Getting a clearer picture of gay buying power
Editor’s note: Bob Witeck is CEO, and Wesley Combs is president, of Witeck-Combs Communications, Inc., Washington, D.C.
In the past few years, news media along with many marketers have frequently touted the reputed high earnings of gay and lesbian households. Some ballyhoo the gay market as a dream market precisely because of its presumed affluence. But is it true?
The more critical questions to ask are whether or not this consumer segment is unique and distinct from other parts of the market and whether marketers may connect with this segment more directly than through conventional marketing channels. The answers are a convincing yes. Gay, lesbian, bisexual and transgender consumers are unusually brand-loyal to companies and brands that reach out to them.
But let’s step back for a moment. It stands to reason that a certain portion of America’s gay population enjoys notable wealth and higher than average earnings. However, there is actually little evidence to suggest that gays and lesbians - on average - earn more than others. In fact, there appears to be more compelling evidence that gay men may earn somewhat less than their heterosexual counterparts while lesbians, in some analyses, may earn slightly more than heterosexual women.
The questions that marketers and journalists raise go beyond income, however. They also focus on the concept of buying power in particular, and search for understanding about how much economic clout gays and lesbians wield in today’s market. When a company decides to pursue the gay dollar, they naturally wish to know what kind of market share they’re hoping to achieve.
As market strategists and experts on gay consumer trends, we often are asked by corporate America to gauge the buying power of the gay market as a way to recognize its size and worth in the United States. This is a challenge we happily accept.
Understanding buying power is a fundamental way to acknowledge the many valuable day-to-day contributions that gay Americans make as consumers, workers, families, business owners, shareholders and economic decision makers. Getting this projection right makes a difference to all of us, including marketers.
Buying power starts with population size
The first sticking point is how to credibly project the actual number of gays and lesbians in the United States. If we know the true dimensions of the gay population itself, we have a far greater chance to better understand their characteristics, livelihoods and consumer behaviors - and ultimately estimated buying power.
The U.S. Census 2000 provides a uniquely accurate though incomplete population glimpse by tracking only same-sex couple households - or at least those identified with unmarried adult partners of the same sex. The Census data does not identify or track single gay and lesbian adults.
The Gay and Lesbian Atlas, published by the Urban Institute in 2004 and authored by Gary Gates and Jason Ost, provides a superior analysis of the demographics of those who responded to the U.S. Census, specifically gay and lesbian domestic partners.
Gates and Ost also underscore however that the Census itself significantly undercounts same-sex couples and also does not include millions of single gay men and lesbians or gay couples who do not happen to share a common residence. One possible reason for this is because it is still perfectly legal to fire someone just for being gay or lesbian in all but 16 states and the District of Columbia. As a result of this legal discrimination and social stigma, the actual number of people who responded truthfully to the U.S. Census does not reflect the population’s true size.
In addition, by focusing only on same-sex male and female couples, we also seem to lose sight of the bisexuals among us - adults who also have strong though not exclusively same-sex attraction and identity and who sometimes enter into same-sex relationships as well but not consistently. For the purposes of our analysis, we intend to include gays and lesbians, as well as bisexuals whose current or most recent partner is an individual of the same sex.
Finally, for the purposes of our market analysis, we have decided not to include transgender adults for two logical reasons. First, transgender people may be either heterosexual or homosexual in their orientation, and therefore do not necessarily have same-sex relationships or attractions. Second and more significantly, however, their true number in the population has been very difficult to gauge given the scarcity of credible data. Until we have better data (namely enough individuals who self-identify as transgender), we will assume their numbers are likely to be as few as one-tenth of 1 percent of the adult population, and therefore, not likely to impact the overall analysis. This is a specialized topic that truly deserves greater investigation and knowledge.
Social scientists, demographers, economists and market researchers have estimated the likely dimensions of the gay, lesbian and bisexual population to be between 4 percent and 10 percent of American adults. In addition, in a nation with nearly 300 million people, the U.S. Census Bureau in 2004 estimated 220 million are adults over the age of 18.
Therefore, the most reliable guesses of the population may be as low as nine million or as high as 22 million gay, lesbian and bisexual adults. Again, this estimated range includes only adults over the age of 18. Sociologists quickly point out that the age of “coming out” and self-awareness about sexual orientation today seems to emerge at an even earlier age, possibly as young as 13 or 14. For our analysis, however, and considering the role of adult consumers, we conservatively prefer the age of 18 as the marker.
For the past five years, we have studied numerous online samples of adults while conducting gay consumer research with our polling partner, Rochester, N.Y.-based Harris Interactive. In nearly 50 such online samples conducted by Harris Interactive over those years, we were struck by the fact that the percentage of individuals who freely self-identify online as gay, lesbian, bisexual or transgender has almost always ranged between 6.5 and 7 percent of each sample. Because of stigma and fears of self-disclosure among many gays and lesbians, even these percentages may be considered conservative - however we are comfortable using 6.7 percent as a reasonable benchmark for the gay adult population today.
With 6.7 percent of adults conservatively self-identified as gay, lesbian or bisexual, that also suggests that the population may be as high as 15 million - or roughly at the median point between the lowest estimate of nine million (4 percent) and the highest estimate of 22 million (10 percent). In addition, by 2009, based on current U.S. population growth (and increased number of individuals who come out as gay, lesbian or bisexual) the size of the gay population may grow to as high as 16.4 million adults.
What is buying power anyway?
