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Companies are finding out that they can target low-income consumers or they can target high-end consumers, but aiming at the middle is not the path to success. Proctor & Gamble (P&G) has built its international business on the middle class, but even it is leaning toward the notion of developing price point products in the face of weak spending by the middle class.

In the meantime, Saks Fifth Avenue is enjoying great growth with its luxury clientele, while Family Dollar Stores and Kellogg Co. are prospering from sales to lower income segments. Dollar General is attracting customers away from Target and Walmart with its lower prices. But Tiffany & Co. has reported that its weakest sellers are the low-priced silver jewelry it recently added to appeal to a middle-class segment.

For P&G, part of the appeal of its household brands has been its efforts to introduce new fragrances and ingredients that add value. But today, consumers refuse to pay extra for these innovations and features. Accordingly, P&G’s less expensive brands, such as Luvs diapers and Gain detergent, have gained market share from its more expensive brands, like Pampers and Tide.

Income disparity in the United States, according to the Gini index, has increased by 20 percent in the past 40 years. At this level, the United States has reached a level of disparity similar to that in the Philippines and Mexico. These trends are prompting manufacturers to rethink their strategy. For P&G, that means increasing and expanding lower priced lines while simultaneously adding higher end products like Olay Pro-X, at a cost of $60. The middle class may be left out, but recent trends suggest it may not exist for long anyway.

Discussion Questions:

Why is P&G targeting different consumer groups?

Ellen Byron, “As Middle Class Shrinks, P&G Aims High and Low,” The Wall Street Journal,” September 12, 2011.