A provocative question came up during Kevin Clancy’s webcast for the Marketing Executives Networking Group a couple weeks ago that got us thinking again about an observation New York Times’ columnist Rob Walker made in an article for Fast Company: “The most widely celebrated heroes of capitalism are the Steve Jobs, Richard Branson, or Mark-Cuban-types—the ones who scorn what the focus groups and the gurus say and follow their superior instincts into the highest possible tax bracket.”

To paraphrase the question from the webcast, Steve Jobs is reported to have abhorred all forms of consumer research because it reflected the needs, wants, attitudes, habits and preferences of today and not tomorrow. He believed, according to the attendee asking the question, in his gut.

The question for Kevin–how do you explain Jobs’ success when his decision-making approach flies in the face of the more balanced approach of expertise and research Kevin advocates?

Now an argument could be made against the necessity of certain kinds of marketing research in some technology categories that are changing every six months. Jobs may have had a point that if you ask consumers how likely they are to buy a product or service that’s entirely new and never been seen before—as was the case at one point in time with home computers—they’ll most likely tell you that they won’t buy the product.

The fact remains, however, that most categories aren’t changing every six months. Practically-speaking, most new products and services aren’t as radical, game-changing, or so totally breakthrough that potential target customers couldn’t offer some insights into their viability or direction on how to market them most effectively and efficiently.

Interestingly, “everyone thinks of Jobs as the genius who gave us the iPod, MacBooks, the iTunes store, the iPhone, the iPad, and so on,” wrote Nick Schulz in a piece for the National Review Online this past summer. “Yes, he transformed personal computing and multimedia. But let’s not forget what else Jobs did.”

• Apple I – failure
• Apple II – failed to take off until the floppy disk was introduced
• Lisa - “an epic failure”
• NeXT computer – a “big nothing-burger of a company”
  
  

Even the iconic MacIntosh was not successful initially and Jobs famously got the boot from the division for failing to spur sales.

While we can’t claim for certain that marketing research could have helped avoid those failures or with resuscitating the product when sales proved disappointing, it’s at least safe to say pure gut instinct didn’t reliably contribute to Jobs’ market or career success either.

If we had to account for Jobs’ more recent product and business triumphs, we’d point to his ability to focus the company entirely on consistent delivery of the clear and compelling positioning, “easy to use.”

In all the commentary we’ve read and heard about Jobs, the vignettes about the hard–sometimes viewed as questionable–trade-offs he made in order to ensure that Apple’s products worked seamlessly together and individually were something that anyone without a tech background or engineering degree could operate says to us that this guy understood the power of making a brand stand for something. See our blog post on this topic, “Think Different”.

Instead of “plug and pray,” as we heard one commentator describe other technology products, Apple offered products that were truly “plug and play.”

Was it a gut instinct that led Jobs to “easy to use?” It certainly could have been, though it’s hard to believe there wasn’t some awareness about how other companies were developing and marketing their products, not to mention what users of those products complained about.

In an interview with The Hub a few years ago, Apple’s other Steve—Steve Wozniak—for example, described the early computer market: “Here was the world in 1975, and a whole bunch of people were trying to make money on low-cost microprocessors and build computers with switches and lights—like every computer ever had been.” This knowledge inspired him to do something different and design a computer that a “normal, average” person could use.

Apple’s cult following also affords it a variety of resources as far as finding out what users like and don’t like, would like but can’t find, etc. Not too many companies have a MacWorld magazine and annual trade show event, blogs, and websites independently operated and dedicated to all-things related to the brand and using its products. It’s hard to believe at some point Jobs and others at Apple didn’t tap these sources to at least do some informal customer research.

In our experience, the heroic tales of going on gut feel alone turn out to be much less the stuff of business legend than they first appear. Reports of terrific performance are more often than not greatly exaggerated just as the role of research, business experience, and the market knowledge of the individual are often minimized for effect.

With that in mind, we suspect Steve Jobs made a whole lot more informed gut-decisions, at least in Apple’s more recent history, than ones based on purely on hunch alone.

