The Futures Company 2015 Published by The Futures Company at 6 More London Place Tooley Street London SE1 2QY Copying redistribution and display is permitted under a Creative Commons licence for non-commercial purposes provided articles are properly attributed Please notify us of any such re-use by emailing unlockingfuturesthefuturescompanycom

An Overview of the Spending Impact of Cheaper GasProofPoints are an

occasional series of timely points of view from The Futures Company on issues which affect strategy innovation marketing and the way we see the future

For many companies the big question of the moment is what cheaper gas means for consumer spending Five elements frame the answer

bull How much additional money will consumers have

bull What sort of spending power does this amount provide

bull How willing are consumers to spend

bull What will consumers buy more of

bull What does this mean for my category or brand

Bottom line for most categories the near-term impact will be positive yet modest Even so the upside potential is enough to warrant marketing support to ensure it is realized

How much additional money will consumers have

The savings from cheaper gas depend largely on how far prices fall because gasoline demand itself is fairly inelastic The typical household purchases about 1200 gallons annually1 Year to date the AAArsquos Fuel Gauge Report finds prices nationally across all grades of fuel about $100 less than a year ago with some days as high as $1202 Assuming prices stay low and accounting for the fact that year-ago differences will be much smaller in the second half of 2015 back-of-the-envelope math yields a little under $1000 this year in after-tax money saved

What sort of spending power does this amount provide

In aggregate the savings from cheap gas are a huge number There are many estimates but with over 117 million US households $1000 per household roughly equals $117 billion in savings One estimate is $14 billion

saved for every penny less in gas prices sustained for a full 12 months3 which yields approximately the same figure for aggregate savings as $1000 per household when applied with similar assumptions about price differentials between this year and last year

However big the aggregate number though consumers are not getting these savings all at once in one lump sum Mostly individuals who spend the savings from cheap gas will do so in small amounts across many occasions over the course of a year

For upper-income consumers an additional $1000 is small enough that it is unlikely to make any appreciable difference in their spending habits not to mention that in all likelihood they are buying what they want and need already

For middle-class consumers using $35000 to $100000 annual income as the definition and assuming a 30 tax bite from all Federal state and

ProofPoint

J Walker Smith Executive Chairman The Futures Company

ProofPoint 8 | February 2015

The Futures Company 2015 Published by The Futures Company at 6 More London Place Tooley Street London SE1 2QY Copying redistribution and display is permitted under a Creative Commons licence for non-commercial purposes provided articles are properly attributed Please notify us of any such re-use by emailing unlockingfuturesthefuturescompanycom

The watchfulness evident in this quote was echoed in a recent McKinsey report that counseled ldquo[I]trsquos important to understand consumersrsquo still risk-averse mindset hellip For many consumers the 2008-2012 recession isnrsquot over yetrdquo 7

Initial data on 2014 year-end spending are consistent with this prudent view of consumers An ITG survey found that only 31 of consumers spent more on other goods and services last year because of cheaper gas8 A Visa survey found that half the money saved from cheaper gas has been socked away in savings and one-quarter has been used to pay down debt Only the last one-quarter has been spent9

Galluprsquos daily spending survey found little change from November to December or between December 2014 and December 2013 10 Furthermore Gallup data show that nearly all of the increase in spending since gas prices dropped is accounted for by consumers with annual incomes of $90000 or more

The Commerce Departmentrsquos December report found retail spending down 09 versus November far worse than the modest

gain expected 11 More importantly the same report found that savings rose from 43 in November to 49 in December 12

But even though December did not live up to expectations Commerce Department data did show that spending growth for all of Q4 was the highest in nine years and spending for the year as a whole was up 39 better than 36 for the year before

