As more Americans fall out of the middle class, companies are reconsidering their target markets.
Beginning in 2008, Procter & Gamble started losing market share to its lower-priced competitors (e.g., P&G’s moderately-priced Tide detergent experienced a rare drop in sales), so by May 2009, the company took a new approach, reports the Wall Street Journal, which it’s now implementing on a larger scale.
“It’s required us to think differently about our product portfolio and how to please the high-end and lower-end markets,” Melanie Healey, group president of P&G’s North America business, told the WSJ. “That’s frankly where a lot of the growth is happening.”
In fact, the Journal reports that a “wide swath” of American companies are now re-strategising:
They have begun to alter the way they research, develop and market their products. … Food giant H.J. Heinz Co., for example, is developing more products at lower price ranges. Luxury retailer Saks Inc. is bolstering its high-end apparel and accessories because its wealthiest customers — not those drawn to entry-level items — are driving the chain’s growth.
Citigroup calls the phenomenon the “Consumer Hourglass Theory” and since 2009 has urged investors to focus on companies best positioned to cater to the highest-income and lowest-income consumers. It created an index of 25 companies, including Estée Lauder Cos. and Saks at the top of the hourglass and Family Dollar Stores Inc. and Kellogg Co. at the bottom. The index posted a 56.5% return for investors from its inception on Dec. 10, 2009, through Sept. 1, 2011. Over the same period, the Dow Jones Industrial Average returned 11%.
Luxury goods companies like Tiffany’s have continued to fare well, as have discount chains like Dollar General. With its new strategy, P&G will reach customers who shop at both stores.
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