The economic crisis has upset the gravy train that once was the "Great Middle" tier, comprised of consumers larded with credit, aspirational to a luxurious lifestyle, and competing to stay one up on the Joneses.
The winners of this consumer "reset" are:
- Companies such as Apple and Hermes who can still convince consumers to pay more for significantly better products.
- Companies such as Vizio and Ikea that sell "good enough" products at very low prices.
- Everyone else, such as GM and Sony, who once fattened their bottom lines on sales to the Great Middle, or what what economics writer James Surowiecki characterizes as "making money by selling moderately good products that are moderately expensive."
Take Vizio, a little-known American electronics manufacturer maker, which suddenly has taken on Sony at the top of the U.S. television market -- only a half percentage point separates their market shares. And in the LCD segment, Vizio says it is numero uno. The kicker: Vizio models sell at 30 percent below Sony.
"The idea that products in themselves provide competitive advantage is on its way out," Harvard Business School professor Ranjay Gulati tells the Economic Times. "While leaders like Sony keep coming out with enhanced models, the low-cost producers hit the market with products that are simply good enough and that's what consumers are moving to."What's going on? I think there are three big drivers, and they are not going away soon.
- Information is Power. The information revolution allows consumers to research products in depth, making them comfortable with the idea of foregoing a Sony for a Vizio, replacing a Chevy Malibu with a Hyundai Sonata. And thanks to social media, peer reviews have become as important as, if not more important than, "expert" opinion.
- Good enough is actually quite good. The cheaper products themselves are becoming higher quality. "A top-of-the-line iPod now features video and four times as much storage as it did six years ago, but costs a hundred and fifty dollars less," Surowiecki notes.
- In uncertain times, certainty sells. On the high end, consumers are still investing in well known brands that deliver consistent quality and provide psychological comfort.
Do you agree that the Big Middle is a fading market? If you were to start a business today, which market tier would you target?
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