Additionally consumer sentiment is improving If gas prices stay low confidence should build on itself and loosen purse strings But this will need to be closely monitored Gas prices appear to have bottomed out and are creeping back up 13

local taxes $1000 ranges from a little over 4 of after-tax income to a little under 15 Relative to wage growth since the end of the recession which has lagged at 2 or so 15 to 4 is appreciable4 Additionally $1000 is about one-fifth of the middle-class gap that has opened up since 2000 between stagnant wages and rising expenses for housing childcare health care and saving for college and retirement5

But what this $1000 means for a particular category or brand is not readily apparent Some categories will get a bigger share of the next dollar spent crowding out other categories Some categories are bigger-ticket purchases for which $1000 a little bit at a time wonrsquot be enough to boost spending Some categories have low penetration so

a little bit of spending by a smaller number of people wonrsquot be very much in total Plus consumers must be willing to spend the savings from cheaper gas

How willing are consumers to spend

The New York Times concluded a recent story that was headlined ldquoLower Oil Prices Provide Benefits to US Workersrdquo with a closing quote that bracketed the upbeat report with a strong caveat of caution April Smith a home health aide from Lewiston Maine was quoted as saying ldquoUs small people we just see [gas prices] go up and down up and down We throw a party when itrsquos downmdashbut not too much of a party because we know itrsquos going uprdquo6

The Futures Company

ldquoA Visa survey found that half the money saved from cheaper gas has been socked away in savingsrdquo

The Futures Company 2015 Published by The Futures Company at 6 More London Place Tooley Street London SE1 2QY Copying redistribution and display is permitted under a Creative Commons licence for non-commercial purposes provided articles are properly attributed Please notify us of any such re-use by emailing unlockingfuturesthefuturescompanycom

Cheaper gas is welcome but it is not a panacea for the enduring and difficult financial challenges facing middle-class consumers The elephant in the room is wage stagnation a knotty problem for which cheaper gas is no remedy or equalizer Even as cheap gas eases finances for consumers the tough economy keeps middle-class budgets tight

What will consumers buy more of

While many consumers remain cautious spending has improved for some categories The ITG survey found that of the 31 spending more 29 spent the money dining out and 21 bought clothes Similarly the Visa survey found that groceries and fast food were the biggest beneficiaries of the one-quarter of savings that has been spent

An analysis of spending data by Cardlytics (and reported by CNBC) found that the biggest winners on a percentage basis were e-commerce and foodservice while on a dollar basis it was home and garden auto service grocery products and e-commerce14 The consumer panel comprising the Cardlytics dataset is a large aggregated file of cardholders so it is by no means representative but the results of its analysis are consistent with previous econometric estimates of demand elasticity for various categories One such analysis by Morgan Stanley looked at demand during the Great Recession and found that the eight categories most responsive to increases in consumer income are home furnishings recreational goods and vehicles financial services transportation motor vehicles clothing dining out and recreation services15

When times are tough consumers give up indulgences (large first then small) gift-giving and big-ticket items If hard times persist consumers trade down on or postpone essentials When times improve long-postponed essentials are the first things to rebound followed by indulgences and big-ticket items So itrsquos no surprise that

the ITG and Visa surveys found more spending on groceries clothes and dining out

A view of cheaper gas as an ldquoup and downrdquo thing to borrow the words of April Smith in The New York Times article implies that the money saved will be spent more like a one-time windfall and less like ongoing income This means saving much of it of course but it also means catching up with necessities and splurging on small indulgences Additionally some consumers will be disciplined with this extra money setting it aside for lump-sum purchases like products requiring a down payment or a big one-time payment Home renovations furnishings automobiles high-end consumer electronics and luxury items like jewelry could benefit from cheap gas Other categories that are paid for with ongoing income as part of regular monthly household budgets will benefit less from the cheaper gas windfall

What does this mean for my category or brand

The best way to assess the upside potential from cheaper gas is to start from the household perspective not the macroeconomic view

The most recent government data for household spending is the 2012 BLS annual consumer expenditure report and it shows that total household spending averaged $5144216 Every category is some portion of that Dividing the average household spending for a particular category by total spending yields a percentage and that percentage multiplied by $1000 is the ldquofair sharerdquo amount for that category

For example if a category commands 10 percent of the average annual household spending of $51442 (which is over $5000 per yearmdasha big amount not typical of most categories) then its fair share is 10 percent of the $1000 savings which is $100 over the course of 12 months Aggregated across millions of consumers this is a large amount

The Futures Company

ldquoThe elephant in the room is wage stagnation a knotty problem for which cheaper gas is no remedy or equalizerrdquo

The Futures Company 2015 Published by The Futures Company at 6 More London Place Tooley Street London SE1 2QY Copying redistribution and display is permitted under a Creative Commons licence for non-commercial purposes provided articles are properly attributed Please notify us of any such re-use by emailing unlockingfuturesthefuturescompanycom

But three caveats apply The first is that this amount assumes all of the $1000 is spent But if half is saved then the fair share amount is much less The second is that not everyone will spend this money so any calculation has to factor down the amount spent by a proportion of consumers The final caveat is that this money is spread over 12 months which in this example is less than $10 per month Savings from cheaper gas cascade through the economy from the bottom up in small amounts If a category or brand doesnrsquot fit the particulars of these parameters then it wonrsquot see much upside from cheaper gas

In this hypothetical example consumers have to be able to spend the extra $10 per month in a category But if the average purchase price is greater than that because items in the category arenrsquot sold or priced in amounts that small then consumers have no ability to spend a small bit of extra money in that category Instead they will spend it elsewhere giving other categories more than their fair share

Most of the categories with lower-priced more frequently purchased items have a much lower share of

average annual household spending generally in the single digits While this translates into small fair share amounts this money can be spent in those categories because small transactions are how those categories are bought and sold

Even with small transactions the nickels and dimes from cheaper gas arenrsquot really a few cents across everyone Such averaging overlooks the fact that itrsquos really a small number of consumers shopping or spending more not all consumers spending an extra few cents This is a critical nuance in any tactical execution to secure the potential from lower gasoline prices

Certain categories have bigger upside potential In another analysis Morgan Stanley looked at the rebound in spending for 19 categories during the current recovery compared to that of the last two recessions17 Some categories have seen a rebound in consumer spending on pace with that of prior recoveries But others lag behind significantly so when consumers consider what to do with the next free dollar these categories are likely to be first in line

Promising or not hypothetical figures such as these can be thin soup for business planning mainly because so many factors in the marketplace weigh against any literal application of past patterns to estimate the volume impact of cheap gas To date just three in 10 consumers have spent the money saved and this was during the holiday shopping season when spending peaks Most of the money was not spent and the spending that did occur was concentrated in products and services that are one-off extravagances or windfall opportunities Consumers are reengaging with the marketplace but remain anxious and guarded in their spending

Ultimately itrsquos up to marketers to stoke and channel demand Too much is up in the air to treat cheaper gas as a guaranteed boost in growth Consumers see these savings as a windfall so this is the best way to motivate them Itrsquos special money to be spent in a special way Marketers must step up and show consumers how to make special use of it

Contact us

To find out more about how The Futures Company can help your business take advantage of falling gas prices please contact Craig Wood (919) 932 8696

Learn more

Act now so your brand can earn its fair share and more of the savings from cheap gas Ask us for tips and insights about what will maximize your potential

The Futures Company 2015 Published by The Futures Company at 6 More London Place Tooley Street London SE1 2QY Copying redistribution and display is permitted under a Creative Commons licence for non-commercial purposes provided articles are properly attributed Please notify us of any such re-use by emailing unlockingfuturesthefuturescompanycom

The watchfulness evident in this quote was echoed in a recent McKinsey report that counseled ldquo[I]trsquos important to understand consumersrsquo still risk-averse mindset hellip For many consumers the 2008-2012 recession isnrsquot over yetrdquo 7

