The Domestic Exchange Rate

As marketers and business leaders, we can't forget that our personal sense of value is typically NOT that of our customers.

Lots of ways to define middle class, here's a another one: One third of households make more than you, one third makes less than you. You're in the Middle Third.

In the US the middle third household makes between $27K and $69K annually. Typically these are the folks we serve. Business decision makers typically live in the upper third...which means they have household income above $69k.

Let's consider this. If you are smack dab in the middle of the middle class (50 percentile) you have household income of $43k annually. If you are in the middle of the upper third (83rd percentile) you have household income of $110k annually, more than double, almost triple the middle class example. Still with me?

In this example, if the upper class family buys an $11k car, it consumes 10% of their income. That's a large percent, but think about the middle class family. An $11k car consumes over 25% of their income. The price of the car is absolute, the "relative or perceived cost" of the car to the two families is significantly different.

In this manner, every purchase is relatively more costly to the middle class family.

So as we sit in the upper third and make pricing decisions for the middle third... we must do the "relative currency" translation. To understand the perception of the price increase by our customer, we must translate it into our value frame. In relative terms, adding $1 in price to a garment for the average middle class family has the relative cost effect (or perception) of increasing the price $2.50 for the average upper third family.

And the lower third? The middle of the lower third (17 percentile) has an average household income of $15k per year. That means the "middle of the upper third" identified above, makes over 7 times more per year. Adding $1 dollar in price to a garment for the average lower third family will feel like a $7 increase in upper class terms. Ouch.

As marketers and business leaders, we can't forget that our personal sense of value is typically NOT that of our customers. $1 is just not a $1.