Hourglass Marketing

If America is truly being economically polarized, what are America’s purveyors of petulant products doing to cater to a society with an exploding lower class, a cash-swelling upper class and a dwindling middle class? Yup, you guessed it from the title… pushing products down for lower level buyers and lifting specialty upscale products while cutting back products that were once staples to middle class buyers. The September 12^th Wall Street Journal looks at Procter & Gamble’s new hourglass marketing strategy: “For generations, Procter & Gamble Co.'s growth strategy was focused on developing household staples for the vast American middle class.

“Now, P&G executives say many of its former middle-market shoppers are trading down to lower-priced goods—widening the pools of have and have-not consumers at the expense of the middle... That's forced P&G, which estimates it has at least one product in 98% of American households, to fundamentally change the way it develops and sells its goods. For the first time in 38 years, for example, the company launched a new dish soap in the U.S. at a bargain price.” Indeed, the Journal stresses how this is a “fundamental change” in the American economy, pushing products up and down, but definitely out of the middle. P&G’s CEO Robert McDonald explains: “We're going to do this both by tiering up in terms of value as well as tiering down our portfolio down.”

Indeed this polarized produce placement prerogative is possessing other purveyors as well. “P&G isn't the only company coming to the same conclusion: Heinz is following a similar strategy to P&G while Saks is focusing its attention more on high-end consumer vs. ‘aspirational’ shoppers… Meanwhile, Citigroup has created an index of 25 stocks designed to profit on this hourglass theme, including Estee Lauder and Saks as the top and Family Dollar Stores and its ilk at the bottom.” Finance.Yahoo.com, September 13^th.

But why do we think that the United States, the bastion of the most successful middle class on earth (right?), is losing its middle, mostly to the bottom (in terms of population) and to the top (mostly in terms of wealth)? The prestigious Stanford University’s Center for the Study of Poverty and Inequality notes the following facts in a September report based on US government statistics (most from the recent Census):

Income inequality is extreme and increasing: The top 1% of Americans control nearly a quarter of all the country's income, the highest share controlled by the top 1% since 1928.

The U.S. is exceptionally unequal: The U.S. ranks #3 among all the advanced economies in the amount of income inequality.

The poverty rate is high: The U.S. poverty rate, according to the new Supplemental Poverty Measure, is estimated at 15.7 percent. The official poverty rate stands at 15.1 percent. The United States Department of Agriculture estimates that 14.5 percent of all households were "food insecure" in 2010 (which means that at least some household members didn't have access to enough food for an "active, healthy life").

The unemployment rate is high: The U.S. unemployment rate for August is 9.1 percent. The employment-to-population ratio, which was 58.2 percent in August, is over 5 percentage points lower than just five years ago.

Look at this chart from the study:

Wealth Inequality

The ownership of wealth among households in the U.S. became somewhat more concentrated since the 1980s. The top 10% of households controlled 68.2 percent of the total wealth in 1983 and 73.1% of the total wealth in 2007.

Concentration of wealth in the U.S. between 1983 and 2007

Source: Source: Edward N. Wolff, 2010. “Recent Trends in Household Wealth in the United States: Rising Debt and the Middle-Class Squeeze – An Update to 2007.” Levy Economics Institute Working Paper No. 589. Annandale-on-Hudson, NY: Levy Economics Institute.

And the recession, post-2007, has further decimated the middle class by destroying home values, decimating pension plans and eroding job security. Funny how obvious the damage is and how few politicians have the slightest idea about what to do about it. For me, one-note-Peter, I guess cutting educational budgets so that workers no longer have the skills to be in the middle class or compete with those in the rising nations where education is the new priority, seems even more stupid if preserving our way of life has any really value anymore.

I’m Peter Dekom, and I bet you were wondering how I was going to squeeze education into this blog!