Why charities and high-end retailers could suffer following Child Benefit payment changes
By Jed Mole, European Marketing Director, Acxiom
While the initial furore surrounding changes to Child Benefit payments may have died down, replaced by uproar about Universal Credit and flat-rate pensions, the effects of the cut to a state handout that has until now been taken for granted by all UK families will be felt for some time – not least by some household brands.
More than 1.1 million households with an individual income of over £50,000 a year are facing reductions in their Child Benefit, with the initiative reportedly set to save the Government and taxpayers more than £1.5bn over the next year.
Will Corry’s insight …Three-children households have almost £470 less to spend each month than one-child households before the benefit cuts are factored in
Given the huge amount of data on these families we have at our disposal, Acxiom decided to take a closer look at the effects of the cuts. While other sources had determined that a UK household with three children under 16 and an individual income of £60,000 to £65,000 could lose up to £2,449 every year in child benefit payments, there had been little or no analysis of what this might mean for the brands this group tends to buy.
Acxiom’s InfoBase database
Acxiom’s InfoBase database is nationally representative, covering 90% of UK households, so it was a good starting point for the analysis of families, demographics, spend and brands most affected as households curb discretionary spend to make up the shortfall.
Discretionary income is the amount of money each household has to spend every month after their legal obligations, such as Council Tax, mortgage/rent, utility bills, loans and school fees, as well as what the household spends on maintaining an acceptable standard of living, such as food, eating out and socialising.
We discovered several key characteristics of this group, based on a comparison between families with three or more children and those with one or two kids. Among the things we gleaned were:
- Three-children households have almost £470 less to spend each month than one-child households before the benefit cuts are factored in
- An extra 10% of net household income is required to meet all committed costs, in comparison to single-child households, meaning they already have less discretionary income available
- These households are more likely to contain a self-employed person/business owner
- These families are more likely to own an MPV; they spend £22 more per month on fuel
- They are keen on hobbies including sport, exercise, fashion and music collecting
- Their monthly spend on food and non-food packaged goods is about £130 more
- Spend is about £70 more per month on clothing and footware
- Similarly, some £70 more per month on average is spent on eating and drinking out
Interestingly, these families have a higher probability of running into difficulty repaying credit cards and loans, which is unlikely to be helped by the benefit cuts. In terms of marketing, bigger families have a strong preference for contact via email; these households are neutral to text marketing but have low preference for post, telephone and social network communications.
So what about the brands that will suffer as people rein in their spending to counteract the drop in income
By profiling the households most likely to fall into the £60-£65K salary, three children or more category, we built pen portraits of their typical characteristics based on Acxiom’s consumer classification system Personicx.
Waitrose, Tesco and Sainsbury’s
In the retail sector, Waitrose, Tesco and Sainsbury’s are the grocers most likely to see average basket size shrink. Meanwhile, holiday companies such as TUI brands Thomson and First Choice can also expect a drop in revenue from people in this group. In particular, trips to the US seem likely to be shelved, while further bad news for the travel sector is that these households have previously taken up to three holidays a year, a number which could also be under threat
Charity donations also face reductions. The data analysis shows organisations focused on children’s welfare, Third World causes, disaster relief and the environment could take a hit as they were the charities most likely to receive contributions. Charities likely to be affected include the NSPCC, Save The Children and Amnesty International. Conversely, causes focused on the elderly, countryside or birds are less likely to receive donations from these people anyway so are unlikely to see a severe drop in income.
Our analysis shows clear discrepancies between the types of families that will be affected by the Child Benefit shake-up. For some people it was money used to fund luxuries, for others it represents the loss of key income spent on essentials. However the reduction is felt, marketers cannot assume all households will react in a similar fashion, and must be more targeted in their response to spending pattern changes.
People with three or more children will find ways to cut back on expenditure just to stand still financially; that could be bad news for brands which will now be seen as nice-to-haves rather than must-haves.
Analysing and understanding
To combat this impact, brands can use the analysis to pinpoint which households are thinking of shelving the goods and services they offer, and develop campaigns to stay top of the shopping list. It’s a case of analysing and understanding how people will switch their spending, then communicating with them in the right way. As far as these families are concerned, that means up-weighting email marketing, rather than post, phone or other digital media which are not as highly regarded.
Given that the changes mean one family can have a combined income up to £100,000 and still receive the full benefits, while another where an individual’s income exceeds £60,000 loses all the benefits, it’s easy to understand why many are questioning the fairness of the changes that will significantly impact specific families and brands.