We were just talking with a colleague of ours about whether or not companies should heed the warning that went along with Ad Age’s cover story, “The Vanishing Middle America” a few weeks ago: “As income falls and diversity rises, a smaller, less homogeneous middle class is emerging—and you’d better shift your strategies.” He asked some really good questions.

“Maybe,” he began, “there’s a vanishing middle class of products. But why is that?”

“Is it because AdAge is right and the middle class is shrinking? There just aren’t enough people with money to spend to support a middle-class of brands?”

Of course, this is not an entirely straightforward question for anyone to answer.

The very notion of a “vanishing middle class” of Americans has long been a controversial topic, primarily because the very definition of “middle class” is so ambiguous. A quick internet scan of definitions of “American middle class”, for example, yielded wildly different sizes ranging from 25% to almost 70% of the population.

At our colleague’s suggestion, we took a look at a New York Times article on a just-published analysis done by the non-partisan Congressional Budget Office which revealed:

• The share of after-tax household income for the top 1% of the population more than doubled, climbing to 17% in 2007 from nearly 8% in 1979.
• The most affluent fifth of the population received 53% of after-tax household income in 2007, up from 43% in 1979.
• People in the lowest fifth of the population received about 5% of after-tax household income in 2007, down from 7% in 1979.
• People in the middle three-fifths of the population saw their shares of after-tax income decline by 2 to 3 percentage points from 1979 to 2007.

What these numbers tell us is, yes, it’s true, the after-tax income of the most affluent fifth exceeded the income of the other four-fifths of the population in 2007, but it also received a disproportionate share more than 20 years ago too. While these results may speak to income inequality, that’s a different issue than a “vanishing middle America.”

Very importantly, the middle three-fifths—60% of the U.S. population—has essentially the same share of after-tax income as it did 20 years ago.

If the middle market is disappearing, it’s not because the middle class itself is contracting. Even AdAge admits, “clearly, people [in the middle class] are still spending money and buying products.” Perhaps the middle three-fifths isn’t spending as much or as often as the top fifth of the population, but that doesn’t necessarily mean a decreasing number of consumers are looking for a good balance of price and value in most product and service categories.

An alternative theory to the squeeze on brands in the middle market in some categories is the increasingly indistinguishable differences between the quality of brands at the high, middle, and low-ends of the pricing spectrum.

“Never before,” writes columnist Joel Stein in a humorous piece for Time, “has a $10 wine tasted so much like $1,000 bottles—and the $10 bottles come with pictures of cute animals! A $15,000 car breaks down as rarely as one that costs $250,000 and has far more cup holders.”

He’s funny and he’s right—if middle-class consumers can get the same level of quality, don’t need the cache of a brand name, and can save a few bucks in the process, they just might “trade down” to a lower-priced dish soap, clothing brand, or car. In 2008—before the recession hit—estimates already put the “trading down market” at $1 trillion in the U.S. (out of consumer spending of $3.7 trillion), up from $700 billion in 2005.

At the same time, in many categories, as the gulf between the prices of a high-end and a middle market brands have narrowed, there’s much less of an economic impediment to pay a 50%-200% premium to get what’s perceived as a better product or experience.

As an example, while sales of big middle-market beer brands like Bud, Miller, and Coors have slumped, sales of craft brews are on the rise. In the article, “Beer Industry Looks to Rebuild Brand Beer,” AdAge’s E.J. Shultz theorized the better performance of craft brews was a direct result of their appeal to wealthier drinkers.

Yet as many commenters posted, there’s only about $1.00-$1.50 price difference between a six pack of one of the big mid-market brands and a craft brew that many think just tastes better. It’s worth the splurge for an “affordable luxury.”

To our way of thinking though, these examples aren’t as much of a reflection of a two-pronged market where only high-end, prestige brands and low-end, lowest-possible-price products and services will survive as they are of companies effectively—or ineffectively, as the case may be—demonstrating a superior balance of price and value for the money.

Nevertheless, as reported in the Wall Street Journal a few weeks ago, “A wide swath of American companies is convinced that the consumer market is bifurcating into high and low ends and eroding in the middle. They have to alter the way they research, develop and market their products.”

According to the same WSJ report, Citigroup calls “the phenomenon” the “Consumer Hourglass Theory.”

