America’s Baby Bust sample essay
This week’s reading of Chapter 6 exposes you to several areas such as the consumer buying process, target marketing, market segmentation and a brief explanation of the differences between B2B and the consumer buying process As you will find in the readings, market segments are relatively homogenous groups of buyers. However, one thing the book doesn’t mention is what if these groups become smaller in size. Demographic trends greatly influence marketing segments and ultimately demand for goods and services.
Towards this end I would like you to reflect on area that may affect us all in the future, America’s Baby Bust. To get an understanding of this I would ask you read the Wall Street Journal article entitled “America’s Baby Bust” appearing in the Feb2-3, 2013 issue page c1. You can locate the article from the FSU library database or from my attached word file. After reading the article- Your assignment is to:
1.Indicate and defend why you agree or disagree that lower birth rates affect economic activity. Better answers will back this up with citations. (6 points) 2.Take each of the three proposed solutions stated by the author and state why you agree or disagree and then add a solution of your own to increase the baby bust.(9 points) 3.Assume the “Baby Bust” will continue as stated in the article. Develop a list of 4 businesses that you feel would have potential for growth in the slow growth era. Be specific and state the market you would serve and strategy used. Next develop a list of 2 businesses you would avoid due to the baby bust and indicate why you would avoid them. (10 points) Better answers here will use citations. Assignment Response
1.Indicate and defend why you agree or disagree that lower birth rates affect economic activity. I agree that lower birth rates affect economic activity for many reasons. The first and obvious shift in economic activity would come from the demographic segmentation. In the early stages of the cycle, which we are in right now, the older population will increase creating a population that is disproportionately old and shrinking overall(1). In 2009 people under 18 years of age made up over a quarter of the U.S. population (27.3%), and people age 65 and over made up one-eighth (12.8%)(3). Looking at the study done by the Census Bureau in 2011, the population of persons under 18 was 23.7% and population of persons over 65 was 13.3 %( 2).
The change in population is occurring rapidly and projections for 2013 show this trend continuing. The age demographic plays a significant role in the economic activity of older persons and will vary dramatically from younger persons. College students for example, have needs that are very different from senior citizens; and single consumers have very different needs than families with small children (21). Older consumers purchase products based on value, function and quality while younger consumers base their purchase on image, prestige and value (4). The shifting population will also affect overall economic activity in the future as the older population dies off and the population contracts, leaving less consumers in the market place.
In the beginning of the cycle when the older population is larger than the younger generation, the behavioral segmentation will be drastically different than when the population contracts. Marketers will need to focus on the benefits sought by the older generations which are the larger part of the market. When the population contracts marketers will need to shift to the benefits sought by the new population mix. As the resulting population continues to decline, fewer workers will be in the market leading to lower demand for products.
According to the principal of demand, if population decreases the demand curve shifts to the left and prices will fall (14). As product demand shrinks it will effect economic activity and resulting in fewer sales, lower prices, and innovation of products. When sales decrease the number of jobs will also decrease resulting in higher unemployment and lower net income for households. This will start a vicious cycle of decline until we put in measures to combat the situation.
2.Take each of the three proposed solutions stated by the author and state why you agree or disagree and then add a solution of your own to increase the baby bust Solution 1 – Lower Social Security Tax
I agree with the authors point that Social Security is part of the reason the US has a declining birth rate. Historically, families have large amounts of children for religious reasons, to help with household duties, farming, bringing income to the family, and taking care of elders when they could no longer perform labor intensive duties (15). With the emergence of Social Security which was signed into law on August 14, 1935 by President Roosevelt, the need to take care of elders financially was not necessary anymore. This led to having fewer children, but the end result is a social security system that can no longer fund itself (16).
This funding concern will continue unless measures are taken to change the dynamic (16). I think the authors solution of reducing the tax burden for people who take on the costs of creating new taxpayers, children, is good but has some drawbacks. The lower class will benefit the most from this tax reduction and will likely have a minimum of 3 children to take advantage of the governments offer. The middle class may or may not take the offer as they will probably weigh the cost of providing their children the standard of living they are used to, for example saving for college and extra circular activities such as gymnastics, versus the tax benefit that will be given.
If the cost to benefit ratio is low, I believe the middle class families will still opt for 1 to 2 children max. The upper class families will not benefit greatly from this solution and will most likely do what they want, regardless of the benefit. This could shift the demographics of the US making the lower class much larger, creating a big disparity between the “haves and have nots” and as we all know this is the major reason for most revolutions.