Initial data on 2014 year-end spending are consistent with this prudent view of consumers An ITG survey found that only 31 of consumers spent more on other goods and services last year because of cheaper gas8 A Visa survey found that half the money saved from cheaper gas has been socked away in savings and one-quarter has been used to pay down debt Only the last one-quarter has been spent9

Galluprsquos daily spending survey found little change from November to December or between December 2014 and December 2013 10 Furthermore Gallup data show that nearly all of the increase in spending since gas prices dropped is accounted for by consumers with annual incomes of $90000 or more

The Commerce Departmentrsquos December report found retail spending down 09 versus November far worse than the modest

gain expected 11 More importantly the same report found that savings rose from 43 in November to 49 in December 12

But even though December did not live up to expectations Commerce Department data did show that spending growth for all of Q4 was the highest in nine years and spending for the year as a whole was up 39 better than 36 for the year before

Additionally consumer sentiment is improving If gas prices stay low confidence should build on itself and loosen purse strings But this will need to be closely monitored Gas prices appear to have bottomed out and are creeping back up 13

local taxes $1000 ranges from a little over 4 of after-tax income to a little under 15 Relative to wage growth since the end of the recession which has lagged at 2 or so 15 to 4 is appreciable4 Additionally $1000 is about one-fifth of the middle-class gap that has opened up since 2000 between stagnant wages and rising expenses for housing childcare health care and saving for college and retirement5

But what this $1000 means for a particular category or brand is not readily apparent Some categories will get a bigger share of the next dollar spent crowding out other categories Some categories are bigger-ticket purchases for which $1000 a little bit at a time wonrsquot be enough to boost spending Some categories have low penetration so

a little bit of spending by a smaller number of people wonrsquot be very much in total Plus consumers must be willing to spend the savings from cheaper gas

How willing are consumers to spend

The New York Times concluded a recent story that was headlined ldquoLower Oil Prices Provide Benefits to US Workersrdquo with a closing quote that bracketed the upbeat report with a strong caveat of caution April Smith a home health aide from Lewiston Maine was quoted as saying ldquoUs small people we just see [gas prices] go up and down up and down We throw a party when itrsquos downmdashbut not too much of a party because we know itrsquos going uprdquo6

The Futures Company

ldquoA Visa survey found that half the money saved from cheaper gas has been socked away in savingsrdquo

The Futures Company 2015 Published by The Futures Company at 6 More London Place Tooley Street London SE1 2QY Copying redistribution and display is permitted under a Creative Commons licence for non-commercial purposes provided articles are properly attributed Please notify us of any such re-use by emailing unlockingfuturesthefuturescompanycom

Cheaper gas is welcome but it is not a panacea for the enduring and difficult financial challenges facing middle-class consumers The elephant in the room is wage stagnation a knotty problem for which cheaper gas is no remedy or equalizer Even as cheap gas eases finances for consumers the tough economy keeps middle-class budgets tight

What will consumers buy more of

While many consumers remain cautious spending has improved for some categories The ITG survey found that of the 31 spending more 29 spent the money dining out and 21 bought clothes Similarly the Visa survey found that groceries and fast food were the biggest beneficiaries of the one-quarter of savings that has been spent

An analysis of spending data by Cardlytics (and reported by CNBC) found that the biggest winners on a percentage basis were e-commerce and foodservice while on a dollar basis it was home and garden auto service grocery products and e-commerce14 The consumer panel comprising the Cardlytics dataset is a large aggregated file of cardholders so it is by no means representative but the results of its analysis are consistent with previous econometric estimates of demand elasticity for various categories One such analysis by Morgan Stanley looked at demand during the Great Recession and found that the eight categories most responsive to increases in consumer income are home furnishings recreational goods and vehicles financial services transportation motor vehicles clothing dining out and recreation services15

