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.