Finally, one fatal flaw in the plan is that the government will remove a substantial portion of the tax base used to support the elderly citizens and would have to take this burden on until the younger tax payers are old enough to start working and contributing to the social security fund. I believe a good solution is to keep the social security tax in place, and maybe raise it a little, but put the benefit toward free college education if you have 2 children or more. This could be accomplished by giving no reduction in tuition to state universities for 0-1 child, 10% reduction for 2 children, 50% reduction for 3 children, and free tuition for 4 or more children.
This will appeal to the lower and middle class families, however I believe no incentive will really cause a change in the upper class as they have the means to provide for their families no matter the size. The government can then put the money into investments that yield high interest. If the children get accepted into a state university they would get the benefit, if not the money would be put towards the social security fund. If the middle or upper class children go to private colleges, the money would be forfeit and go into the social security fund.
Solution 2 – Lower College Cost
I do not agree with the author’s position on college. In the current business environment where there is no company loyalty companies would not want to invest in individuals that could leave at any moment (17). If the company made workers stay for a period of time after training, this would be akin to indentured servitude. I also do not agree with the take a test and you are qualified for a degree or that particular job. Many people are good at cramming for exams and leave with no real knowledge or skills to do t job (18). However, I do believe the college/university system is broken and puts too much burden on the student after graduation to pay back debts. Two-thirds of students who earned bachelor’s degrees in 2012 had loans (19).
With the average student loan debt of $26,500, this starts students in a negative financial position as they start their careers. Another concern is that students leaving the university are only book smart and do not have applicable skills in the work force. Companies have to train them on the job. The solution to this would be 2 fold. First I would use the social security benefit described in the previous solution granting reduced or free college tuition to families with multiple children.
This would be funded by investing a portion of the social security taxes in high yield investments to be used for government funding or subsidizing of tuition to local and state universities. Next I would start a program with the industrial/commercial markets to start apprenticeships with college students. The industry would give the students wages to the university to help pay for books and housing while receiving a tax benefit for participating in the program.
This would be a win-win situation for all involved and be the final step in funding education. The added benefit would be the students would get real world experience and build business contacts prior to leaving college which would help reduce the unemployment of students leaving college. The students would also be debt free entering into the workforce, making them more likely to spend more money on consumer goods.
Solution 3 – The Dirty Gap
This is by far the best solution the author has offered. By offering telecommuting as an option, you would decrease fuel costs, cost of living and taxes. In 2000, the average time for Americans to get to work was approximately 23 minutes (5). That equates to a total of 46 minutes per day just in travel, not to mention the chance for increased travel time due to traffic jams or car wrecks. The lower fuel consumption, tolls, and vehicle maintenance could save families a significant amount of money. In 2012, with gas prices of $3.74 per gallon, the average American was spending $2000 per year on fuel costs alone (7). If you add increased maintenance costs and tolls the costs savings becomes a significant part of the employee’s salary.
Workers could also reduce their taxes by living in rural areas where land is cheaper and city or state taxes do not apply. Living in rural areas would help boast the rural population and benefit the employee with cheaper groceries and dining options. Take for instance someone making a salary of $50,000 in New York City, if that person could telecommute from Troy, Alabama the same salary would essentially buy them twice as much since the cost of living is 47% cheaper in Troy(6). Housing is also 77% cheaper in Troy, Alabama vs. New York allowing for more land and space to raise a larger family(6).
The employee would also be happier as they could be closer to schools for events with their children. The cost of day care could also be reduced since employees would be home with their children while they worked. This could definitely solve some of the financial concerns with working parents having more children. In an 2011 article from babycenter.com, the average costs of daycare in the United States is $11,666 per year, but could be up to $24,000 per year in certain areas like Boston or San Francisco (8).
After school programs would no longer be a necessity to fill the gap between the end of the school day and the end of the work day, but a nice to have as parents would be home when children were released from school. It would also keep kids out of trouble after school because more parental guidance would be available and latch key kids would be a thing of the past.
3.Assume the “Baby Bust” will continue as stated in the article. Develop a list of 4 businesses that you feel would have potential for growth in the slow growth era. Be specific and state the market you would serve and strategy used. Next develop a list of 2 businesses you would avoid due to the baby bust and indicate why you would avoid them.
Areas of Potential Growth
The first area for potential growth during this slow growth era would be the food and beverage market. I would invest in restaurants that served affordable sit down meals. Examples of restaurants that I believe would be good investments are Chili’s, Outback, Cracker Barrel and Olive Garden. The fundamental reason is that time is very precious to the dual income family. It has become commonplace to have families with both spouses maintaining separate careers and contributing to the financial success of the household (9). I would use the marketing and advertising approach informing the families how much time and hassle they would save by letting us take care of dinner while they relax and enjoy the family.
