Wednesday, March 25, 2009

What happened to the Mid Market?

Has the market become commoditized or polarized and what’s the cause?

Since the post war boom business school professors, marketers and business leaders operated under the belief that there were three distinct consumer segments in the US market. The Luxury segment that accounted for five to ten percent of the market, the mid or mass market that accounted for sixty to seventy percent and the low end or commodity segment which accounted for twenty to thirty percent of the market. The classic bell shaped curve.

Has the classic model and curve been turned upside down, flattened or shifted to the bottom? Have marketers and businesses adjusted or have they been so focused on the daily grind of running a business that they have not even noticed the shift?

It is clear to me that the middle market has shifted over the last ten years and is certain to deteriorate further during the current economic down turn. The critical question is why did this happen and do businesses leaders recognize the changes and are they prepared to adjust?

There are at least three contributing factors that either caused the shift or are the result of the shift or maybe both.

The retailing landscape was forever changed by Wal-Mart. Is the Wal-Martization of America a reflection of a societal shift or did it cause the shift? Why did so many department stores fail? The market is littered with a long list of department stores that have failed or have been absorbed by a few remaining department stores that are struggling to survive. This phenomenon is not exclusive to the general merchandise categories but virtually every consumer goods category. Hardware and appliances are dominated by Home Depot and Lowes and electronics by Best Buy to mention a few. Drugs and groceries by a few chains, yes Wal-Mart is in these businesses also.

Why is the bastion of middle America the “Mall” dying? Is it Wal-Mart or is the middle/mass market that drove the success of these venues in the sixties, seventies and eighties gone? Does the death of the department store that anchors the mall make this high overhead venue and business model unsustainable?

What impact has the internet had on the mass market? It has evolved from an electronic library to communication tool to electronic catalogs and who knows what’s next all within the last ten years. The internet changes dramatically how businesses reach consumers with both information and the purchase process. The internet drives prices down as a result of the low overhead and cost to set up a business as compared to the investment required for a brick and mortar store or paper catalog. Marketing/advertising is a fraction of the cost because search engines, social networking sites, etc do the marketing for free or a fraction of the cost.

Where did all the respected everyman brands go? The failure of the US auto industry has many causes but certainly has contributor to the shifting market segments in America. Not that many years ago the average American dreamed of a new Chevrolet, Buick, Oldsmobile or Dodge. They also dreamed of a new RCA or Zenith in the living room. Didn’t every home and sports team have a closet full of Wilson and Spaulding products just a few years ago? What caused these once great middle market brands to fail? Was it Wal-Mart, is society changing or is this simply capitalism at work…the strong and smart survive?

The demise of manufacturing in America has been reported for two decades. The media and union whipping boy is China and when the capitalism Jeanie got out of the bottle there was no chance of getting it back in. China has clearly changed the world forever but the idea that it’s simply cheap labor is missing the bigger point. There is no arguing that the Chinese work for less than Americans and Europeans do but it’s no different than what our grand parents worked for in the 30’s and 40’s. Their emergence into capitalism is just sixty years behind the western world. That does however translates into a competitive advantage on a number of fronts and cheap labor is simply a small part of it. If it was only cheap labor there are lots of other places you could get that. Several points that the media never discusses are the low investment cost today because of the advances in technology. The cellular revolution means no telephone polls in China as an example. Politics of course plays a role because China is a proud country and focuses as a culture on the big picture, the future not today or next year. Yes they manipulate their currency but they also make “investments” in infrastructure and advancing their society through subsidized raw materials, land and equipment. To them it's an investment in the future to Westerners its unfair competition, you can be the judge but you can’t change it! The other point that I rarely hear discussed is the work ethic and the human pursuit of a better life that is very much a part of our culture and society but it often seems that the media doesn’t believe the “foreigners” are entitled. This is a large part of their success as a people much like it was for us a generation or two ago.

Did all of the above change the American consumer so quickly that we didn’t even notice? The pace of change today is so much faster than it was just a decade ago. Businesses coming and going, brands coming and going is almost invisible or entertaining to the American consumer. It’s all about new and having something first or having something someone else does not. This “I have one and you don’t” attitude used to be an affluent consumer attitude that only money could provide. Now low cost manufacturing, China, low cost distribution, Wal-Mart and the Internet have both created an environment where everything is available to everyone and someone is always willing to sell it to you for less. Brand and product managers used to discuss positioning, distribution strategy and pricing strategy. Now brand managers talk about volume and margins this month not this year. So maybe America is the mass market we all learned about in school it just isn’t middle any more…is everything a commodity except the very high end?

So it’s the proverbial chicken or the egg question? Who is to blame for the commoditization of America? The consumer, China, Wal-Mart, technology our government or is it a natural evolution? It may not matter but business leaders and marketers better pay attention because more change and turmoil is on the way.

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