From the October 1997 issue of Entrepreneur

In the late 1970s, the chicken company Mike Helgeson's grandfather founded faced two choices. The family-owned St. Cloud, Minnesota, enterprise could continue to compete in a middle market that was becoming crowded with chicken from low-cost producers. Or it could go after the higher-end market.

After much thought, the company decided to develop its own brand, Gold'n Plump, and position itself as the high-quality alternative to store brands and other low-priced options. "I think it's been successful," says Helgeson, CEO of Gold'n Plump Poultry Inc., of the strategy. "We've doubled [revenues] in the last five years."

Today, companies in a variety of industries are pondering similar choices, thanks to the growing influence of a concept called two-tier marketing. Its premise is that, beginning about the time Gold'n Plump was making its move in the late '70s, American society began separating itself into haves and have-nots. At the same time, the middle class--long the growth engine of mass marketers of all stripes--was becoming less influential.

For marketers in search of large and growing markets, this usually means deciding whether to shoot for the upper tier, the lower tier--or both. "Any company that used to be in the middle has to go in one direction or the other," says Paul Leinberger, senior vice president with market research firm Roper Starch Worldwide Inc. in Newport Beach, California.

"Does it mean the end of mass marketing?" asks Myra Stark, director of knowledge management for Saatchi & Saatchi Advertising Worldwide in New York City. "You could make a good argument that it does."

Trend Track

The idea that America was becoming a two-tier society started about 10 years ago when economists began noticing new trends in earning patterns. Studies of data from the early 1980s showed the richest one-fifth of the population was absorbing almost all the growth in income and wealth, while the poorest one-fifth was actually earning less.

But it wasn't simply that the rich were getting richer and the poor were getting poorer. The most striking change was the shrinking middle class. The number of people between the richest and poorest fifths fell to just over half the total, for the first time since World War II. This interruption of the growth of the middle class has since been confirmed by a number of studies of income distribution and household wealth. It's a change of epic proportions.

"If you looked at a graph of income distribution in the '50s and '60s, it looked like a diamond, with lots of people in the middle and fewer at the ends," says David Stewart, chairman of the marketing department at the University of Southern California in Los Angeles. "Now it looks like an hourglass, with lots of people at the ends and fewer in the middle."

The idea that the country was becoming economically polarized ignited much debate. And after Roper Starch came out last year with a report suggesting tools for marketing in an environment they called the "Two Americas," two-tier marketing became a business buzzword.

Two-tier marketing is now being embraced by a number of leading consumer companies. Examples include Walt Disney Co., which distributes products incorporating a cartoon version of Winnie the Pooh to discount stores and a more refined version known as "Classic Pooh" to upscale markets. Leinberger points to clothing company Gap Inc., which is adding upscale Banana Republic and discount Old Navy stores to mid-level Gap locations, its original concept.

The theme extends across many industries, says Stewart. "What we've seen is more and more companies either looking at the top or bottom, or trying to do both," he says. "If you're doing both, you're really into two-tier marketing."

Two-Tier Techniques

Like any marketer, a two-tier marketer must find a need and then design a way to fill it. The difference is that, instead of looking at satisfying the mass market in the middle, you look up, down or both ways.

Most firms go after the upper end of the market, Stewart notes. However, the lower end can be a good choice, too, as the phenomenal success of Wal-Mart's discount stores proves. In some industries, so many have gone upscale that there is a major opportunity at the low end, says Stewart. One example, he says, is financial services. So many banks are targeting wealthier customers that the growth of check-cashing centers, pawnshops and other low-end lenders is booming.

Going both ways, with different products tailored to upper-end and lower-end consumers, requires having a product line, as opposed to a single product. That rules out two-tier strategies for one-product companies--unless they're willing to broaden their offerings.

If you have a product already aimed at an upscale market, going two-tier can be as simple as bringing out a generic, low-cost version of your existing product. Developing a branded, higher-priced product is more complicated, requiring advertising to introduce and support it.

Looking At Limits

While the middle class may be shrinking, it's definitely a long way from gone. Products such as blue jeans, soft drinks and laundry detergent continue to be sold to the mass market in much the same way as they always were. No one is predicting that everything will go two-tier. Even a two-tier enthusiast like Saatchi & Saatchi's Stark concedes, "The age of mass marketing is still with us."

Two-tier strategists should also realize the phenomenon is largely an American one. "Most marketing today is global," says Dennis Jorgensen, CEO of the American Marketing Association. "And around the world, middle classes are getting larger, not smaller."

And not everyone agrees that America is splitting into two separate markets. "It's an oversimplistic way of looking at a market," scoffs Jorgensen. "There's more at work in the marketplace than to say that some people are getting richer and some are getting poorer."

Others doubt that two-tier marketing is a new concept. "Back in the '60s and '70s, we used to call this market segmentation," says Joyce Gioia, president of Herman Associates, a Greensboro, North Carolina, marketing and management consulting firm. "It's really not that revolutionary."

There's no question that a marketing strategy based on two tiers carries some risk. First is the possibility that you'll choose the wrong tier to market to. "If you try to do something that's not in keeping with the way people perceive your business, it can have catastrophic effects," warns Gioia.

Adding tiers or simply repositioning your product can also be costly. Designing, developing and producing new products is expensive, says Stewart. You will probably also have to invest in retraining your employees so their attitudes and levels of service match the new niche, he adds.

"Any time you differentiate your product, you're going to add costs," Stewart says. "You've got to figure out whether the increase in business is going to be justifiable."

Double The Options

The rise of the middle class in the middle of this century presented a huge opportunity to firms that developed products or services designed to fulfill common needs. Now that the trend appears to be reversing and markets fragmenting, it complicates matters--while offering a new opportunity for those who recognize it.

There's no question about which way Mike Helgeson sees it or which tier he's attacking. Gold'n Plump just came out with pre-marinated chicken breasts that come in an upscale package and carry a premium price.

"Our new products are targeted to consumers who are willing to pay for the added convenience and added value," says Helgeson. "And we're going to do more to target that segment of the market."

Contact Sources

American Marketing Association, 250 S. Wacker Dr., #200, Chicago, IL 60606, (800) AMA-1150

Gold'n Plump Poultry Inc., 4150 Second St. S., #200, St. Cloud, MN 56301, (320) 240-6289

Herman Associates Inc., (910) 282-9370, http://www.herman.net/joyce

Roper Starch Worldwide Inc., 4299 MacArthur Blvd., #105, Newport Beach, CA 92660, (714) 756-2600, ext. 128

Saatchi & Saatchi Advertising Worldwide, 375 Hudson St., New York, NY 10014-3658.

Mark Henricks is an Austin, Texas, writer specializing in business topics.