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25 May 2012

The squeezed middle

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Roger Crabb, marketing manager at Mira Showers, ponders the merits of selling up and selling down...

The departure of Tesco's chief executive Richard Brasher in March - following a profits warning and dip in market share - is a stark reminder that the mythic 'middle' is perhaps the sector hardest hit by the economic downturn.

Tesco's problem is that it is neither the cheapest - discounters Aldi and Lidl are doing fine; nor the best - Waitrose is cleaning up at the top of the market.

Many middle-ranking consumers are seeing and feeling a sizeable reduction in their disposable incomes, being squeezed by rising fuel and food costs and tax increases. And that's before child benefit withdrawal kicks in.

hose who are most cash-strapped are exhibiting very real behavioural changes in an attempt to cope. Such changes include taking a more considered, 'professional' approach to shopping - shopping around, checking prices, buying cheaper own-label goods and swapping money-saving tips on social networking websites.

However, perceived value remains the key. With the economic downturn, there is a tendency for consumers to be more price-conscious, but at the same time more willing to spend money on luxury items with a high perceived value. What you might call a 'flight to quality'.

It is important for retailers to provide the right products with the service to match. Indeed, many can sell mid- to upper ranges in a very positive way, while acknowledging that there is a greater tendency to trade up and trade down. This is the phenomenon of middle-income consumers, occasionally treating themselves to better quality items and still also hunting for basic goods at bargain prices in order to generate savings to spend on the occasional treat.

However, 'trading down' can be misleading - discount retailers have raised the quality of their product. The internet is also making people more confident and knowledgeable about what is available as consumer markets become more transparent.

This means that times are obviously harder for retailers supplying middle-market products. And so, there are those companies who often opt for cost-cutting rather than taking the risk of supplying new products for the consumer who is trading up. Often cost-cutting is ineffective, as it reduces quality, whereas trading up slightly may create business opportunities.

Indeed, seeking to offer affordable quality should perhaps be the modern mantra. Go cheap, if you want to stay cheap. Go very high-end if you will, but remember that not only is it not totally immune to the vagaries of the economy, but also that if your marketing, positioning and product offer isn't spot on, you'll starve there too.

But by stocking good, known brands - which consumers feel they can rely on - with a breadth of range to meet the demands of a spectrum of prudent and quality-seeking shoppers, retailers may hope to acquire a bigger slice of a smaller cake. Or, at the very least, keep what they've got. Which, somewhat obviously, is what everyone should be doing in a recession.

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