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.