The New Consumer—The Opportunity

Companies that succeed in the trading-up/trading-down market go beyond typical research to more deeply understand their consumers and the ever-changing "value calculus."

What companies need to do:

Get Out of the Middle. The middle has become a death zone for virtually every category. Margins are thin and companies stuck there can go into an inescapable downward spiral.

Span the Poles. A few companies, such as LG, achieve a strong presence at both ends of the market, and sometimes across the entire spectrum of prices.

Listen to the Consumer. Often consumers will change their spending patterns when life stages shift or events such as a change in employment, household status, or health take place.

Create a Cycle of Innovation. To compete in trading up requires that companies create a regular cycle of innovation. Bath & Body Works has revitalized itself with new store brands and products developed with outside partners.

Relentlessly Drive Costs Out. To compete in trading down, companies have to drive costs out. Aldi, the hard-discount leader in Europe, offers lower prices than Wal-Mart and earns higher margins.