Companies are refocusing marketing strategies as middle class narrows, a trend that could ultimately curb economic growth.
A narrowing of the American middle class has inspired U.S. companies to employ new tiered marketing strategies, but the growing inequality concerns policy makers who fear the widening gap will hamper long-term economic growth.
A report released this month by the International Monetary Fund links greater income equality with stronger and more sustained economic growth, and finds that inequality is the single most significant factor limiting growth.
“To borrow a marine analogy: a rising tide lifts all boats, and our analysis indicates that helping raise the smallest boats may help keep the tide rising for all craft, big and small,” say authors Andrew G. Berg and Jonathan D. Ostry.
“The difference between countries that can sustain rapid growth for many years or even decades and the many others that see growth spurts fade quickly may be the level of inequality,” say the authors, who postulate the 2008 financial crisis was fed partly by income inequality.
“Beyond the risk that inequality may amplify the potential for financial crisis, it may also bring political instability, which can discourage investment,” say the authors who blame much of the recent unrest in the Middle East on the wide gap between rich and poor.
Poverty has reached record levels in the United States, according to U.S. Census Bureau data released last week that lists the official number of poor Americans as 46.2 million, or 15.1 percent of the population in 2010. This is the highest percentage measured since 1993, said the bureau which also noted a 2.3 percent drop in real median household income from 2009.
Growing income inequality limits the ability of Americans to invest in education, start businesses and contribute to the nation’s economic growth, said the IMF researchers. It also burdens state and federal governments who struggle to reduce deficits and face difficult choices, such as raising taxes and cutting public spending.
The private sector has responded to the growing gap between the rich and poor with “hourglass” marketing strategies that target “Neiman” and “Dollar Store” shoppers. Yahoo Finance blogger Aaron Task reportsthat Proctor & Gamble is shifting its historic focus on the middle class by “tiering up” and “tiering down.” Other companies, such as Saks, is focusing more on aspirational and high-end shoppers.