Strengthen Your Barbell Retailing

Retailing is going to extremes. Industry analyst Marshal Cohen calls it the “thinning middle.” I like to place more attention on where the profits are than on where they aren’t, so inspired by a quote of economist Sung Won Sohn, I’ll call it “barbell retailing.” The strength for retailing has moved away from middle markets and toward the low and the high.
     Here are two examples from a recent Financial Times article (free registration is required to read the article):

• Mid-market Safeway’s same-store sales declined in the second quarter of 2010 compared with the 2009 results. Premium-market Whole Foods had about a 9% increase.
• Sales at budget-market McDonald’s have grown, as have sales at upper-market Morton’s. Over the same period, mid-market food retailers have not done as well.

     Barbell retailing is an example of what social psychologists call “group polarization.” When a group of consumers are making decisions jointly, they are most likely to move toward more risky alternatives, such as spending on luxury items. But if they don’t move in that direction, they’re most likely to move toward more timid actions, such as spending like tightwads. What they are least likely to do is to stay in the middle.
     This is a change in the consumer behavior many retailers are accustomed to. Traditionally, shoppers show extremeness aversion. When presented with the bargain, midrange, and luxury choices, the average shopper picks the midrange. But group polarization becomes more likely at times of uncertainty, and consumers worldwide are collectively experiencing economic uncertainty.

• In your merchandising, feature both premium and bargain choices for product lines. If you need to save on inventory expenses, deemphasize the midrange choices.
• For any midrange lines you do carry, project a strong lifestyle personality of staying the course and showing perseverance in the face of uncertainty.
• Avoid the extreme extremes. When the weightlifter loads up the barbell for a total 130 lb lift, they’ll put the 50 lb weights on first, then the 10 lb weights outside the 50 lb ones, and then the 5 lb weights outside the 10 lb ones. Keep the shape of that barbell in mind. Your shoppers are moving out from the center, but only a minority are moving all the way out to the highest luxury or the deepest discount preferences.

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Move the Customer to Accept Higher Prices