The growing disparity in income and wealth distribution among U.S. consumers is having an effect beyond politics and news media, hitting CPG brands squarely in the supermarket shelves. As middle class America, a huge and rather ill-defined demographic, continues to erode into upper and lower tiers, CPG brands are increasingly faced with a bifurcated marketplace and a choice about their role in it. One broad segment of the population aspires to higher quality and will trade up to obtain it. The other broad segment sees little value in paying for anything but the basics. This second dynamic is closely associated with the general attitudes of younger consumers, especially Millennials whose relatively lower incomes are at odds with their appetites for technology – expenditures that can eat into the budget for paper towels or green beans.
CPG brands are thus faced with a conundrum: which group should they prioritize in their brand strategy? Standing still, owning the Big Middle, is not a recipe for success. That’s because in this case the Big Middle is shrinking. Retailers understand this and are managing their categories accordingly. There simply isn’t as compelling a reason anymore to stock so many middle-of-the-road items, when the premium tier can bring a higher dollar ring, and the value tier can drive impressive turns. Smart brand owners are revisiting their portfolios to ensure they are competing at meaningful price points.
SEE ALSO: Warning: Those Millennials Are Bright, Shiny Objects
Price positioning is by no means the only, nor the best, way to segment your brand portfolio. Certainly need-states are critical. The most successful approach may be to combine these two elements, which are often linked anyway. Certain need states will naturally lend themselves to a lower or higher price positioning. The important thing to recognize is that, just like in need-state mapping, white space and growth dynamics are similarly valuable in price positioning.
As the disparity in incomes and discretionary purchasing power widens, brands may need to accept the additional supply chain complexity should they wish to compete effectively in both sub-groups. As retail channels and store banners are similarly redefining or re-establishing their role in the pricing continuum, CPG brands will need to look to unique items, value, and premium sub-tiers, and ultimately strong guardrails of how far their brands can stretch. This added complexity isn’t free, but that may be a good thing – a game changing thing – for CPGs that manage complexity well. Efficient companies with flexible supply chains and the best process and technology will view complexity as a competitive advantage, rather than a hit to the balance sheet. A somewhat Darwinian dynamic will see that the next generation of leaders is comprised of those companies best able to adapt to changing conditions.
SEE ALSO: Don’t Leave Money on the Table
If you manage a brand facing a bifurcated market today, a good place to invest some time is an honest evaluation of the relative strength of your marketing supply chain. Some important considerations include:
- your company’s production bandwidth to accommodate new items
- innovation development time and speed to market
- resource constraints in supporting operations, like routing and approvals
- ability to actively match portfolio inventory with customer demand
- flexibility to quickly replicate winning mixes across international geographies
Improvements in these capabilities may unlock doors that your competitors will struggle to open. This will only gain importance if current marketplace and demographic dynamics continue their current course.
Image: Konrad Winkler