"Tiering doesn't work anymore!" a friend and Chief Marketing Officer for a cell phone manufacturer told me the other day, summing up what he experienced in the market. His products cover the common cell phone functions, enriched by the ubiquitous extras such as Personal Information Manager (PIM) and music player, all tiered according to price points through corresponding levels of functionality/performance, colors, finishes, and materials.

Let's take a look at the drivers behind my friend's observation. And while his impressions may be true, I offer here an alternative interpretation and approach to successfully deliver winning products and services in the marketplace – beyond tiering.

The Drivers

Many executives observe that the market for new products has become increasingly bipolar, seemingly split into high tier (high price) and low tier (low price), with the middle market drying up. Recent research on market growth rates verifies this¹. Many attribute this effect to the disappearing middle class, as income levels drift slowly apart.

This is certainly one important factor, and frog design's international market monitoring confirms that average buying power per capita has continuously shrunk in many developed countries over the last ten years. In Germany, for example, retail relevant disposable income available to the average household has shrunk by 13% from 1994 to 2005!

Having less money to spend, consumers become more discriminating, searching for matching products and services on the internet for best price as well as best fit. That means consumers are willing to pay for a perfectly matching product, and will ferociously search for bargains if they don't care about differentiation or they find only interchangeable products.

The customer revolution is driven by the empowerment of consumers through the market transparency that the Internet provides. Consumers don't have to rely anymore solely on the intransparent offerings in their neighborhood stores. Wares can be ordered from around the world as long as the total cost justifies it. Initial countermoves by vendors, e.g. blocking mechanisms such as regionally limited warranties, have been overruled by courts, giving that much more power to consumers: the customer revolution!