Beginning in 2009 Citigroup “urged investors to focus on companies best positioned to cater to the highest-income and lowest-income consumers.” They felt growth was possible in these areas compared to focusing on the middle-class.

A focus on the middle class for product development and advertising has been an American staple for several decades. However, the current recession has continued to change profit expectations in most industries. Proctor & Gamble (P&G), a mainstay in many middle-class homes, is taking notice. Research has shown that their customers are trading down to lower cost products and P&G is beginning to offer bargain priced options in the United States. What it really means is that P&G is betting customer responses to the current economic situation will persist.

Several U.S. companies are feeling the trend. Target and Walmart are both seeing negative changes in their earnings while Dollar General and other firms catering to low-income customers are experiencing gains. Tiffany & Co. shared their lower-end products, traditionally popular among the middle-class, are currently not selling well while higher-end options are doing better.

A long-standing change in what people buy has implications for how products and services are marketed. Just a couple years ago people were willing to pay a little more for products they felt were better for the environment or connected to certain causes. Will this sentiment continue?

I don’t have a crystal ball, but the following are real possibilities as the U.S. middle-class continues to shrink:

1. More emphasis on innovation at a similar or lower price point. Brands and services will become innovation savvy in order to stand-out in the marketplace.
2. Companies and brands will offer more information and opportunities for customers to feel they are making smart purchasing decisions. It’s a way to build and grow positive relationships until people feel they can afford more. Or at least until postponing a purchase decision is no longer an option.
3. Word of mouth will continue to grow. We all still value what our friends and family say and this won’t change, but sharing about deals and our experiences will continue to grow as we help each other be successful during hard times. Brands that help people do this will be viewed positively.
4. New, cheaper, brands will be introduced. Rather than devaluing the products that people have trusted for years and continuing to lower prices, new options will appear and give people choices. As prediction #3 is implemented and #2 is more available, we will all know exactly how well the lower-cost options work and make informed decisions.
5. Brands will stand out through special opportunities that make the purchasing process easier. Products that are notoriously difficult to purchase, think house or car, might streamline their process or offer extra support during the process to help customers feel good. Then, these happy customers will participate in #3.

It will be interesting to watch how everything unfolds.

Sources for content can be found here and here.