When times are tough consumers give up indulgences (large first then small) gift-giving and big-ticket items If hard times persist consumers trade down on or postpone essentials When times improve long-postponed essentials are the first things to rebound followed by indulgences and big-ticket items So itrsquos no surprise that

the ITG and Visa surveys found more spending on groceries clothes and dining out

A view of cheaper gas as an ldquoup and downrdquo thing to borrow the words of April Smith in The New York Times article implies that the money saved will be spent more like a one-time windfall and less like ongoing income This means saving much of it of course but it also means catching up with necessities and splurging on small indulgences Additionally some consumers will be disciplined with this extra money setting it aside for lump-sum purchases like products requiring a down payment or a big one-time payment Home renovations furnishings automobiles high-end consumer electronics and luxury items like jewelry could benefit from cheap gas Other categories that are paid for with ongoing income as part of regular monthly household budgets will benefit less from the cheaper gas windfall

What does this mean for my category or brand

The best way to assess the upside potential from cheaper gas is to start from the household perspective not the macroeconomic view

The most recent government data for household spending is the 2012 BLS annual consumer expenditure report and it shows that total household spending averaged $5144216 Every category is some portion of that Dividing the average household spending for a particular category by total spending yields a percentage and that percentage multiplied by $1000 is the ldquofair sharerdquo amount for that category

For example if a category commands 10 percent of the average annual household spending of $51442 (which is over $5000 per yearmdasha big amount not typical of most categories) then its fair share is 10 percent of the $1000 savings which is $100 over the course of 12 months Aggregated across millions of consumers this is a large amount

The Futures Company

ldquoThe elephant in the room is wage stagnation a knotty problem for which cheaper gas is no remedy or equalizerrdquo

The Futures Company 2015 Published by The Futures Company at 6 More London Place Tooley Street London SE1 2QY Copying redistribution and display is permitted under a Creative Commons licence for non-commercial purposes provided articles are properly attributed Please notify us of any such re-use by emailing unlockingfuturesthefuturescompanycom

But three caveats apply The first is that this amount assumes all of the $1000 is spent But if half is saved then the fair share amount is much less The second is that not everyone will spend this money so any calculation has to factor down the amount spent by a proportion of consumers The final caveat is that this money is spread over 12 months which in this example is less than $10 per month Savings from cheaper gas cascade through the economy from the bottom up in small amounts If a category or brand doesnrsquot fit the particulars of these parameters then it wonrsquot see much upside from cheaper gas

In this hypothetical example consumers have to be able to spend the extra $10 per month in a category But if the average purchase price is greater than that because items in the category arenrsquot sold or priced in amounts that small then consumers have no ability to spend a small bit of extra money in that category Instead they will spend it elsewhere giving other categories more than their fair share

Most of the categories with lower-priced more frequently purchased items have a much lower share of

average annual household spending generally in the single digits While this translates into small fair share amounts this money can be spent in those categories because small transactions are how those categories are bought and sold

Even with small transactions the nickels and dimes from cheaper gas arenrsquot really a few cents across everyone Such averaging overlooks the fact that itrsquos really a small number of consumers shopping or spending more not all consumers spending an extra few cents This is a critical nuance in any tactical execution to secure the potential from lower gasoline prices

Certain categories have bigger upside potential In another analysis Morgan Stanley looked at the rebound in spending for 19 categories during the current recovery compared to that of the last two recessions17 Some categories have seen a rebound in consumer spending on pace with that of prior recoveries But others lag behind significantly so when consumers consider what to do with the next free dollar these categories are likely to be first in line

Promising or not hypothetical figures such as these can be thin soup for business planning mainly because so many factors in the marketplace weigh against any literal application of past patterns to estimate the volume impact of cheap gas To date just three in 10 consumers have spent the money saved and this was during the holiday shopping season when spending peaks Most of the money was not spent and the spending that did occur was concentrated in products and services that are one-off extravagances or windfall opportunities Consumers are reengaging with the marketplace but remain anxious and guarded in their spending

Ultimately itrsquos up to marketers to stoke and channel demand Too much is up in the air to treat cheaper gas as a guaranteed boost in growth Consumers see these savings as a windfall so this is the best way to motivate them Itrsquos special money to be spent in a special way Marketers must step up and show consumers how to make special use of it

