In a previous post I discussed data showing the growing income inequality in the U.S.: the middle class is shrinking, the poor are getting poorer, and the rich are getting richer. It turns out that corporations understand what is happening and they are responding. In brief, they are letting go of the middle class as a market and restructuring their offerings to appeal to the top and bottom of the income distribution.
Below the jump (warning, it automatically starts playing with sound) is an enlightening five minute discussion of this new business strategy on Daily Ticker video:
The Wall Street Journal, highlighting Procter & Gamble, also reports on this development:
For the first time in 38 years… 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…
P&G isn’t the only company adjusting its business. A wide swath of American companies is convinced that the consumer market is bifurcating into high and low ends and eroding in the middle. They have begun to alter the way they research, develop and market their products…
To monitor the evolving American consumer market, P&G executives study the Gini index, a widely accepted measure of income inequality that ranges from zero, when everyone earns the same amount, to one, when all income goes to only one person. In 2009, the most recent calculation available, the Gini coefficient totaled 0.468, a 20% rise in income disparity over the past 40 years, according to the U.S. Census Bureau.
“We now have a Gini index similar to the Philippines and Mexico—you’d never have imagined that,” says Phyllis Jackson, P&G’s vice president of consumer market knowledge for North America. “I don’t think we’ve typically thought about America as a country with big income gaps to this extent.”
Such a response may well strengthen corporate bottom lines, at least for a while. Unfortunately for the great majority of us, it may also reinforce existing downward trends in income.