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Sunday, May 18, 2008

The Middle is Gone

Hourglass originally uploaded by the other Martin Taylor.
The middle is gone, from a multitude of perspectives.

It's grim in Europe where households are squeezed like never before as this 5/1/2008 article titled "For Europe’s Middle-Class, Stagnant Wages Stunt Lifestyle" by Carter Dougherty and Katrin Bennhold describes. Imagine not being able to afford a baguette!

Not that it's limited to Europe. The American Dream also seems under attack as we try to figure out how to adjust to mortgage crises, rising gasoline prices, inefficient cars, increasing food costs and a future of significant national debt.

Although grim, it's also fascinating as we discover new ways of doing things. My friend Cathy's son - who's just learning to drive - realized with shock that paying to refill the gas tank makes riding the bus not only cool, but also really smart!

How are businesses reacting?

Some have opted for Trading Up, others for the Treasure Hunt concept. The reason according to author Michael J. Silverstein - from a Knowledge [at] Wharton article titled "Death in the Middle: Why Consumers Seek Value at the Top and Bottom of Markets - is as follows: "In the U.S. and around the world, the consumer markets are bifurcating into two fast-growing pools of spending. ... At the high end, consumers are trading up, paying a premium for high-quality, emotionally rich, high-margin products and services. At the low end, consumers are relentlessly trading down, spending as little as possible to buy basic, low-cost goods and services."

Silverstein first wrote about these trends in 2002. They seem ever more true today as we observe the marketplace being turned upside down.

Says Silverstein: "Markets were bifurcating, which meant that the top and bottom were growing and the middle was in horrible decline -- and that is creating quite a few casualties." Hence the transformation of the traditional marketplace pyramid into an hourglass. The middle is on its way to being gone. In some cases, the middle is gone!

Although grim, it's also exciting as consumers decide where to find value. "It is about consumers living a rich, balanced life, being careful with their money, and buying a handful of products where they trade up and others where they trade down. It's about consumers comparing, contrasting, experimenting and bargaining. It's about relentless behavior that is primarily female. It's about the female head of household operating in many situations like a purchasing agent, separating truth from charade, and marketing claims from real benefits. It is a powerful force in the global economy, creating both opportunity and threat."

Even more true today. According to the Wall Street Journal, Luxury Retailers Pin Hopes on Outlets [reg. req'd]. The New York Times says that Discounters Fared Well in Quarter.

Patrick Hanlon [see Creation Stories] says companies have two choices: to be the "low-cost provider (which almost no American company can achieve faced with foreign competition) or they can create sustained differentiation by surrounding themselves with a community of enthusiasts who flock to the brand and stick to it no matter what."

For those still in the middle [perhaps many flooring stores?], you, too, have two choices. "If you're in the middle market, you have to understand that you fundamentally can't do both things. You have to decide who you are and whom you serve. It's very much the Warren Buffet model of running a company, which is to delay or reduce spending and focus in on delivery of a very successful pricing formula. ... The other way is to turn up the heat on innovation and to think about the emotional characteristics of consumer needs and to give them goods that they can crave, goods that will allow them to celebrate their lives and celebrate their successes," says Silverstein.

Applying that thinking to today's retail experience, consider Jon Trivers' recent Retail Notebook article in Vol. 3, No. 9 of FCW Prime in which he talks about this very subject. "First off" he says, "the low end is not necessarily low-end products. For our industry, it is those who sell just product and do not offer any installation.... In 10 years, these product-only retailers have grown by 800 storefronts or 13.8 percent... [when] full-service floor covering stores have decreased by about the same percentage."

Trivers makes a critical distinction. We aren't necessarily talking about 'cheap,' but rather about value to the consumer. It brings to mind Innovating with Experience Co-Creation for Blue Oceans and Innovating with Blue Ocean Strategy and Experience Co-Creation. This "low end" of the market, where treasure hunting occurs, is where innovation is taking place, redefining what is luxury and what is not. Think Coach handbags, Starbucks coffee, Apple iPod, even Target and IKEA....

Here's another aspect of the retail experience where the middle is gone: customer service. As Kizer & Bender describe in You cannot afford to be lukewarm!, "Lukewarm doesn’t cut it anywhere. People are happy when service providers are nice to them but we all desire over-the-top, white hot service." This matters particularly if you cater to the high-end of the market, but it also matters at the low end. And, if you can't provide me with competent service, then you had better have a top-of-the-line automated checkout system in place!

Isn't lukewarm comparable to indifference which drives customer defection --by 68%...?

Or, what about a store's product assortment? No longer can you you offer only 'safe' middle-of-the-road products [reminds me of walking into a department store several years back wanting to buy, only to find a sea of relentless beige clothing items. Nothing stood out. Everything mumbled 'boring.' I immediately walked out.]. You must take a stand with your products.

Risky? Yes. Necessary? Yes! And, even riskier not to!

Products must be differentiated. Use your expertise to edit and focus only on The Best of The Best, with a selection of remarkable, solid-performing, unusual and stylish products. Be sure to have a solid reason for including every product, and don't have 50,000 versions of that same product to confuse matters and signal that you're still in the middle.

Same goes for your retail experience. Figure out what makes you different in your market and focus on that [see Banish the Hard Sell - Focus on Value, Not Price!]. Middle of the road stores, and products, bore. They don't compel purchases, they don't engage emotions.

'The middle is gone' even came up during BlogHer Business 2008 when the Budget Fashionista, Kathryn Finney, spoke. Her mission, since 2003, has been about making readers' lives easier/better by providing expert fashion advice and trends for real women. In retail, she says there's luxury and there's budget. And nothing in the middle.

The middle is gone. If you don't believe me, you'll be gone, too.

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