Contact us

To find out more about how The Futures Company can help your business take advantage of falling gas prices please contact Craig Wood (919) 932 8696

Learn more

Act now so your brand can earn its fair share and more of the savings from cheap gas Ask us for tips and insights about what will maximize your potential

The Futures Company 2015 Published by The Futures Company at 6 More London Place Tooley Street London SE1 2QY Copying redistribution and display is permitted under a Creative Commons licence for non-commercial purposes provided articles are properly attributed Please notify us of any such re-use by emailing unlockingfuturesthefuturescompanycom

Cheaper gas is welcome but it is not a panacea for the enduring and difficult financial challenges facing middle-class consumers The elephant in the room is wage stagnation a knotty problem for which cheaper gas is no remedy or equalizer Even as cheap gas eases finances for consumers the tough economy keeps middle-class budgets tight

What will consumers buy more of

While many consumers remain cautious spending has improved for some categories The ITG survey found that of the 31 spending more 29 spent the money dining out and 21 bought clothes Similarly the Visa survey found that groceries and fast food were the biggest beneficiaries of the one-quarter of savings that has been spent

An analysis of spending data by Cardlytics (and reported by CNBC) found that the biggest winners on a percentage basis were e-commerce and foodservice while on a dollar basis it was home and garden auto service grocery products and e-commerce14 The consumer panel comprising the Cardlytics dataset is a large aggregated file of cardholders so it is by no means representative but the results of its analysis are consistent with previous econometric estimates of demand elasticity for various categories One such analysis by Morgan Stanley looked at demand during the Great Recession and found that the eight categories most responsive to increases in consumer income are home furnishings recreational goods and vehicles financial services transportation motor vehicles clothing dining out and recreation services15

When times are tough consumers give up indulgences (large first then small) gift-giving and big-ticket items If hard times persist consumers trade down on or postpone essentials When times improve long-postponed essentials are the first things to rebound followed by indulgences and big-ticket items So itrsquos no surprise that

the ITG and Visa surveys found more spending on groceries clothes and dining out

A view of cheaper gas as an ldquoup and downrdquo thing to borrow the words of April Smith in The New York Times article implies that the money saved will be spent more like a one-time windfall and less like ongoing income This means saving much of it of course but it also means catching up with necessities and splurging on small indulgences Additionally some consumers will be disciplined with this extra money setting it aside for lump-sum purchases like products requiring a down payment or a big one-time payment Home renovations furnishings automobiles high-end consumer electronics and luxury items like jewelry could benefit from cheap gas Other categories that are paid for with ongoing income as part of regular monthly household budgets will benefit less from the cheaper gas windfall

What does this mean for my category or brand

The best way to assess the upside potential from cheaper gas is to start from the household perspective not the macroeconomic view

The most recent government data for household spending is the 2012 BLS annual consumer expenditure report and it shows that total household spending averaged $5144216 Every category is some portion of that Dividing the average household spending for a particular category by total spending yields a percentage and that percentage multiplied by $1000 is the ldquofair sharerdquo amount for that category

For example if a category commands 10 percent of the average annual household spending of $51442 (which is over $5000 per yearmdasha big amount not typical of most categories) then its fair share is 10 percent of the $1000 savings which is $100 over the course of 12 months Aggregated across millions of consumers this is a large amount

The Futures Company

ldquoThe elephant in the room is wage stagnation a knotty problem for which cheaper gas is no remedy or equalizerrdquo

The Futures Company 2015 Published by The Futures Company at 6 More London Place Tooley Street London SE1 2QY Copying redistribution and display is permitted under a Creative Commons licence for non-commercial purposes provided articles are properly attributed Please notify us of any such re-use by emailing unlockingfuturesthefuturescompanycom

