New Spending Class Demand Map
Translate rising incomes into second-order investment demand
- Difficulty
- Moderate
- Time to result
- ~weeks to results
- Steps
- 6
- Confidence
- 93%
Kovacevic's new spending class describes consumers who are no longer poor or conventionally emerging but are not wealthy by North American standards. The method starts with sustained salary escalation, then observes how it changes the economic footprint: television, air conditioning, cars, richer diets, housing, and other forms of comfort and convenience. Investors segment the population by factors such as generation, education, and urbanization, then scale those behavioural changes across the size of the group. The final step traces visible consumption back to its less visible requirements, especially energy, materials, food production, transport, and infrastructure. Because these populations can change rapidly, the map must be refreshed in shorter intervals. The framework turns human aspiration into a demand chain rather than assuming that opportunity begins only when consumers reach Western income levels.
Origin
Kovacevic developed the new spending class concept for his book My Electrician Drives a Porsche and explains its investment logic on Masters in Business.
Core principles
- 01People between poverty and Western wealth still create a large economic footprint
- 02Salary escalation changes consumption before consumers become rich
- 03Large demographic groups amplify small per-person changes
- 04Second-order inputs can reveal opportunities behind consumer aspiration
How to run it
- 1
Locate salary escalation
Find a large population whose real earning and spending power has risen materially. Establish the direction and duration of the change.
Pro tip Compare the population with its own past rather than requiring Western income levels.
Watch out Nominal salary growth alone may not represent greater spending power.
- 2
Observe the economic footprint
Track concrete changes in daily consumption, including transport, cooling, media, diet, housing, and convenience. These behaviours reveal demand more clearly than a broad market label.
Pro tip Use multiple ordinary purchases to avoid over-weighting one prestige category.
Watch out Do not equate a larger footprint with the population already being wealthy.
- 3
Segment the population
Break the group down by generation, education, rural-to-urban movement, and expectations. Identify the block with the greatest scale and future impact.
Pro tip Younger, educated, connected cohorts may have materially different expectations from prior generations.
Watch out Country-level averages can conceal the cohort driving the change.
- 4
Scale the behaviour
Multiply modest per-person consumption changes across the demographic group. This exposes demands that can become significant at population scale.
Pro tip Compare the cohort's size with familiar national populations to make scale tangible.
Watch out Avoid treating every member of the cohort as adopting at the same time.
- 5
Trace second-order demand
Map each consumer behaviour to the energy, commodities, logistics, and infrastructure needed to support it. Focus on the inputs that recur across several aspirations.
Pro tip Energy can be a common dependency behind otherwise different consumption categories.
Watch out Do not stop at the consumer-facing brand.
- 6
Refresh the map
Revisit the cohorts and spending patterns frequently when urbanization and expectations are changing quickly. Update the demand chain as the population advances.
Pro tip Kovacevic suggests thinking in roughly two-year rather than five-year blocks for fast-changing China.
Watch out A static emerging-market thesis can become obsolete quickly.
In the wild
Kovacevic points to a very large Chinese millennial cohort with more university education, greater urbanization, internet access, and higher expectations than earlier generations. Their demand for comfort, convenience, communication, transport, and housing creates consequences far beyond consumer products.
→ The cohort becomes a map of future demand for energy, materials, infrastructure, and services.
As incomes rise, Kovacevic notes that consumers eat more deluxe meals. Those meals must be grown and delivered, so a visible lifestyle change produces upstream requirements in agriculture, logistics, and energy.
→ The investor moves from a consumer observation to the enabling supply chain.
Common mistakes
Waiting for Western wealth
Consumers can produce a substantial economic footprint before reaching North American middle-class income levels.
Using one national average
A single average misses differences among generations, regions, education levels, and urbanization.
Ignoring upstream requirements
Consumer spending is only the visible edge; the larger opportunity may lie in the energy, materials, and logistics behind it.
Is it for you?
Best for
It is best for long-horizon thematic investors studying rapidly urbanizing and increasingly affluent populations.
Not ideal for
It is not ideal for precise short-term forecasts or analysis that treats an entire country as one uniform consumer group.
From the transcript
“they're not rich, they're not poor, but we have to follow their spending patterns.”
“they watch television every day, they drive a car, they have air conditioning, they eat deluxe meals, which means those meals need to be grown…”
“It's not even five year blocks. You have to be aware of the hyper aware of this stuff. In sort of two year blocks, it's…”
From the episode
Interview With Gianni Kovacevic: Masters in Business (Audio)
Gianni Kovacevic