“Companies have thought that if you’re in the middle, you’re safe,” explained Deborah Weinswig, an analyst with Citigroup. “But that’s not where the consumer is anymore—the consumer hourglass is more pronounced than ever.”

Which brings us back to our colleague’s original question, “why is that?”

It doesn’t look like Middle America is shrinking. Consumers are trading up and trading down, yet it appears they’re doing this because marketers—either through pricing, product quality, packaging, and more—are supplying them with compelling reasons to do that. There could very well be a squeeze in the middle in some categories, but bemoaning the death of a middle class of people and brands seems premature.

Interestingly, some say “middle class” is more a state of mind than an economic distinction. “Everyone wants to believe they are middle class,” said Dante Chinni, journalist and founder of the Patchwork Nation, in an article for the Christian Science Monitor. “For people on the bottom and the top of the wage scale the phrase connotes a certain Regular Joe cachet.”

Porous border have a downside, however. “This eagerness to be part of the group has led the definition to be stretched like a bungee cord—used to defend/attack/describe everything from the Earned Income Tax Credit to the estate (death) tax.”

And now, it seems, to make broad statements about the need for consumer marketers to shift strategies.

We’ve heard some doosies when it comes to conventional wisdom and commonly-held, though erronous, beliefs about pricing strategy.

We’ve narrowed down the list to our top 10:

1. Most firms have a serious pricing strategy based on businesslike pricing research.
2. Price is the consumer’s “bottom line”; during a recession, price becomes the most important consideration.
3. A company has to accept the market price; nothing it can do will influence prices; it is the victim of its competitors’ pricing.
4. Price sensitivity is a function of the customer’s personality. Some are willing to spend, others tight fisted.
5. You must match price in a competitive market.
6. Cost-plus pricing is a sensible means of establishing product prices at profitable levels.
7. Pricing is one of those factors a company cannot test beforehand. You have to pick a price and live with it.
8. It’s not necessary for marketing directors to know manufacturing and/or servicing costs; their job is to create successful marketing programs.
9. If sales are not what they should be, the best thing to do is reduce prices.
10. Price is the only compelling way for a company to differentiate its products and services.

We’ve heard some doosies when it comes to conventional wisdom and commonly-held, though erronous, beliefs about pricing strategy.

We’ve narrowed down the list to our top 10:

1. Most firms have a serious pricing strategy based on businesslike pricing research.
2. Price is the consumer’s “bottom line”; during a recession, price becomes the most important consideration.
3. A company has to accept the market price; nothing it can do will influence prices; it is the victim of its competitors’ pricing.
4. Price sensitivity is a function of the customer’s personality. Some are willing to spend, others tight fisted.
5. You must match price in a competitive market.
6. Cost-plus pricing is a sensible means of establishing product prices at profitable levels.
7. Pricing is one of those factors a company cannot test beforehand. You have to pick a price and live with it.
8. It’s not necessary for marketing directors to know manufacturing and/or servicing costs; their job is to create successful marketing programs.
9. If sales are not what they should be, the best thing to do is reduce prices.
10. Price is the only compelling way for a company to differentiate its products and services.

We were just talking with a colleague of ours about whether or not companies should heed the warning that went along with Ad Age’s cover story, “The Vanishing Middle America” a few weeks ago: “As income falls and diversity rises, a smaller, less homogeneous middle class is emerging—and you’d better shift your strategies.” He asked some really good questions.

“Maybe,” he began, “there’s a vanishing middle class of products. But why is that?”

“Is it because AdAge is right and the middle class is shrinking? There just aren’t enough people with money to spend to support a middle-class of brands?”

Of course, this is not an entirely straightforward question for anyone to answer.

The very notion of a “vanishing middle class” of Americans has long been a controversial topic, primarily because the very definition of “middle class” is so ambiguous. A quick internet scan of definitions of “American middle class”, for example, yielded wildly different sizes ranging from 25% to almost 70% of the population.

At our colleague’s suggestion, we took a look at a New York Times article on a just-published analysis done by the non-partisan Congressional Budget Office which revealed:

• The share of after-tax household income for the top 1% of the population more than doubled, climbing to 17% in 2007 from nearly 8% in 1979.
• The most affluent fifth of the population received 53% of after-tax household income in 2007, up from 43% in 1979.
• People in the lowest fifth of the population received about 5% of after-tax household income in 2007, down from 7% in 1979.
• People in the middle three-fifths of the population saw their shares of after-tax income decline by 2 to 3 percentage points from 1979 to 2007.