But three caveats apply The first is that this amount assumes all of the $1000 is spent But if half is saved then the fair share amount is much less The second is that not everyone will spend this money so any calculation has to factor down the amount spent by a proportion of consumers The final caveat is that this money is spread over 12 months which in this example is less than $10 per month Savings from cheaper gas cascade through the economy from the bottom up in small amounts If a category or brand doesnrsquot fit the particulars of these parameters then it wonrsquot see much upside from cheaper gas

In this hypothetical example consumers have to be able to spend the extra $10 per month in a category But if the average purchase price is greater than that because items in the category arenrsquot sold or priced in amounts that small then consumers have no ability to spend a small bit of extra money in that category Instead they will spend it elsewhere giving other categories more than their fair share

Most of the categories with lower-priced more frequently purchased items have a much lower share of

average annual household spending generally in the single digits While this translates into small fair share amounts this money can be spent in those categories because small transactions are how those categories are bought and sold

Even with small transactions the nickels and dimes from cheaper gas arenrsquot really a few cents across everyone Such averaging overlooks the fact that itrsquos really a small number of consumers shopping or spending more not all consumers spending an extra few cents This is a critical nuance in any tactical execution to secure the potential from lower gasoline prices

Certain categories have bigger upside potential In another analysis Morgan Stanley looked at the rebound in spending for 19 categories during the current recovery compared to that of the last two recessions17 Some categories have seen a rebound in consumer spending on pace with that of prior recoveries But others lag behind significantly so when consumers consider what to do with the next free dollar these categories are likely to be first in line

Promising or not hypothetical figures such as these can be thin soup for business planning mainly because so many factors in the marketplace weigh against any literal application of past patterns to estimate the volume impact of cheap gas To date just three in 10 consumers have spent the money saved and this was during the holiday shopping season when spending peaks Most of the money was not spent and the spending that did occur was concentrated in products and services that are one-off extravagances or windfall opportunities Consumers are reengaging with the marketplace but remain anxious and guarded in their spending

Ultimately itrsquos up to marketers to stoke and channel demand Too much is up in the air to treat cheaper gas as a guaranteed boost in growth Consumers see these savings as a windfall so this is the best way to motivate them Itrsquos special money to be spent in a special way Marketers must step up and show consumers how to make special use of it

Contact us

To find out more about how The Futures Company can help your business take advantage of falling gas prices please contact Craig Wood (919) 932 8696

Learn more

Act now so your brand can earn its fair share and more of the savings from cheap gas Ask us for tips and insights about what will maximize your potential

The Futures Company 2015 Published by The Futures Company at 6 More London Place Tooley Street London SE1 2QY Copying redistribution and display is permitted under a Creative Commons licence for non-commercial purposes provided articles are properly attributed Please notify us of any such re-use by emailing unlockingfuturesthefuturescompanycom

But three caveats apply The first is that this amount assumes all of the $1000 is spent But if half is saved then the fair share amount is much less The second is that not everyone will spend this money so any calculation has to factor down the amount spent by a proportion of consumers The final caveat is that this money is spread over 12 months which in this example is less than $10 per month Savings from cheaper gas cascade through the economy from the bottom up in small amounts If a category or brand doesnrsquot fit the particulars of these parameters then it wonrsquot see much upside from cheaper gas

In this hypothetical example consumers have to be able to spend the extra $10 per month in a category But if the average purchase price is greater than that because items in the category arenrsquot sold or priced in amounts that small then consumers have no ability to spend a small bit of extra money in that category Instead they will spend it elsewhere giving other categories more than their fair share

Most of the categories with lower-priced more frequently purchased items have a much lower share of

average annual household spending generally in the single digits While this translates into small fair share amounts this money can be spent in those categories because small transactions are how those categories are bought and sold

Even with small transactions the nickels and dimes from cheaper gas arenrsquot really a few cents across everyone Such averaging overlooks the fact that itrsquos really a small number of consumers shopping or spending more not all consumers spending an extra few cents This is a critical nuance in any tactical execution to secure the potential from lower gasoline prices