If the size of America’s gay population itself seems elusive, then the concept of buying power itself also seems often misunderstood or poorly described. According to economists, simply put, buying power is another term for disposable personal income, which is defined as the total after-tax income available to an individual to spend on personal consumption, personal interest payments and savings.
Buying power therefore is simply that - the amount of money we have left over after taxes - to spend on goods and services, and to save and to pay interest on our debts (such as our home mortgages and automobiles, to name two.) Some of us may think of this simply as our take-home pay. On average nationally, roughly 85-86 percent of an individual’s total earnings may be considered disposable personal income or personal buying power.
In the 2004 edition of The U.S. Gay & Lesbian Market (published by marketresearch.com) report that we co-authored with Bob Brown and Ruth Washton, when analyzing gay buying power, we chose to apply a reliable methodology that is consistent with the approach taken by the Selig Center for Economic Growth at the University of Georgia in calculating the purchasing power of other consumer segments such as Hispanics and African-Americans.
This approach uses national aggregate disposable income data that are compiled by the Bureau of Economic Analysis (BEA) of the U.S. Department of Commerce and provide the most comprehensive picture of overall purchasing power in the United States. Gay and lesbian purchasing power is appropriately calculated by allocating a proportion of aggregate disposable personal income to the gay and lesbian consumer segment.
Gay buying power today totals $610 billion and could reach $641 billion in 2006. We estimate America’s gay, lesbian and bisexual buying power on the basis of the following assumptions:
- According to the latest available data from the BEA, aggregate disposable personal income for the United States was projected to total $9.1 trillion in 2005.
- Based upon the allocation of personal income across age groups shown in U.S. Census Bureau data, we also estimate that virtually this entire total (99.77 percent) is attributable to the population 18 years old and over.
- The gay and lesbian population is assumed to account for 6.7 percent of aggregate disposable personal income in the population 18 years old and over, a proportion consistent with the percentage of gay men, lesbians and bisexuals in the population as a whole.
- Thus, the buying power of gay men and lesbians totaled an estimated $610 billion in 2005 (.067 X $9.1 trillion).
The fundamental assumption behind this estimate of gay buying power is that the gay and lesbian population essentially mirrors the adult population as a whole in terms of income generation.
However, the following factors suggest that these estimates of gay and lesbian purchasing power can be viewed as conservative, especially when applied to gay and lesbian household purchasing power.
As the U.S. Census 2000 confirms, gay couples are more likely to live in urban areas than rural areas and small towns, while gay couples living in major metropolitan areas are more likely to be white than the population as a whole in these areas. Both of these demographic characteristics generally are associated with higher average incomes.
The 2000 Census data also confirms that gay couples are less likely than married heterosexual couples to have children, and they are more likely to have both partners in the workforce. (The Census shows that 57 percent of same-sex couples have both partners working, while this is true of only 48 percent of heterosexual, married couples). These factors result in higher per capita household income, especially in the case of gay male couples.
Census data also characterizes the median household income of same-sex couples as somewhat higher than that of married couples ($60,000 vs. $57,900). However, because same-sex couples are less likely to be raising children, the per capita income of households of same-sex couples is significantly higher (21.9 percent) than that of married couples ($32,656 vs. $26,784).
The table contains buying power projections and population estimates between 2005 and 2009, and is modified and excerpted from our projections contained in The U.S. Gay and Lesbian Market 2004.
Caveats about buying power
Understanding buying power is indisputably useful for economists, business executives and public policy analysts, and for those of us who wish to calculate market potential and emerging market opportunities. With $610 billion in estimated buying power for gays, lesbians and bisexuals, it is no surprise that many Fortune 500 companies are investing more each year to tap this profitable potential.
Comparisons are invariably made, however, among different population groups to calibrate where each one stands against another. Is African-American buying power the most dynamic? Do Asian-American households have more clout per capita than Hispanic households? How do gays and lesbians stack up with the buying power of other population groups?
Before weighing this question, a warning flag must pop up. Certainly there are reliable estimates of buying power for each ethnic or minority population in the nation, according to analyses performed by the University of Georgia’s Selig Center. For instance, with a population of 38 million people, African-Americans are estimated to have a combined $760 billion buying power. For 42 million Hispanics, their buying power totals $735 billion.
Keep in mind, however, that the buying power calculations for gay Americans are based only on adults over the age of 18, while ethnic and racial buying power calculations include all members of all ages within each target household. It stands to reason we can generally identify a person’s ethnicity or racial composition at birth, while sexual orientation is a naturally occurring characteristic that only becomes apparent later in adult life.
It should also be obvious that gays, lesbians and bisexuals come from all walks of life, all ethnicities and all races. In short, the projected buying power for gay adults includes individuals who will be part of buying power projections for other groups as well - including African-Americans, Hispanics and Asian-Americans. It is then difficult to accurately compare gay buying power with that of other populations without mischaracterizing the relative strengths of each.
Buying power as a valuable tool
Buying power matters. Knowing how to identify, measure and apply it can be a valuable tool that reveals the full measure of economic contributions made by all Americans. Gay, lesbian, bisexual and transgender people have long participated in the U.S. economy as taxpayers, workers, investors, philanthropists, parents, patients and consumers. Their earnings, investments, savings and contributions present a strong barometer of economic vitality. With $610 billion in buying power as the current benchmark and growing to $641 billion in 2006, gay Americans will continue to be important players in the future of America’s commercial potential and economic growth.