

From a narrow marketer’s point of view, how do we understand the future of consumers needs and behaviours? From a economic point of view, how does it affect prices, wages and demand? And from a political point of view, how does it affect an already skewed distribution of power in the world today?

Media planners and marketing strategists need to keep an eye on these macro trends and consider how they are, mostly imperceptibly, affecting consumers’ decision-making now, and more explicitly in the future.

‘Voyager 1, I presume?’

For all of history, humans could only look up at the night’s sky and imagine what the planets of our solar system looked like.

Even with the world’s most powerful optical telescopes, Jupiter and Saturn looked like faint smudges.

It felt like all we would ever know of our celestial neighbourhood until NASA proposed a ‘Grand Tour’ of the outer planets of our solar system. This vision became the Voyager program.

The best scientists in the world were assembled to create two state-of-the-art robotic probe to explore Jupiter, Saturn, Uranus and Neptune, Voyager 1 and Voyager 2. They didn’t how they would achieve this, but they applied their collective ingenuity and nurtured both into existence.

The probes had the most advanced on-board computers. The most powerful communications uplinks. The sharpest cameras. A nuclear reactor to power its systems. This would be science’s greatest triumph, reflecting the genius of our species as it hurtles through space. It would be our eyes, letting us see further than we ever had before.

Then America’s most famous scientist, Carl Sagan, had an idea.

Instead of attaching a simple plaque, as they had to Pioneer 10, they would attach to Voyager a message in a bottle.

Frank Drake, working with Sagan, suggested they could fit more information on a record, which would have to be cut in gold to withstand the hostile environment of outer space.

Sagan’s team curated an LP representing the best of our species — on one side, music from around the world from Beethoven to Azerbaijani folk and greetings from people in 55 different languages, on the other, encoded photographs depicting our planet, peoples and species. Etched on its cover was an image of man, woman and a pulsar map locating the probe’s origin.

In the captivating documentary, The Farthest, Frank Drake reflected,

“The people who actually did the science part of Voyager are always jealous and mad because the golden record gets more attention than all the wonderful things they did exploring the outer planets of the solar system … Because the aura that surrounds anything to do with extra-terrestrial life, any effort to contact extra-terrestrial life, is more fascinating than knowing the chemical make-up of a mineral on Mars.”

Drake’s comment sounded a lot like debates in advertising and media today. Too often, we get wrapped up in the white glow of the latest technology, medium or platform.

We get carried away with data and granular targeting. Or we get excited about a new way to generate some PR or a high-tech stunt to grab some attention. We believe connecting with people in compelling ways means being the first or the best to use the newest format or gadget, or using an existing format in a novel way. But it rarely endures.

The reality is people need a reason to care about brands.

  • A Havas global survey found people wouldn’t care if 75% of brands disappeared overnight because most are meaningless.
  • The Ehrenberg-Bass Institute found only 16% of ads are noticed and attributed to the right brand.
  • Binet & Field calculated that rational campaigns are half as likely to be as profitable as emotional campaigns over the long-term.
  • Original creativity that generates brand ‘fame’ is the most effective form of advertising because they are more emotionally stimulating and influence our culture.
  • A growing focus on short-term campaigns, which rely more on the use of technology and PR to grab attention, is undermining the long-term effectiveness of advertising.

It’s not that we shouldn’t experiment with the potential of new technologies and media to connect with people — this, too, is part of being human — but communications will never be distinctive nor memorable if not built on a compelling insight and an original creative idea that is emotional and meaningful whether that is a new message or a valuable brand experience or service.

Media are a means to communicate, connect and explore. Media can shape how we receive messages and they can affect the experience of receiving them, as does Voyager’s golden disc.

In truth, we rarely remember how a message reaches us. But we remember how it made us feel.

On August 25th 2012, we became an interstellar species.

On this day, 3 billion miles away, Voyager 1 left our solar system and continued its trajectory towards the far side of the Oort cloud, which it will reach in 40,000 years — halfway to our nearest star.

Thanks to the golden record, we don’t think about the technology hurtling through space, we think about Voyager as an extension of ourselves carrying our message in a bottle in the hope that, one day, it’s found.

In eight years, Voyager’s plutonium reactor will run out of fuel. Its systems will slowly shut down. We will lose contact with it. Voyager and its golden record will continue its odyssey as our silent emissary.

Voyager is just a piece of hardware, yet the message it carries transforms it into something else. It’s part of each of us. It connects us with something enigmatic, profound, even sublime. It has made us see ourselves differently.

It reveals a powerful truth about ourselves, our insatiable curiosity and imagination, and moves us, emotionally and behaviourally.

This is what great advertising does.