Wholesome Marketing Ideas, Bite Size

Wholesome marketing ideas, bite size

Sunday, January 22, 2012

Hour glass theory

Citigroup calls it the Hour Glass Theory. As income inequality increases, consumers are polarizing into two groups – the few looking for high-end, highly differentiated and high value-added products, and the many looking for value, and sometimes extreme value.

The middle, which was the staple target market of consumer goods companies since at least the mid-twentieth century, has shrunk, and continues to shrink.

Product development efforts and the creation of new value propositions are now aimed either at the top, where the margins are, or at the base, where the volumes are.
But while the data on income inequality are incontrovertible, there is another explanation for the hour glass that marketers should not rule out: attention scarcity.

What if the scarce commodity at the source of the hour glass is not so much consumer income or spending, but consumer interest and attention?

Consider for a moment that consumers now make thousands of purchase decisions in hundreds of product categories every year. They can’t possibly be experts in all of these product categories, nor do they have an interest in optimizing their choice in each product category. They just want something that will do the job. 

Consumers’ nonchalance is especially rational given the reasonable quality of most products. A poor decision in the purchase of laundry detergent or even a washing machine or is not going to kill you. What’s the worst that can happen? The machine will break down after eight years instead of ten?

So if consumers are not buying to minimize loss, are they buying to maximize gain? 

Not necessarily. They may do that in some product categories in which they have an interest, or about which they are passionate (for example, a beer afficianado may spend considerable time or money trying to buy a Westvleteren beer), or in which the range of alternatives is vast and differences across brands are significant and meaningful (e.g. mutual funds or ETFs). But for most of the thousands of choices consumers make, they merely want a reasonable product – give me something that works at a price that makes sense. This is the very definition of value.

Some consumers are willing to spend the time to learn about product categories about which they are passionate, and are usually also willing to spend more money on the better products in those categories. For all other product categories, they couldn’t care less.

Consider two consumers, Bernie and Gakuji, both with reasonable disposable incomes. Bernie is a beer buff who goes out of his way to understand the beers of the world, organizes beer tasting at his place, and buys bottles of the best on ebay. Bernie is an occasional golfer. 

Gakuji, who doesn't care much about beer, cares a lot about golf, follows the sport on TV, plays whenever he can, and takes his clubs with him when he travels. Bernie buys the best beer, Gakuji buys the best golf equipment. Bernie buys value golf equipment, Gakuji drinks whatever is available, and you'll usually find a couple of cans of regular, inexpensive beer in his refrigerator. 

Put their purchases together, and it looks like both the market for beer and the market golf equipment are classic hour glasses. You don't need income inequality for the market to look like an hour glass.

So the bifurcation of the market into what looks like an hour glass occurs, but due to attention disparity, not income disparity. 

If it is interest and consumer attention that are creating the hour glass, there is a lot marketers can do. In fact, creating interest and attracting attention are exactly what marketers do best. The goal is to spark consumer interest in their product category, get consumers thinking about the fine differences between products, brands, and models. But it is important also not to neglect consumers who want merely a good enough product in the majority of categories in which they shop. For them, a "good enough" strategy aims at being the Hyundai of the product category.

No comments: