This is McKinsey’s analysis of "The
Vanishing Middle"—here,
the phenomenon across 25 product categories ranging from
mobile phones to banking, appliances to apparel, that both
premium and no-frills products grow at the expense of middle-of-the-road
offerings.
This works itself out in different ways in different industries.
In
some cases—think cellphones, banking, apparel, beer—there
is growth both at
the high- and the low- ends, as the middle empties out
(the "hourglass" model). In
other industries—airlines, PC desktops and servers,
groceries at retail—there is primarily a move to
the no-frills/value end (the "pear" model). And
in yet a third sector there’s general migration to the
high end—coffee
machines, MP3 players [read: the iPod], digital cameras,
razors, wine (the "palm tree" model).
Each syndrome comes with its own set of, as McKinsey might
well put it, threats and opportunities. In hourglass-land,
you need a well-defined value brand, or a premium
brand, or both. Nokia, notably, does both in the
cellphone/handset market. In pear-land, you
need to ruthlessly wring costs out as fast as you can—and
it better be faster than your competition. Think
Dell, Wal-Mart.
Finally, in palm-tree-land, you can
justify a premium only through relentless innovation
(I, too, am looking at Gillette’s new 5-blade "Fusion"
razor, having already been led down the path of the Atra,
Sensor, and Mach3) or through an emotional connection (back
to the iPod).
Of note is McKinsey’s observation that there are "significant
variations" in how the polarization phenomenon plays
itself out from category to category, and that "the
pattern of polarization does not lie in a category’s DNA," but
rather is a dynamic process profoundly affected by how
service providers stretch what they offer to take advantage
of the perceived evolution of customer demand. (And
of course, what’s offered feeds back into demand: Would
I imagine I needed a five-blade razor if the Fusion had
never gone on sale?)
There are two points here:
- "Polarized," or "vanishing middle," markets
are widespread; indeed, they may well be more common
than the classically conceived ski slope model. - They do not arise, nor do they evolve, in a vacuum. Firms
can have an impact, and the strategies and
approaches firms adopt to both respond to, and educate
and entice, their customers can be the difference between
Dell and Tandy, Toyota and GM, or Wal-Mart and Sears.
Is your firm truly catering to your clientele’s sweet
spot?
How well do you understand their concept of
"compelling value for the money?" Are you
trying to be a Dell and a Lexus at the same time?
And lastly,
assuming you want to live at the top left of McKinsey’s
"polarization" chart, are you providing the intellectual
innovation, the emotional connection to your clients,
and the level of service above reproach,
that it takes to command a seat at that table?
