How companies can win both the low-end and high-end consumer

It’s not just for the coasts now.
It’s not just for the coasts now.
Image: AP Photo/Reed Saxon
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When it comes to the consumption of just about anything in America today, the mass market is splintering.  It used to be that you could make the same TV shows, with the same ads, pushing the same products, and still attract a mass audience.  Just as the middle-of-the-road market for entertainment has splintered, so too have consumer markets in what many have dubbed the “hourglass” economy.  The phrase refers to the effects of rising income inequality,  in which the economy consists of a group of well-off consumers whose share of the national profits have been steadily rising, and a group of poorer customers, clinging on to a shrinking share of what is left.  It’s real—a Stanford study found that the percentage of American families living in middle-class neighborhoods fell from 65% in 1970 to 44% in 2009, and that split is accelerating.

If you are a retailer or a fast-moving packaged goods manufacturer or even a home-builder, you can’t ignore or wish away the presence of the hourglass. Instead of producing a one-size-fits all offer and hoping for mass market take-up, smart competitors are instead going to focus on tailoring what they do to the needs of the different segments. To win, you need to dig deeply into the specific behaviors that motivate customer groups.

At the low end, is price really all that motivates a buyer? If that’s what you think, you’re highly unlikely to develop a winning strategy. The most salient thing about a customer at the low end is that they don’t have a lot of surplus resources sitting around in inventory and they don’t have a lot of buffers in the event things go wrong.  Many literally live paycheck to paycheck.  They need to manage that reality, even if doesn’t make super-economic sense. (How else can we explain the whole payday-lending industry?)

Smart retailers like dollar stores are winning by figuring this out. One strategy they use might be called the “good things in small packages” approach. If shoppers don’t have the money, you can’t expect them to buy the large, economy size. If the small, wasteful size is all they can manage, that’s all they will buy. Similarly, allowing people to spread their purchases over time has brought us the return of that old standby, the layaway plan. You can’t eat a brand, so don’t expect to get a premium for it. And, if a shopper is just spending little bits of money at a time, they’re apt to visit more often and to be put off by crowds and long lines during those trips. They are also surprisingly willing to trade off tangible goods, like clothing, for intangible experiences that make them feel better, like connecting with others on cell phones.

Walmart recently, in an effort to de-clutter and streamline its stores, dropped a lot of its lowest priced items. They are also coming under criticism for huge lines at the checkout and for scrimping on staff to restock areas like the fresh produce section. These things will discourage the shopper of modest means, which, considering that Walmart’s stock-in-trade has been “everyday low prices,” was a serious mishap.

At the high end, the challenges are different. The first problem is that it is increasingly difficult to promote the lure of exclusivity. Not only are products for the high end remarkably similar to those which the low end can aspire to, but there are so many other high-end customers that the offers are commoditized. High-end customers, too, are driven in their shopping habits by behaviors, but because they have more resources to act on their choices, it can be bewildering to try to navigate through them. Scholars have found, for instance, that more choices often mean less choosing.

For the high end, three complements to the usual offers of “new and improved” can make a difference.  The first is to add a component of virtue to the consumption experience. Those organic cucumbers you bought from Whole Foods or the yoga pants manufactured by firms with whom Lululemon has a “long-lasting and healthy”(from Lululemon’s web site) relationship, make you feel good about yourself, even as you’re spending top dollar. The second is to add an experiential element that differentiates an offer—a great example would be Bolt House Foods ads for baby carrots—“eat ‘em like junk food!” proclaims the company, adding growth to a moribund category that had been in decline. The third approach is to recognize that at the high end, consumers are drowning in choices and to give them an easy path through the confusion. Apple, of course, historically mastered this approach. A store like Nordstrom’s accomplishes a similar effect by having its well-trained salespeople curate the choices that could otherwise be overwhelming.

The point about the hourglass is that customers are not defined solely by their economic circumstances. In the future, advances in technology and manufacturing productivity may make it possible to serve the aspirations and deeper desires of even lower-income customers in much the same way higher-income ones are served today. The results may well be to question assumptions.

Take Maslow’s hierarchy of needs, for instance. We are used to thinking that people will worry about food and shelter before they pay attention to psychic gratification and self-actualization.  Today, we’re seeing that people will trade off spending on more basic needs to connect with one another, for instance, as spending on apparel drops while spending on telecommunications goes up. Smart companies will figure out how to provide those indispensable offerings—at whatever price point.