Our minds on media.

An addendum to James Surowiecki’s “Soft in the Middle”

In the New Yorker, James Surowiecki (of the “The Wisdom of Crowds” fame) makes the assertion that life is getting hard for corporations “in the mushy middle”—high, middle and low being demand markets. The high-end market is one where consumers are concerned with and will pay a premium for quality. Conversely, the low-end markets are made up of consumers that are purely cost-conscious. His two principle points are that reaching consumers with a message of quality is getting harder because of the ready availability of information that critiques products, and also that same ubiquity of information is making it easier to be a niche player. Well, he doesn’t make this second point precisely, but it’s floating around in the article. I think that there is an additional reason why this trend is occurring—one that is on the demand side. The middle class is (and has been) getting squeezed.

It used to be that brands were a signal of quality to consumers, but they are becoming increasingly irrelevant. Or at least they are becoming more like beacons than bat signals—there to help you steer to them, but not as real indicators or anything anymore. He doesn’t cite his information, but he makes the claim that consumers now consider generic store-brand items equally as good as the brand-name items. I know this is true for me in the grocery store, but I don’t know where else this phenomena occurs. Most people don’t know it, but many of the brand name products that you buy are bought by the brands themselves from “private label” companies, usually but not always with exclusive contracts. I know a lot of the wares I used to find on Canal street in Chinatown (NYC) didn’t “fall off a truck,” they were just private label overflow with the brands added illegally. But I digress, and to this point that Surowiecki makes, I think there is a real test to be had in looking at how consumers change their purchasing strategies based on greater quantities of information. I like, specifically, the way he puts it, “In effect, the more information people have, the tighter the relationship between quality and price…” That strikes me as a testable behavioral economic proposition.

He also makes the point that because of economies of scale it has become easier for companies that specialize in “quality” of high-end products to do so with a slimmer margin of cost. I’m not sure what he means since these economies of scale are available specifically to large corporations that can leverage their size against their own suppliers. This is true to the extent that small Chinese factories can’t argue too much with a company like Apple or Dell, but does that in anyway ensure quality? I think that’s entirely up to the standards established by the designers and engineers of the contracting company. Dell would love to be considered high-end; they don’t know how to do it. But to this point as well; that’s it’s easier for any company to focus on high-end products, so long as those companies are working in niche markets (or create their niche), they have whole new channels available to them in order to reach new consumers worldwide.¹ To that extent, going after the “middle” consumer isn’t necessary since you can focus on customers with highly particular (or peculiar interests).

As has been pointed out in numerous places (among them, this MIT study the middle class has been and is shrinking. Granted, the middle class and mid-level consumers are not synonymous, but it does mean that there are fewer people overall with large amounts of cash with which to conspicuously consume. Some might be high-end consumers when it comes to power tools, but a low-end consumers when it comes to electronics. Nonetheless, overall, more folks are going to worry about reducing spending, while a few others will have far more to spend on luxury and high-end goods.

So overall, I agree with Surowiecki’s observation that companies would be wise to figure a path out of the middle. But I would also suggest that those companies wanting to avoid mere commodity markets for the more lucrative high-end markets make their number one priority the quality of their goods. The cluetrain has left the station and those not prepared for the overwhelming amount of information available to consumers will be left chomping at thin margins for price competitiveness. Advertising has been the traditional (in the last fifty years or so) way for a company to gain marketshare. With the exponential growth of information channels ahead of us in the next decade advertising will increasingly become noise in the din of public conversation.