Ethics @ Work: The hourglass society

An iPhone is not particularly expensive, but even if you are wealthy and money is no object, what are you going to buy that is better?

By ASHER MEIR
September 15, 2011 21:52
3 minute read.
Iphone

Iphone 1 311. (photo credit: digital.newzgeek.com)

A recent article in The Wall Street Journal discusses “Consumer Hourglass Theory.” The term was popularized by Citigroup to describe an evolving situation in which the big money in marketing is no longer in the middle of the market.

The theory, supported by quotes from representatives of consumerproducts giants and retail chains, goes something like this: Any product category, whether dish soap or fashion, has a range of products from the cheapest to the most expensive. In the past, the dominant dollar volume was in the middle of the range. The high prices for top-end products don’t make up for the small volumes, and the low-end products are sold for low prices to only the poorest consumers.

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But now the dollar volume is distributed more like an hourglass: More people are willing and able to splurge on top-end products, while fewer are willing to pay a few dollars more to trade up from low-end to middle-ofthe- range products. Dollar volumes at the ends are thus swelling, while the middle is squeezed out.

The result is that companies that once shunned the lower end of the market are now making themselves at home there. Meanwhile, more upscale sellers are finding a declining need to cater to the middle class as well. The most popular explanation for this phenomenon is the “shrinking middle class.” The Journal article is entitled “As Middle Class Shrinks, P&G Aims High and Low” and displays a chart of declining median US income.

It certainly seems to be true that income patterns are becoming more skewed. The Gini coefficient measuring income inequality has been rising steadily in most developing and developed countries; similar studies have shown that spending inequality has also increased. Since spending power is more concentrated at the extremes, it makes sense that spending amounts also become more polarized.

However, I believe that if this change in spending habits is indeed substantiated, it has an additional, complementary aspect: changes in the distribution of product quality. Income inequality means different things for economies at different levels. Suppose riding a bus costs five times as much as a bicycle, an old jalopy car five times as much as the bus, a late-model economy car five times as much as a jalopy, and a fancy luxury car five times as much as an economy car. The spending gaps are identical, but the substantive changes in lifestyle are much different.

Effortlessly riding a bus while protected from the elements is vastly faster and more comfortable than riding a bicycle (for most of us). The difference between a bus and a car is mostly a matter of time and convenience rather than the quality of the ride. The difference between on old car and a new one is less yet, and the difference between an ordinary car and a luxury one is hardly noticeable to most.

I believe that as a result of growth there is a “flattening” of many markets.

So-called “bottom-of-the-line” products are constantly improving in quality and are becoming increasing hard to distinguish from the “middleline” products. Decades ago anyone could easily tell the difference between the cheaper products and the middle-class ones. But lately I increasingly find myself standing in a store and uncomprehendingly asking the salesperson to explain exactly why I should pay more for an “upscale” product.

The same flattening is often happening at the top. An iPhone is not particularly expensive, but even if you are fantastically wealthy and money is no object, what are you going to buy that is better? This insight is reassuring from the point of view of economic living standards, but less so from a class perspective.

While people may continue to enjoy increasing living standards, it may still be that more and more people will find themselves at the bottom of the social pyramid (or hourglass), rather than in the middle of the social “bulge.”

Time will tell if the “hourglass society” is genuine and how it will impact our social life.

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Asher Meir is research director at the Business Ethics Center of Jerusalem, an independent institute in the Jerusalem College of Technology (Machon Lev).


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