FBlog

In the recent US Census survey the amount of households with incomes of between $35,000 and $75,000 has fallen to 31.6% of the US population (from the figure of 42.2% recorded in 1967 when the data was first collected and established).  Citigroup coined the term the ‘hourglass’ theory about the middle class when they created an index of 25 companies to track their performance and to establish a ‘leading indicator’ for economic performance. What has emerged is the reported polarization of these companies and their respective target consumer segments into two distinct groups: ‘The top’  – companies and brands appealing to the high-end and higher income consumer and the ‘The bottom’  – those that appeal to the low-end, mass market and lower income consumer. As recently covered in the London Times, 16 September 2011 – this presents a challenge for the long held belief that brand success comes by targeting the increasingly growing and affluent ‘middle classes’, and positioning for ‘multiple entry points’ in a branded portfolio.

Premium Brands ‘pay off’ – the growth at the ‘top’ of the hourglass in the US reflects companies and brands, which cater to the more affluent and discerning consumer base. In many cases, this is the DINK (Double income no kids) or the Empty Nester/Senior Surfers (Married and/or retired Home owners with both money and time). For these audiences, premium goods and retail experiences are key lifestyle purchases. Witness on the Citigroup index the high-returns posted and performance of brands such as Whole Foods, Tiffany, Williams-Sonoma, Estee Lauder and Richemont Group. This also coincides with an increase in disposable income for higher end travel and therefore demand for premium cruise holidays, Spa-hotels and services as well as luxury automobiles.

Discount and Value Brands ‘take up the slack’ – and, as the disparity of incomes reflect the declining ‘middle class’, so we see consumers ‘trading down’ or ‘trade-off shopping’. This translates into more careful shopping patterns and brand choices – the growth of stores such as Family Dollar, ConAgra Foods, Zara, Home Depot, Walmart/Sam’s Club and brands such as Ford, Amazon, and McDonald’s. The ‘squeezed’ middle classes now are investing more time and effort into shopping on-line for bargains, they buy bulk and are cautious about making too many big expenditures. In fact, tighter spending has meant a shift in marketing to emphasize and reward deals, BOGOF’s, price comparisons and volume discounting. Many families and individual’s are more cautious about spending their money with such an uncertain economic future.

Who loses? The companies and brands that are in the middle and are neither ‘up market’ or ‘down-market’. The likes of Walgreen’s, JC Penney, Safeway, Rite Aid and Urban Outfitters are the ‘losers’ on Citigroup’s index. But, one only has to look at the slowing of Starbuck’s momentum and increasing decline of premium restaurants, indulgent new food products and high-end jewelry/perfume and clothing sales to understand the new brand austerity. So what does this mean for brands? It means that until economic growth and job security begins to recover in the US brand owners and retailers have to work that much harder to position their ‘offer’ around core value propositions. Marketing ‘emotion’ and ‘aspiration’ is no longer going to do the trick. In fact, with a much more discerning and cautious consumer marketplace – the real winners are those that offer either ‘more for less’ or ‘less for more’. To reflect the hourglass, any brand or offer that is positioned in the middle or across all points on the economic scale will fail. Brands and the product/service offer must be clearly differentiated and distinct, and their value proposition in a portfolio must be clear. Failure to ‘position’ to both the rational and emotional within the context of economic austerity is a recipe for failure. As companies with multi-brand portfolios begin to adjust their portfolio’s they would be wise to consider less a ‘life cycle’ model for recruitment and retention of consumers and define an ‘access and affordability’ strategy by segment and pricing.

In the UK, the most recent Sainsbury’s ‘Live well for less’ campaign and re-designed web site clearly shows how Sainsbury’s is positioning for the bottom end of the market. Likewise, Marks and Spencer who has traditionally been a premium-end of the market retailer is now promoting more ‘deals and value’ offers whilst preserving their reputation for quality. Their ‘Dine in for £10’ offers position their food offer on par with restaurant meals away from either a ‘basics’ or a ‘premium’ position. As the UK mirrors the US in terms of a shrinking economy and yet demanding consumer brand-led marketplace, we increasingly will see brands re-positioning themselves to reflect the changing economic times and competition.

Brand Strategy is has only one objective, to clearly communicate a sustainable competitive advantage in which the product or service ‘offer’ is successfully communicated to its target audiences. To this end, when the target audience needs change, as in when economics begin to shift their economic spending power, Brands must respond. A Brand positioning must be salient and relevant to consumers’ lives; it must relate to the Brand’s core and real brand strength (not just the marketing image or messages) and it must be backed up by a competitive advantage and capability. In the 90’s and 00’s – many brands responded to the period of economic growth by expanding and extending their portfolios. Now that economics have shifted consumer behavior, many of these Brands find they are under pressure as they are struggling to re-define their value proposition (both in terms of infrastructure and capabilities as well as consumer marketing messages!).

As the ‘hour glass’ defines the market needs, Brands have to be clear about where and how their future success will be achieved. Look out for more tailor-made Brands for the lower end of the marketplace. Note the movement either ‘up’ or ‘down’ for many of the Brands which formerly spanned multi-price points. And, finally – for those brands which fail to position effectively or align  their value proposition and offer to capabilities and competitive ability you can expect them to disappear.