America’s Great Divide / What Does the Shrinking Middle Class Mean for Market Research?
The articles/story lines about the length of the recession, the potential for far greater economic retreatment keep pouring in. But I tend to look at economists as fiction writers, they’re all capable of telling a compelling story, but they don’t seem to have any better handle on reality than you or I.
As a researcher, I’m comfortable with facts and in trying to make sense of the facts that I know. And one fact struck me to the core this week. That was the news that P&G was basically giving up on the middle class. OK, that’s a gross exaggeration (perhaps I am a latent economist?) but after 60 years of catering to the sweet middle, the gen pop center of the US population, P&G is “now betting that the squeeze on Middle America will be long lasting.”
As a result, P&G is now subscribing to “The Consumer Hourglass Theory.” This phrase was coined by Citigroup and it describes a two tier buying public. In fact, Citigroup has created an index of 25 companies that are best positioned to cater to the highest-income and lowest income consumers. Such firms have posted a 56.5% return for investors over the past two years [Dec. 2009-Sept 1, 2011] whereas the Dow only showed a return of 11% over the same period.
Further evidence of a growing inequity in consumer spending can be seen in the Gini Index, a measure of income inequality that ranges from zero when everyone earns the same amount, to one when all incomes goes to only one person. The last calculation of the US Gini index produced a coefficient of 0.468. The US now has a Gini index similar to Mexico and the Philippines. None of this has been lost on P&G, which has accelerated its efforts to target the newly divided American marketplace.
When I started out in MR (back in the day) working for NFO, it was all about achieving a nationally representative sample. Heck, ever since World War II ended, it’s always been about reaching Middle America. But Middle America is under attack, with as many as one out of three Americans raised in the middle class is now slipping into poverty. And those remaining are shell shocked. No longer do they purchase from an aspirational, times will only get better attitude. How many family/friends do you know who are now buying their staples at Dollar Stores? More and more this reminds me of the mindset that my parents and grandparents had forged upon them by The Great Depression.
So finally, what does this mean to our industry? If there is no middle, only a bipolar distribution, why bother with gen pop samples anymore. Aren’t they now meaningless in our niche driven society?
As a cottage industry, MR has historically been slow to change. In a way, we’re like the Ents (talking trees) in The Lord of the Rings movies, but once the Ents begin to march they are a force to be reckoned with.
If everything we’re meant to support is changing, then how will that impact the way our industry operates or the tools we bring to the battle? To be honest, I’m not sure. In theory, you could just continue to use the same tools we always have and simply modulate the sample to reflect the new target. But with the land under our feet literally changing, it seems clear we need to account for not only where the consumer stands today but where they will be tomorrow.
It would be fascinating to develop an index of American’s self image. Something that goes beyond the Consumer Confidence Index and one based on household self image. If we understand the underlying mindset, then we can accurately predict consumer spending (e.g. A married mother of two with a household income of $75k who views the country mired in paralysis and her job security as tenuous will likely reflect the buying habits of a low income household).
All of this points to the need for MR to focus more on the “why’s” that are found in the underlying nuances than the “what’s” that might be gleaned from an attitude grid.
To predict the future of a new product/service, we need to understand the significance of the disappearing middle class. The middle class may be shrinking more slowly in terms of sheer numbers, but the rate of departure is far greater when you look at mindset. Or just go to your local Dollar Store, take a look at all those pricey SUV’s in the parking lot and you’ll see what I mean.