Simple. The income divide between haves and have-nots have been obvious for years in the Bay Area. Haves live in Atherton, Have-nots live in West Atherton. But Procter & Gamble, makers of some of America’s most known household products, are just beginning to notice.
By ELLEN BYRON, The Wall Street Journal, September 12, 2011
For generations, Procter & Gamble Co.’s growth strategy was focused on developing household staples for the vast American middle class.
A shrinking middle class has forced Procter and Gamble to adjust the way it markets its household products — to higher and lower income levels than the traditional middle-class levels, WSJ’s Ellen Byron reports on the AM Hub. AP Photo/Steve Helber
Now, P&G executives say many of its former middle-market shoppers are trading down to lower-priced goods—widening the pools of have and have-not consumers at the expense of the middle.
That’s forced P&G, which estimates it has at least one product in 98% of American households, to fundamentally change the way it develops and sells its goods. For the first time in 38 years, for example, the company launched a new dish soap in the U.S. at a bargain price.
P&G’s roll out of Gain dish soap says a lot about the health of the American middle class: The world’s largest maker of consumer products is now betting that the squeeze on middle America will be long lasting.
"It’s required us to think differently about our product portfolio and how to please the high-end and lower-end markets," says Melanie Healey, group president of P&G’s North America business. "That’s frankly where a lot of the growth is happening."
In the wake of the worst recession in 50 years, there’s little doubt that the American middle class—the 40% of households with annual incomes between $50,000 and $140,000 a year—is in distress. Even before the recession, incomes of American middle-class families weren’t keeping up with inflation, especially with the rising costs of what are considered the essential ingredients of middle-class life—college education, health care and housing. In 2009, the income of the median family, the one smack in the middle of the middle, was lower, adjusted for inflation, than in 1998, the Census Bureau says.
Proctor & Gamble sells to 98 percent of the households in the United States. If you use Tide Detergent, or their budget brand Gain, you’re a P&G customer. P&G owns Gillette razors. They have both Pampers and Luvs disposable diapers. The first is the premium brand, the other, the bargain. Now they’re going all in on Consumer Hourglass Theory because the numbers show the middle class just doesn’t have much around the middle anymore.
Consumer Hourglass Theory, a term invented by Citibank, says since the middle is getting pinched, market to the high-income spenders and the budget-brand penny pinchers. This approach says luxury brands will be profitable, as will low-end brands, but stores that aim to the middle will find more difficulty.
Look what’s happening right here in our real estate market. Old Palo Alto? Pending, pending, pending, gone! East San Jose? Bargains are snapped up too. But that in-between $600-900K tier? Not so good. Federal loan guarantees being reduced doesn’t help, either.
This is an Open Thread. Which tier of houses are you looking at this weekend?