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Marginal: (Un)Stuck in the Middle

Being on the edge sounds dangerous.

Being on the edge sounds dangerous. But being on the edge is quite possibly beneficial. Being in the middle sounds better; it seems to imply that there’s cushion on both ends. But being in the middle, at least when it comes to products, is quite probably horrible. You don’t want to be there. In Treasure Hunt: Inside the Mind of the New Consumer by Michael J. Silverstein, with John Butman (Portfolio; $26.95), Silverstein talks about “death in the middle to the average middle-market producer.” That’s right. Fini. The end. The middle is a place that may seem to have mass, but which offers no margin. This is the place where you have to make it on volumes...but the volumes are shrinking faster than that expensive golf shirt that you accidentally put in the dryer. Silverstein’s argument is sobering and readily provable. He maintains that the people in the American middle class—which he defines as having annual earnings from $50,000 to $150,000—have to make choices about what they purchase, and they tend to gravitate toward the edges. Go to a Costco on a Saturday. If you’re not a member, just look at the parking lot. There’s a river of people moving barges of merchandise. These people are after a deal. A bargain. No one needs that much toothpaste at any one time. Check the sales numbers for Cadillac, BMW, Lexus, and the like. They’re doing well. People are looking for luxury. The point is, the consumer must make tradeoffs in order to achieve that luxury (it doesn’t necessarily have to be a car: think of the people you know who have exceedingly high-end audio systems, for example). To get the STS they need to economize elsewhere—like on toothpaste.

But don’t think for a minute that “economizing” means that people what things that are “cheap.” Silverstein puts it: “When trading down, consumers still rely on their value calculus—analyzing cost, worth, brand value, design, use, and expected longevity.” Even low-cost producers must have distinctive features and functions or the consumer will go elsewhere. And there’s the rub for those who are in the middle, because middle-market products—be they Kraft macaroni and cheese or Chevrolets, two examples Silverstein cites—have a difficult time of making themselves sufficiently distinctive from the products offered at the lower end.

This is not to suggest that products offered in the middle are immediately doomed—the middle of the market, Silverstein notes, “is still the biggest piece of the consumer goods pie, with some $2 trillion worth of spending each year in the United States”—but the problem is that it is shrinking. The futures of those in the middle are not profitably bright. (Silverstein: “For General Motors, a company that has always thrived on the middle market and has only a small trading-up business, the shift is cataclysmic.”)

For those companies that want to change, to go from the middle to somewhere else (trading up or trading down), it is probably more a matter of a mental and cultural change than anything else. Computer-aided design and engineering systems can expedite product development so there can be a proliferation of products. Factories can be fitted with tooling and equipment that can profitability produce smaller lots. So it isn’t like this can’t be done. But what is the extent to which people are willing to leave the middle, to leave the place that seems comfortable, the place that has historically been the place of if not profits, then at least not tremendous losses? Probably not very good. But the middle is shrinking faster than ever. It is going to be a case of being distinctive or of being irrelevant. 

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