These two strategies may look completely different, but they have one crucial thing in common: they don’t target the amorphous blob of consumers who make up the middle of the market.[5] Paradoxically, ignoring these people has turned out to be a great way of getting lots of customers, because, in many businesses, high- and low-end producers are taking more and more of the market.[6] In fashion, both H. & M. and Hermès[7] have prospered during the recession. In the auto industry, luxury-car sales, though initially hurt by the downturn, are reemerging as one of the most profitable segments of the market, even as small cars like the Ford Focus are luring consumers into showrooms.[8] And, in the computer business, the Taiwanese company Acer has become a dominant player by making cheap, reasonably good laptops—the reverse of Apple’s premium-price approach.[9]
While the high and low ends are thriving, the middle of the market is in trouble. Previously, successful companies tended to gravitate toward what historians of retail have called the Big Middle,[10] because that’s where most of the customers were. These days, the Big Middle is looking more like “the mushy[11] middle”. The companies there—Sony, Dell, General Motors, and the like—find themselves squeezed from both sides.[12] The products made by midrange companies are neither exceptional enough to justify premium prices nor cheap enough to win over value-conscious consumers.[13] Furthermore, the squeeze is getting tighter every day. Thanks to economies of scale, products that start out mediocre often get better without getting much more expensive—the newest Flip, for instance, shoots in high-def and has four times as much memory as the original—so consumers can trade down without a significant drop in quality.[14] Conversely, economies of scale also allow makers of high-end products to reduce prices without skimping on quality.[15] A top-of-the-line iPod now features video and four times as much storage as it did six years ago,[16] but costs a hundred and fifty dollars less. At the same time, the global market has become so huge that you can occupy a high-end niche[17] and still sell a lot of units. Apple has just 2.2 percent of the world cellphone market, but that means it sold twenty-five million iPhones last year.
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