Marketing in 2012: The End of the Middle – Article Example
Article Analysis EXECUTIVE SUMMARY The US is in grip of recession since late 2007 and that is still not over. The recession has changed the US market completely; the market has now transformed into two segments – one that caters to the higher-end consumers with incomes $100,000 and upwards and the other one that lingers below this threshold. Consequent to this, the US Consumer Confidence Index that measures the degree of optimism has been falling perennially – from 41 percent observed in September 2009 to 23 percent in October 2011. Not only the median family income is on decline but also their net worth has eroded significantly during the period. As a result, the middle market has contracted raising income inequality among the citizens. Economic recovery in 2012 has been noticed for the upper class with no change for the middle and lower classes. Income levels for the latter are not improving at all. The proof of it can be gauged from the retailers approach to the strata of varied consumers. Consumers are on the constant lookout for the lower-cost options. That is why the companies such as Proctor and Gamble, Coca-Cola have introduced smaller sizes packing to make them more affordable for a class of consumers. Many more companies, for instance, H.J. Heinz and fashion retailer Missonis new line of products catering to the middle- or lower-end market has been extremely successful. Consumers constantly search for lower-price quality products and perhaps, that could be the reason why discounts retailers such as Dollar General and Family Dollar are a great success as is evident from their higher earnings in 2011. The middle-class consumers willing to spend on high-end products are now missing. In the coming years, the average-priced product targeting a middle class will not be a lucrative proposition. Marketers will have to either offer the most lucrative price to consumers or will have to convince them to spend the higher price for a higher value attached to their products.
Birkner (2012) argues that a significant change has been noticed in the US consumer behavior after 2007 recession. The US middle class has been a prominent consumer of the premium brand products without bothering much about its prices at least until 2007; however, that is not true now in the changed economic scenario.
The US unemployment rate as revealed by the US Bureau of Labor Statistics is still ruling high at around 8 percent and above. Higher unemployment rate means lower demand of the goods and services affecting most businesses. Recessionary economic climate has not allowed the real wages of the large proportion of the workforce to rise except a few in high-tech fields. While real wages of the workers do not rise, the prices of the goods and services keep on rising.
With the limited monthly income at their disposal and rising prices, the middle class buying behavior has taken a sea-change focusing on the lower-priced goods unless the product offers significantly high value for its higher price. In other words, prices of the products have been extremely important to consumers. The changed consumer behavior has resulted into different marketing strategies by large reputed marketers such as Proctor and Gamble and Coca Cola. Smart marketers always want to formulate their marketing strategies keeping 4 Ps in central so that they do not lose their market share in their niche areas; product pricing is one of them. In difficult times, when consumers cannot afford large packing size due to their limited buying power, it makes sense to reduce packing size of the products so as to make them affordable and that is precisely what the companies such as Coca Cola or Proctor and Gamble are found to be doing. Consumers want their trusted brands but at the same time do not want to spend more for their needs. H.J. Heinz too decided to introduce smaller-sized packing of its products essentially to lure low-income consumers.
It is important to note that those who are catering to the higher-income consumers such as Neiman Marcus Inc. or Tiffany are not affected as they continue to deliver somewhat improved workings quarter after quarter; however, it is pertinent to note that Neiman, in the wake of the recession, have changed their ways of doing business. Previously Neiman used to accept only their own and American Express credit cards; however now they show no inhibition in accepting Visa and MasterCard. This goes in line with the basic marketing tenet that says, “Offer only that market needs”.
Middle-market retailer such as Gap Inc. has not been doing well because the company fails to make appropriate marketing strategy in line with the changed scenario. Gaps third quarter 2011 earnings declined by 36 percent and had to shut over 20 percent of its stores in the country. Sears and J.C. Penneys sales too declined in the third quarter of 2011. When luxury brands such as Missoni, known for its unique and distinct style, targets middle or lower-class consumers with modified price structure, it gets enormous success in selling its products. This simply means that companies need to target either the low-cost segment or cater to premium segment; there is no middle path now. Simply, offering products having priced in between is not going to help because middle class people do not find any value attached to the average price offerings.
The market currently holds two segments: one is for price-conscious consumers and the other one is for those who want to offer exclusiveness in their products with discernible value offerings at higher price. Marketers need to modify their pricing strategy according to the segment they want to cater but the fact remains that low-cost or affordable price market is now huge across most product lines and appropriate product positioning in one of the market segment is necessary for survival and growth.
Birkner, C. (2012). Marketing in 2012: The End of the Middle? Marketing News. American
Marketing Association. 22-23.