“Neiman Marcus or Walmart?”

“The rich are getting richer, the poor are getting poorer, and the middle class is basically kaput.”  Those may be political fighting words, but to some companies, they’re the basis of a new business strategy.

Inc.com’s Geoffery James asks “Are You Neiman Marcus or Walmart?” in response to Frito Lay’s announcement of a new business strategy which focuses on the premium end of the snack food marketplace.  In the New York Times, Frito Lay’s president and chief marketing officer recently discussed the company’s new initiative – dedicated premium products made with special ingredients and packaging, and their own distribution and retail network.  At the same time, Frito Lay is ramping up its marketing to what it calls “value” customers, consumers at the lower end of the economic spectrum.

What’s behind this new 1 percent / 99 percent strategy?  Frito Lay’s recognition of the “bifurcation” of wealth that is driving 7% annual growth at the premium end, and 4% growth at the lower end of their marketplace, while the broad middle hardly grows at all.

For a US economy – and its network of global partners – built largely on catering to a huge and thriving North American middle class, Frito Lay’s move raises a red flag.  Although Inc.com’s James may overstate the case when he claims that the middle class is disappearing, recent economic history provides marketing strategists with plenty of evidence of trends in this direction.

1. The heart and soul of the US economy, for most of its history, has been a solid and growing middle class – consumers, workers, small business owners, professionals, et al – enjoying a comfortable and secure lifestyle, with a generally optimistic view of their future.  This secure, complacent slice of the middle class seems to be shrinking, with a few edging toward the thresholds of wealth, while the many face the fear or actuality of falling into the ranks of the poor.

2. Over recent decades, wealth has been rapidly accumulating in a small but growing segment at the top of the economic spectrum.  At the same time, ‘old money’ noblesse oblige and constraints on conspicuous consumption seem to be falling.

3. It’s true that “the poor are always with us” … and these days, more and more people in the US are at least feeling and spending as if they were poor.

This is the fodder for endless political argument, but, quite apart from your political philosophy, there’s plenty for business and marketing strategists to ponder:

> If your success has been built on mass marketing to a large, complacent, and thriving middle class, it’s likely that your customer base will be feeling less prosperous and secure.  Winning strategies will allow them to continue their middle class consumption patterns while, at the same time, rewarding their virtuous urge for frugality .

> Individually, the lower end of the economic spectrum may not have much money, but collectively, they have a lot to spend .  Walmart and other discounters show how to provide low cost goods in a mass market, low frills setting, but the marketplace seems ripe for upgrades in the shopping experience and for innovations in affordable entertainment and leisure sectors.

> More rich people, spending more of their wealth, especially on big-ticket, luxury products and services, offer a seductive and potentially lucrative target.  Just be prepared to provide a continuing stream of the newest bells-and-whistles and customized personal service to a fickle and demanding clientele, shielded from you by layers of intermediaries.

Leave a Reply