Highs & Lows

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."

This article was originally published in the October 1997 print edition of Entrepreneur with the headline: Highs & Lows.