This is one outlet's own report from Fortune — the article as it was filed.
AIPROPX ReportFortune · 2h ago
America faces an affordability crisis like the one from 25 years ago, but needs a fresh solution
Twenty-five years ago, multinationals found themselves facing an affordability crisis. Emerging economies were growing at 3x to 4x the rate of developed economies (they are still growing ~2x faster now). The collective purchasing power of billions of potential consumers and the growing middle class in emerging markets presented an enormous business growth opportunity. Many multinationals initially floundered by offering rich-market solutions to poor customers, or stripping features to make cheap product variants. Successful companies focused on delivering value—products that offered the core performance and quality users desired at a price point they could afford. They did this by assessing the unique requirements of emerging market users and designing solutions to suit their wants and needs.
Affordability is the key issue in the upcoming midterm elections. Families, reeling from years of price hikes and inflation following the pandemic, are desperate for products and services that they can afford, but that are not “cheap.” We are living in an era when companies must find solutions that are not just lower-cost, but rather higher value, offering adequate or even improved performance at a lower price.
There are some affordability strategies that America has already exhausted, and if pursued further, may turn customers away or cause economic havoc. The first is what we call “Costcofication.” Costco’s business model is predicated on making products more affordable to customers through bulk sales. They do not compromise the performance or quality of name brand products, but rather leverage economies of scale in packaging. Consumers can buy their favorite Coca-Cola beverages, Charmin toilet paper, and Dawn dish soap… if they want them by the case. This sales model has scaling limits—it’s unlikely consumers will want to tow a tanker full of Skippy peanut butter home. It also depends on shoppers being able to afford the Costco membership, large payout for bulk purchases, and have room to store them in their home. Costco is already inaccessible to many Americans, as the average household income of its members is $125,000/year, yet the median income for the country is $80,000/year.
The second cost-saving strategy that is likely maxed out is what we call “Walmartfication.” Charles Fishman has written widely about “The Wal-Mart Effect,” including how the company often pressures its suppliers to lower quality to achieve affordability through “everyday low prices.” Suppliers have had to go so far as to design look-alike but cheaper versions of popular brands to meet Walmart’s demands, like Levi Strauss’ “Signature” jeans, which have lighter weight denim than the premium Levi’s brand. Further lowering the quality and performance of products to make them more affordable could damage brand reputation, dissatisfy consumers, and hurt Walmart’s bottom line.
The third cost-saving strategy we call “Taxpayerfication.” This is when the government makes services more affordable to consumers by subsidizing costs, only to turn around and have them still pay for it through tax increases. This strategy only gives the appearance of improved affordability by either placing the financial burden directly on society, or by kicking the can down the road by increasing the national deficit, which must be paid by Americans someday. The real issues behind the national affordability crises of healthcare, housing, higher education, and childcare are spiraling costs. Without addressing costs directly, shifting who pays them won’t change the underlying problem or save society any money.
Innovators must look at the new, affordable products and services demanded by Americans with fresh eyes. Adapting existing offerings will likely not work; disrupting them is the only way to address the affordability crisis. We need to provide solutions that deliver high performance at low cost, offering value to consumers. Fortunately, a playbook already exists from which there are many lessons to learn: innovating for emerging markets.
When GE Healthcare set out to sell CT scanners in China and India, its premium Revolution scanner—costing roughly $650,000 to manufacture—was a nonstarter. Rather than strip features, GE followed a “reuse, revise, redesign” discipline: it reused amortized components like the base structure, patient table, and software. It identified the image detector as a pain point driving cost: the Revolution scanner used 128 curved X-ray collectors that could capture the contours of a patient’s body. Rather than using expensive hardware, GE utilized only six, much cheaper flat detectors and invested in improved software to render accurate 3D images. The resulting Brivo CT scanner could perform 75% of the CT procedures that the Revolution could, at a manufacturing cost of only $56,000, making it a commercial success across emerging markets.
Gillette initially tried, and failed, to launch the Vector razor in India—a model considered “cheap” in the eyes of Americans because it was old and obsolete, but still much too expensive for the Indian mainstream. They quickly wised up and realized they had to understand the unique requirements and value propositions of Indian users. The company sent its engineers into consumers’ homes—logging 3,000 hours with more than 1,000 men—and discovered that Indians shave differently than Americans: less often, with thicker stubble, seated in dim light, and rinsing in a cup rather than under running water. Gillette designed the Guard with bump-flattening ribs to avoid cuts and the stress of shaving in low light, and large flush channels to clear hair particles with a little swishing. The Guard has only four parts to keep the price down; it sold for about 25 cents, with blade cartridges at roughly 8 cents. Within four years, the Guard accounted for two of ...
AIPROPX is an independent multi-source news index — we track, compare, and connect coverage from across the web into one place you won't find anywhere else.
