New business models let retailers broaden their reach among lower-income consumers.
Retailers—particularly those with online delivery models—are taking a fresh look at lower-income consumers, creating innovative business models to meet the needs of this often-overlooked group.
In June, Amazon announced that customers participating in a list of government assistance programs would be eligible for a discounted Prime membership. The reduced Prime membership will cost $5.99/month, rather than $10.99/month. Prime members enjoy free shipping, a selection of e-books through Prime Reading, and access to unlimited streaming and original shows through Prime Video.
Online purchasing can be a lifeline to lower-income communities, offering access to goods that might otherwise be more difficult to come by. Amazon already allows some SNAP participants to purchase groceries online through a pilot program, launched in January, that also includes Safeway and FreshDirect.
“We believe that fresh, high-quality and healthy food options should be accessible to all,” said Larry Scott Blackmon, FreshDirect VP of public affairs, in an email to the Innovation Group. “With the SNAP pilot, we look forward to bringing the online purchasing option to SNAP clients and positively impacting all the communities that we serve.”
But Amazon’s maneuvers also stand to make it more appealing to a growing market. Although many brands market themselves with middle-class consumers in mind, a 2015 Pew analysis showed that the population of adults in the middle class was no longer a majority for the first time since the 1970s, with lower- and upper-income households both gaining ground.
Observers have characterized Amazon’s move as a direct challenge to Walmart. As the rivalry between the two retailers heats up, Walmart has seen lower-income consumers boost its sales. The retailer saw $13 billion in sales last year from the Supplemental Nutrition Assistance Program (SNAP), says the Wall Street Journal, or roughly a fifth of the money spent through the program nationwide. Meanwhile, according to Piper Jaffray, Amazon Prime’s highest penetration is among upper-income households: More than 70% of households making above $112,000 a year have a subscription, with low-income households closer to 40%.
Another sector drawing success from today’s low-income consumers is the dollar store. Hollar, the first online-only dollar store, launched six months ago and has already had its first million-dollar month, according to Fast Company. The typical shopper is a millennial mom, particularly in a suburban or rural area, with a low-to-middle household income.
“It’s an area that has been underserved,” Hollar CEO David Yeom told Fast Company. “There’s been, historically, a lack of innovation to do more for this segment [in e-commerce], and you will find more and more businesses will start to cater to them.”
As Hollar’s success demonstrates, innovation can bring retailers closer to often-overlooked demographics. Particularly in recent months, as ad agencies (and brands) have reckoned with allegations of being out of touch with rural and economically disadvantaged consumers, look for more retailers to re-consider their relationships with this overlooked demographic.