The next area for potential growth in this slow economic era is child care. According to the center for American progress, fewer than one-in-three children today have a full-time stay-at-home parent (10). A whopping 23.4% of children under the age of five are in some form of organized child care arrangement (10). This includes one-third of those with an employed mother and more than 28.6% of those whose mothers are not employed but are in school (10). The more America is leaning toward less children and dual income homes the more need for day care will arise.
As stated earlier, the average costs of daycare in the United States is $11,666 per year, but could be up to $24,000 per year in certain areas like Boston or San Francisco (8). The best day care location would be situated near office buildings catering to the working professional and allowing for ease of drop off and pick-up. You could even start a “lunch with your child program” where the parent could stop in and have lunch with their children during their breaks from work. I would give it a personal feel letting the business professional know that we are here for you, and near you, so you can worry less.
In contrast to daycare, which is for children, the need is also rising for eldercare for parents of working professionals that are not in nursing homes but require assistance during the day. By 2030, there will be about 72.1 million older persons, more than twice their number in 2000 (11). People 65-plus years old represented 12.4 percent of the population in the year 2000, but that is expected to grow to be 19 percent of the population by 2030 (11). This will mean more demand for elderly care facilities in the coming years.
There were more than 36,000 assisted living facilities in the United States in 2009, according to the Assisted Living Federation of America (12). Today more than 1 million senior citizens are served by these assisted living facilities, and that number is expected to go up (12). Like the concept of child care, I would place eldercare facilities near office buildings allowing for the working professional to drop their parent at the facility and be close in case of an emergency. This would also allow for frequent visits throughout the day and the potential to have lunch with your family. I believe this would appeal to everyone as it would take some of the guilt away from the industry of elder care.
Finally, I would invest in services for the home. In a study by the Harvard Business Review, 47.5% of all American married couples were dual income couples in 2012 (13). Many professionals live and die by their calendars. Important meetings, workouts, breakfasts with friends, extra circular activities, and community service all make the calendar which leaves little time for anything else including time with the spouse (13).
Take all this into account and add children on top of the strain of the professionals time, there is no open slots for yard work of other household chores. This is where the opportunity comes in; I would invest in lawn, cleaning, and handy man services. These are things that need to get done but the busy professional has been neglecting due to time constraints. Creating a one stop solution to this would be a good business that will continue to grow as fertility rates drop and dual income families become more common place.
Areas to avoid
One market I would avoid is the manufacture of large vehicles like SUV’s and station wagons. These vehicles are typically bought buy larger families looking for additional seating (20). As family size declines so will the need for these types of vehicles. The next market I would avoid is the retirement community real estate market. Even though the older population will continue to expand for a short period of time, in the long run the population contraction will result in a flooded market.
1.Wall Street Journal, America’s Baby Bust, Last, Jonathan V. Wall Street Journal New York, N.Y 02-03 Feb 2013: C.1. 2.US Census Bureau: http://quickfacts.census.gov/qfd/states/00000.html 3.Wikipedia, Demographics of the United States: http://en.wikipedia.org/wiki/Demographics_of_the_United_States 4.Newsline, Young consumer’s base purchase decisions on image and value, not price, Jennifer Kruger, October 22, 2010. http://pmanewsline.com/2010/10/22/young-consumers-base-purchase-decisions-on-image-and-value-not-price/ 5.US Department of Transportation, 2000 Average Travel Time in Minutes, http://www.fhwa.dot.gov/ohim/onh00/map1.htm 6.Sperlings Best Places, Cost of living comparison: http://www.bestplaces.net/col/?salary=50000&city1=53651000&city2=50176920 7.Huff Post Business, How Much Americans Spend On Gas Every Year: http://www.huffingtonpost.com/2012/03/04/gas-prices-infographic_n_1316919.html 8.Babycenter, How much you’ll spend on childcare: http://www.babycenter.com/0_how-much-youll-spend-on-childcare_1199776.bc 9.Mass Mutual Financial Group, The Changing Face of America: Dual Income Families: http://www.massmutual.com/planningtools/educationalarticles/articledisplay?mmcom_articleid=63f19ce97bef4210VgnVCM200000d37106aaRCRD 10.Center for American Progress, Families Need More Help to Care for Their Children: http://www.americanprogress.org/issues/labor/news/2012/08/16/11978/fact-sheet-child-care/ 11.Department on Health and Human Services, Aging Statistics: http://www.aoa.gov/aoaroot/aging_statistics/index.aspx 12.Assisted Livin