Consumers abandon the middle ground

Niche Mar13.pngA critical change is underway in consumer buying habits as we enter the New Normal. The key driver for this is the switch from value-added to affordability:

Value-added. The Boomers loved buying premium products when they were young. Companies rushed to support them, so that even tee-shirts became status symbols. Thus they were able to continually increase profits by adding extra features
Affordability. But now the Boomers are entering their low-spending years. Equally, research evidence suggests their priorities are changing. They now value relationships with family and friends, and don’t feel the need to boost their self-esteem with status symbols

As the chart shows, this is changing the industry landscape. In the New Normal, there are only two strategic choices, as the formerly profitable middle ground is now fast disappearing:

Mass-Market, based on high volume and low margins
Niche, targeting low volumes and higher margins

Croda Chemicals is a good example of how the latter strategy can prove very successful. It is one of the few companies to have noticed that the ageing Boomers are now the only growth sector in western society. As Croda CEO Steve Foots told the Financial Times:

“Croda’s consumer care division – which accounts for more than half the group’s total revenues – has benefited from the trend among ageing populations to spend more on cosmetics to preserve a youthful appearance.

“In consumer care, it is all about niches – finding the right areas to target,” said Mr Foots, identifying the group’s new products in pharmaceutical delivery systems, high-end anti-wrinkle skin creams and crop care.

“When we launch products, we launch them at higher margins than those already out there.”

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. He also serves as a Global Expert for the World Economic Forum. The aim of this blog is to share ideas about the influences that may shape the chemical industry and the global economy over the next 12 – 18 months. It looks behind today’s headlines, to understand what may happen next in critical areas such as oil prices, China and Emerging Markets, currencies, autos, housing, economic growth and the environment. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.

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