Certain categories have bigger upside potential In another analysis Morgan Stanley looked at the rebound in spending for 19 categories during the current recovery compared to that of the last two recessions17 Some categories have seen a rebound in consumer spending on pace with that of prior recoveries But others lag behind significantly so when consumers consider what to do with the next free dollar these categories are likely to be first in line

Promising or not hypothetical figures such as these can be thin soup for business planning mainly because so many factors in the marketplace weigh against any literal application of past patterns to estimate the volume impact of cheap gas To date just three in 10 consumers have spent the money saved and this was during the holiday shopping season when spending peaks Most of the money was not spent and the spending that did occur was concentrated in products and services that are one-off extravagances or windfall opportunities Consumers are reengaging with the marketplace but remain anxious and guarded in their spending

Ultimately itrsquos up to marketers to stoke and channel demand Too much is up in the air to treat cheaper gas as a guaranteed boost in growth Consumers see these savings as a windfall so this is the best way to motivate them Itrsquos special money to be spent in a special way Marketers must step up and show consumers how to make special use of it

Contact us

To find out more about how The Futures Company can help your business take advantage of falling gas prices please contact Craig Wood (919) 932 8696

Learn more

Act now so your brand can earn its fair share and more of the savings from cheap gas Ask us for tips and insights about what will maximize your potential

The Futures Company 2015 Published by The Futures Company at 6 More London Place Tooley Street London SE1 2QY Copying redistribution and display is permitted under a Creative Commons licence for non-commercial purposes provided articles are properly attributed Please notify us of any such re-use by emailing unlockingfuturesthefuturescompanycom

1 Nelson Schwartz Clifford Krauss and Dionne

Searcey ldquoSliding Oil and Gas Prices Give

Americans More Money to Spend The New

York Times November 13 2014

2 httpwwwfuelgaugereportcom

3 David Russell ldquoLower Gas Prices Will Save Us

Allrdquo The Hill blog October 22 2014

4 Simone Pathe ldquoWhatrsquos the Most Reliable

Indicator of Monthly Job Gainsrdquo Newshour

PBS December 5 2014

5 Jennifer Erickson ed The Middle Class

Squeeze Center for American Progress

September 24 2014

6 Diane Cardwell and Nelson D Schwartz

ldquoLower Oil Prices Provide Benefits to US

Workersrdquo The New York Times January 17 2015

7 Tom Welander and Luke Fiorio ldquoThe New

Financial Normal Taking the Pulse of the

Cautious American Consumerrdquo McKinsey on

Marketing amp Sales January 2015

8 Andrea Riquier ldquoConsumers Put Brakes

on Spending Despite Cheap Gasrdquo Investorrsquos

Business Daily January 14 2014

9 Jonathon Ramsey ldquoConsumers Only

Spending 25 Percent of Money Saved from

Cheap Gasrdquo AutoBlog February 5 2015

10 Justin McCarthy ldquoUS Consumer Spending

Strong Mostly Unchanged in Decemberrdquo

Gallup Latest News Economy January 5 2015

11 Hiroko Tabuchi ldquoAmericans Pocketing What

They Save on Gas Retail Data Suggestsrdquo The

New York Times January 14 2015

12 Jeffrey Sparshott ldquoUS Consumers in Rainy

Day Moderdquo The Wall Street Journal February

2 2015

13 AAA ldquoFebruary Begins with Rising Gas Prices

Daily Fuel Gauge Report February 5 2015

14 Eric Chemi ldquoHow Did Americans Spend Their

Gas Savings We Now Knowrdquo CNBC Energy

January 21 2015

15 Ellen Zentner ldquoConsumers in Better Shape

for the Holidaysrdquo On the Markets Morgan

Stanley Wealth Management November 2014

16 Bureau of Labor Statistics Consumer

Expenditures in 2012 BLS Reports March 2014

17 Ellen Zentner and Paula Campbell ldquoInequality

and Consumptionrdquo US Economics Morgan

Stanley September 22 2014