Editor’s note: Pam Danziger is president of marketing consulting firm Unity Marketing, Stevens, Pa.
Let me introduce you to the HENRYs – the high-earners-not-rich-yet – the most important demographic consumer segment that you’ve probably never heard of. Every marketer and retailer needs to understand the HENRYs in today’s rapidly changing and extremely competitive consumer economy. Whether you sell to the traditional mass market or luxury-class consumers, understanding and positioning effectively for the HENRYs is the key to success.
HENRYs are so named because they have incomes higher than nearly 80 percent of all U.S. households, which in today’s economy starts just a shade above $100,000. But they have not yet reached the level of ultra-affluent, the top 2-to-3 percent of households with incomes starting at $250,000.
The middle class isn’t the middle class any longer, now that the bottom has fallen out of the discretionary spending power of the middle-income customers. The HENRYs are the new middle-class mass-affluent. So if you traditionally targeted middle-class, middle-income consumers then the HENRYs are your new target customer but they are poorly understood by those who traditionally sell to the masses.
For those marketers and retailers that define their customers as affluent, the HENRYs (in the words of Rodney Dangerfield) just get no respect. They are typically called aspirational in luxury circles but the term defines consumer psychology and motivation – what we in marketing call psychographics – and HENRYs are defined demographically, so they can be counted, studied and targeted in a way not possible when trying to pin down a consumer’s psychology and propensity to buy.
HENRYs are important to luxury brands because most everyone who reaches ultra-affluent income levels start out as a HENRY. Shopping habits learned while they are living as HENRYs are often carried over into their later stages of life. HENRYs – because they are smart and exceedingly effective shoppers – have learned how to live a lifestyle several rungs up the income ladder simply by making smart choices when they shop.
HENRYs are the most important new consumer segment in today’s post-recession economy and the key to marketing and retailing success. They are the new middle-class customer for mass marketers and the gatekeepers for the future luxury consumer market.
Defining the segment
When you study any consumer market, you need to assess three different perspectives:
- demographics, which are the facts and figures that define the segment;
- purchase behavior, which dives into how and where they shop as well as how much they spend and their preferences for certain products, services and brands; and
- psychology or psychographics – or why they buy – defined by their motivations or how they are set as consumers.
Marketing starts with understanding the consumers and understanding the consumer starts with demographics, so let’s talk about the demographics that define the HENRYs.
In the U.S. today there are roughly 123 million households. If we divide that total into equal 20 percent segments or quintiles, that puts some 28 million in the top 20 percent.
Within the top 20 percent there are two key segments defined by income:
- About 25 million are defined as HENRYs with incomes from about $100,000 to $249,999. These are the mass-affluent.
- Some 3 million ultra-affluent have incomes $250,000 and above. These are the top 2-to-3 percent of all households and the target customer for many luxury brands.
Across the entire U.S. the number of households grew only about 2.5 percent from 2010-2013 but at the top income segments, the number of households grew 13 percent – that's five times faster than average. We need to find customer segments that are growing faster than the average, which puts the affluent – especially the HENRYs – right in the crosshairs as a market segment that offers the greatest growth potential for brands.
While ultra-affluent households with incomes over $250,000 have significantly greater spending power on an individual basis, the simple fact is there are eight HENRY households for every one ultra-affluent. That makes the HENRYs particularly attractive to marketers.
Another demographic that characterizes the affluent – including HENRYs – is that affluence comes with middle-age. Most people don't get out of college and start their careers at these income levels. Overall people reach their highest levels of income between the ages of 35 and 54. After 55 years incomes remain high but more people in that age group start to retire and so 35-to-54 years is the peak for the highest income households.
During the 20-year period of time with the highest income, those in the younger range (35-to-44 years) are of significantly greater value to marketers than those ages 45-to-54 years. Households in the younger age group spend significantly more on goods and services than the older group. That is because they are forming households, buying homes, having children and generally acquiring the material goods their growing families and lifestyle aspirations require. The more mature households have already made many of those lifestyle investments.
So for marketers, all middle-aged affluents are not equal; the younger customers are of significantly greater value. Generation X, born from 1965-1979 and aged 36-50 years and in that prime young-affluent age range, are dwarfed by the two huge generations on either side of them: the Baby Boomers on the high side and Millennials who are still in school or just starting out in their careers.
The leading edge of the Millennial generation is just now reaching peak income years but it will take some time for enough of them to cross that threshold to really start to feel their impact in the economy. And because the Millennials are starting careers in such a difficult time in the economy, many are underemployed or have not yet launched their long-term careers. The Millennials on the road to affluence are also coming out of college with record levels of educational debt, so they are likely to be delayed in putting their extra cash back into the consumer market.
Given these challenges, we don't expect to see the potential of a demographically-driven boom in the economy until about 2026 to 2029. That will be the period when the Millennials in mass reach peak spending years.
There could be a potential boom in the consumer economy toward the end of the next decade but until then, marketers are going to have to work harder and smarter to attract customers since the demographic trends simply are not working in their favor.
The years 2026 through 2029 could also mark the next great luxury boom or it could be a big bust if marketers fail to connect with the special and unique needs and values of the Millennial generation. The key is to remember that the Millennials are going to be as different from their parents as the Boomers were from their Greatest Generation parents. Take nothing for granted because Millennials aren't going to want their parents’ or their grandparents’ brands or lifestyles. They will want their own.