Monday, February 04, 2008

Experience budget

I was always intrigued by the concept of “Discretionary Income”. Discretionary Income is the available spend potential that a consumer has after you distract everyday life essential expenditures, like housing, food, etc. Quite a few economists try to understand a consumer’s relationship to his discretionary income. How do consumers spend it? How do they think about it differently in a recession? What motivates a consumer to save or spend a dollar of his discretionary income? To dissect these questions, most economists like to distinguish different spend buckets against which consumers spend money: Luxury items, vacations, cars, education, etc.

But it seems that consumers think less and less in these conceptual corporation centric categories. Most consumers don’t separate products and services in neatly separated categories. But they do ask themselves if they can afford it. And they make quite a few trade decisions around “Can I afford it?” across very different product and service categories. They might buy one but not the other. My hypothesis is that consumers don’t think in most cases about spending $100 aligned with these spend buckets and categories. They are buying a particular experience which could be a fabulous pair of shoes, a nice dinner with their partner or the new iPod. They hunger for a particular experience: Excitement, Self-Validation, Beauty, Enjoyment, Adventure. And they are willing to spend most or all of their “Discretionary Income” for well matched experiences.

Therefore I believe that the term “Experience Budget” is a much more insightful term than “Discretionary Income”. It describes a consumer’s spending behavior from the consumer’s and not from a mathematical analyst’s perspective. But what are the true implications of this re-naming. Here are a few:
  • Most brands have a significant broader competitive set than traditionally assumed. Nike competes with Starbucks competes with Apple competes with Las Vegas. They all compete for a particular experience set that a consumer craves.
  • Most brands need to clearly define the experience that a consumer is buying. Too often brands continue to focus on functional benefits without understanding that these functional benefits only gain meaning by being translated into consumer experiences.
  • Brands have the opportunity to lead a particular experience space or to create a new experience realm. Brands become nothing else than a promise towards a particular experience.

Thinking about “Discretionary income” as experience budgets will help us marketers to focus on a meaningful and consumer centric brand proposition. Brand stewards need to own and understand the particular experience realm that the brand is fulfilling. Consumers don’t spend a part of their “Discretionary Income”, they are buying experiences.

4 Comments:

Blogger Charles said...

Discretionary income is the remaining amount on your credit limit. Just kidding. You make some excellent observations.

3:19 PM  
Anonymous Marc from Amsterdam said...

Dicsretionary income is so old school. Consumers of all agegroups are buying experiences, heck, they are even willing to get way over their heads into creditdebts just to have the thrill of the buying experience (not so much owning the actual product) as soon as they have it, the hunt for the next experience is on. In this case adult behave like the children you mention in your most recent March posting. Best regards

1:54 PM  
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