What these numbers tell us is, yes, it’s true, the after-tax income of the most affluent fifth exceeded the income of the other four-fifths of the population in 2007, but it also received a disproportionate share more than 20 years ago too. While these results may speak to income inequality, that’s a different issue than a “vanishing middle America.”

Very importantly, the middle three-fifths—60% of the U.S. population—has essentially the same share of after-tax income as it did 20 years ago.

If the middle market is disappearing, it’s not because the middle class itself is contracting. Even AdAge admits, “clearly, people [in the middle class] are still spending money and buying products.” Perhaps the middle three-fifths isn’t spending as much or as often as the top fifth of the population, but that doesn’t necessarily mean a decreasing number of consumers are looking for a good balance of price and value in most product and service categories.

An alternative theory to the squeeze on brands in the middle market in some categories is the increasingly indistinguishable differences between the quality of brands at the high, middle, and low-ends of the pricing spectrum.

“Never before,” writes columnist Joel Stein in a humorous piece for Time, “has a $10 wine tasted so much like $1,000 bottles—and the $10 bottles come with pictures of cute animals! A $15,000 car breaks down as rarely as one that costs $250,000 and has far more cup holders.”

He’s funny and he’s right—if middle-class consumers can get the same level of quality, don’t need the cache of a brand name, and can save a few bucks in the process, they just might “trade down” to a lower-priced dish soap, clothing brand, or car. In 2008—before the recession hit—estimates already put the “trading down market” at $1 trillion in the U.S. (out of consumer spending of $3.7 trillion), up from $700 billion in 2005.

At the same time, in many categories, as the gulf between the prices of a high-end and a middle market brands have narrowed, there’s much less of an economic impediment to pay a 50%-200% premium to get what’s perceived as a better product or experience.

As an example, while sales of big middle-market beer brands like Bud, Miller, and Coors have slumped, sales of craft brews are on the rise. In the article, “Beer Industry Looks to Rebuild Brand Beer,” AdAge’s E.J. Shultz theorized the better performance of craft brews was a direct result of their appeal to wealthier drinkers.

Yet as many commenters posted, there’s only about $1.00-$1.50 price difference between a six pack of one of the big mid-market brands and a craft brew that many think just tastes better. It’s worth the splurge for an “affordable luxury.”

To our way of thinking though, these examples aren’t as much of a reflection of a two-pronged market where only high-end, prestige brands and low-end, lowest-possible-price products and services will survive as they are of companies effectively—or ineffectively, as the case may be—demonstrating a superior balance of price and value for the money.

Nevertheless, as reported in the Wall Street Journal a few weeks ago, “A wide swath of American companies is convinced that the consumer market is bifurcating into high and low ends and eroding in the middle. They have to alter the way they research, develop and market their products.”

According to the same WSJ report, Citigroup calls “the phenomenon” the “Consumer Hourglass Theory.”

“Companies have thought that if you’re in the middle, you’re safe,” explained Deborah Weinswig, an analyst with Citigroup. “But that’s not where the consumer is anymore—the consumer hourglass is more pronounced than ever.”

Which brings us back to our colleague’s original question, “why is that?”

It doesn’t look like Middle America is shrinking. Consumers are trading up and trading down, yet it appears they’re doing this because marketers—either through pricing, product quality, packaging, and more—are supplying them with compelling reasons to do that. There could very well be a squeeze in the middle in some categories, but bemoaning the death of a middle class of people and brands seems premature.

Interestingly, some say “middle class” is more a state of mind than an economic distinction. “Everyone wants to believe they are middle class,” said Dante Chinni, journalist and founder of the Patchwork Nation, in an article for the Christian Science Monitor. “For people on the bottom and the top of the wage scale the phrase connotes a certain Regular Joe cachet.”

Porous border have a downside, however. “This eagerness to be part of the group has led the definition to be stretched like a bungee cord—used to defend/attack/describe everything from the Earned Income Tax Credit to the estate (death) tax.”

