Boston – Nov. 16, 2020 – The gap between rich and poor has been growing worldwide since the 1980s. Now COVID-19 has further eroded the middle class while diminishing the prospects of lower-income households as automation initiatives proliferate across industries. These new technologies could create new jobs globally, but that could take many years, leaving many workers displaced for the near future. For consumer-centric companies, this means understanding how lower-income households perceive value and the ability to deliver that value – even in turbulent times – or risk losing their loyalty.

In new research, Wider Divide: Serving Consumers as the Middle Class Fades, Bain & Company presents its findings from a survey of nearly 2,000 U.S. consumers.  The data reveals that although a majority of low-income households have cut back on spending during the pandemic, nearly 40 percent of this group still buy affordable luxuries they consider a special treat.

Indeed, many people –regardless of social stratum – tend to splurge on a premium product in categories they consider important or those they prioritize, but they economize on those product categories they find less meaningful. Increasingly left out in the cold are mid-priced goods or services that fail to distinguish themselves through functional superiority or emotional resonance.

“COVID-19 has undoubtedly made the challenge of connecting with consumers to deliver perceived value at the right price more complicated,” said Darci Darnell, head of Bain & Company’s global Customer Strategy & Marketing practice. “As pressure on the middle erodes the spending power of the middle class, consumer-centric companies that target middle-income households will need to move upscale or downscale.  This is likely to create a widening divide that will force companies to realign their propositions to bifurcating markets.”

However, while product pricing must be affordable for all households – even those on a constrained budget –lower prices do not mean engaging in a race to the bottom.

According to Bain & Company, there are other, equally important, touchstones for serving lower-income households. People with scant income or wealth have needs, desires and priorities as varied and essential as their affluent counterparts, including a wide variety of choice and emotional connections to certain brands.  In recent months, consumers generally have emphasized several Elements of Value℠ from the providers they do business with: reducing risk, reducing anxiety, and obtaining a sense of belonging.

“Clearly, a number of segments exist within the huge swath of lower-income households,” said Shweta Bhardwaj, a partner in Bain & Company’s Retail and Customer Strategy & Marketing practices. “Identifying which segment to target with what proposition is essential to delivering ‘value for price’ at still-tenable price points.”

While each lower-income customer may have less disposable income than their high-income counterparts, their collective buying power will continue to grow. The most successful companies post-pandemic will support these customers by developing products and services that are affordable and make their lives easier.

# # #