Middle Class Retreat: Trading Up, Trading Down

The reasons behind the“Trading Up, Trading Down” trend

Middle-class consumers in developed markets, having not experienced any meaningful real income gain since the financial crisis, trade down on undifferentiated middle-market goods and services so that they can trade up for quality, wellbeing, experience, convenience, authenticity and other values where it matters.

Technology drives the trend

Technology gives consumers more information and more choice, making it easier for them to spend less in some categories and trade up in other categories. It also enables brands to innovate and improve efficiencies in order to offer higher quality at lower prices.

New winners and losers

Winners arising from this trend include those who offer high-quality, low-price, private-label alternatives and those who succeed in establishing a strong emotional connection with the consumer. Losers, on the other hand, are those in the “boring middle” who lack differentiation and do not offer value for money.

The same consumers trade up and down

The same consumers trade up and down, as they compromise in some categories in order to splash out in others. Even in the same categories,consumers can be found trading up and down at the same time, for example by trading up in quality but cut down in quantity.

Strategies to tap the Trading Up, Trading Down trend

Strategies to capture trading up and trading down opportunities range from carving out a niche at either end of the price spectrum, to stretching the brand across a broad range of price points without alienating existing consumers and/or devaluing the brand. However, all successful approaches must look to deliver well on what matters the most to middle class consumers.