And now, it seems, to make broad statements about the need for consumer marketers to shift strategies.

A provocative question came up during Kevin Clancy’s webcast for the Marketing Executives Networking Group a couple weeks ago that got us thinking again about an observation New York Times’ columnist Rob Walker made in an article for Fast Company: “The most widely celebrated heroes of capitalism are the Steve Jobs, Richard Branson, or Mark-Cuban-types—the ones who scorn what the focus groups and the gurus say and follow their superior instincts into the highest possible tax bracket.”

To paraphrase the question from the webcast, Steve Jobs is reported to have abhorred all forms of consumer research because it reflected the needs, wants, attitudes, habits and preferences of today and not tomorrow. He believed, according to the attendee asking the question, in his gut.

The question for Kevin–how do you explain Jobs’ success when his decision-making approach flies in the face of the more balanced approach of expertise and research Kevin advocates?

Now an argument could be made against the necessity of certain kinds of marketing research in some technology categories that are changing every six months. Jobs may have had a point that if you ask consumers how likely they are to buy a product or service that’s entirely new and never been seen before—as was the case at one point in time with home computers—they’ll most likely tell you that they won’t buy the product.

The fact remains, however, that most categories aren’t changing every six months. Practically-speaking, most new products and services aren’t as radical, game-changing, or so totally breakthrough that potential target customers couldn’t offer some insights into their viability or direction on how to market them most effectively and efficiently.

Interestingly, “everyone thinks of Jobs as the genius who gave us the iPod, MacBooks, the iTunes store, the iPhone, the iPad, and so on,” wrote Nick Schulz in a piece for the National Review Online this past summer. “Yes, he transformed personal computing and multimedia. But let’s not forget what else Jobs did.”

• Apple I – failure
• Apple II – failed to take off until the floppy disk was introduced
• Lisa - “an epic failure”
• NeXT computer – a “big nothing-burger of a company”
  
  

Even the iconic MacIntosh was not successful initially and Jobs famously got the boot from the division for failing to spur sales.

While we can’t claim for certain that marketing research could have helped avoid those failures or with resuscitating the product when sales proved disappointing, it’s at least safe to say pure gut instinct didn’t reliably contribute to Jobs’ market or career success either.

If we had to account for Jobs’ more recent product and business triumphs, we’d point to his ability to focus the company entirely on consistent delivery of the clear and compelling positioning, “easy to use.”

In all the commentary we’ve read and heard about Jobs, the vignettes about the hard–sometimes viewed as questionable–trade-offs he made in order to ensure that Apple’s products worked seamlessly together and individually were something that anyone without a tech background or engineering degree could operate says to us that this guy understood the power of making a brand stand for something. See our blog post on this topic, “Think Different”.

Instead of “plug and pray,” as we heard one commentator describe other technology products, Apple offered products that were truly “plug and play.”

Was it a gut instinct that led Jobs to “easy to use?” It certainly could have been, though it’s hard to believe there wasn’t some awareness about how other companies were developing and marketing their products, not to mention what users of those products complained about.

In an interview with The Hub a few years ago, Apple’s other Steve—Steve Wozniak—for example, described the early computer market: “Here was the world in 1975, and a whole bunch of people were trying to make money on low-cost microprocessors and build computers with switches and lights—like every computer ever had been.” This knowledge inspired him to do something different and design a computer that a “normal, average” person could use.

Apple’s cult following also affords it a variety of resources as far as finding out what users like and don’t like, would like but can’t find, etc. Not too many companies have a MacWorld magazine and annual trade show event, blogs, and websites independently operated and dedicated to all-things related to the brand and using its products. It’s hard to believe at some point Jobs and others at Apple didn’t tap these sources to at least do some informal customer research.

In our experience, the heroic tales of going on gut feel alone turn out to be much less the stuff of business legend than they first appear. Reports of terrific performance are more often than not greatly exaggerated just as the role of research, business experience, and the market knowledge of the individual are often minimized for effect.

With that in mind, we suspect Steve Jobs made a whole lot more informed gut-decisions, at least in Apple’s more recent history, than ones based on purely on hunch alone.