Marketing in the K-shaped economy

0:09Welcome back to The Walk Podcast. I'm Anna Hamill. Most marketers will tell you that 2026 has been a challenging year. The sheer pace of change, waning growth and more consequential decisions to make than ever and it feels like less time to make them. And amid all of this, the emergence of the K-shaped economy. Late last year, Walk identified the two-speed economy, or the K-shaped economy, as a key force shaping 2026. And 11 months later, that prediction has more than come true. It's now shaping the reality of almost every consumer brand. The K-shaped economy sees consumers in higher wealth brackets continue spending on premium products.

0:53At the same time, the middle class are more price-driven and lower earning demographics are cutting back discretionary spend more severely. And there's few signs of relief in the near future, with increased fuel costs, supply chain concerns, and stubborn inflation continuing to pressure consumer wallets. With that in mind, we recently released the Walk Guide to Marketing in the K-Shaped Economy, a doorstop report packed with data, case studies, and actionable insights to help marketers navigate the ongoing storm. Joining me to discuss some of those themes in more depth are Catherine Driscoll, Walk's EMEA commissioning editor who led the research.

1:31And she's joined by Tony DiVizio, Global Partnerships Director at Carrot. He's one of the contributors to the report. But before we hear from them, a quick word from today's sponsors. Marketing and advertising are changing at pace, but the core principles of effectiveness are enduring and they've never been more important for marketers to understand. The Master of Advertising Effectiveness course led by effectiveness expert James Herman has been updated for 2026, giving you the knowledge to thrive with fresh data points and the latest case studies, all in an eight-week online course. Become an expert today with the Master of Advertising Effectiveness.

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2:21Catherine, Tony, welcome to The Walk Podcast. Hi Anna, thanks for having me. Hello, good to be here. And gosh, this episode is certainly well-timed with everything that's happening in the news right now, so let's get straight into it. Tony, I want to start with you. In your article, The Two-Speed Consumer Economy for The Walk Guide, you use a striking contrast. So Hermes, the luxury brand, it's growing its revenue to 16 billion euros without discounting, of course. But at the same time, and here's a really strong contrast, one in five British adults is relying on buy now, pay later services just to make ends meet.

3:00Is this a temporary phase of inflation or economic difficulty? Or is this something we can expect to see continuing over the next few months? I think, so you make a great point. The headlines, you swipe, you see huge profits from certain companies, and then you also see cost of living pressures hitting the news. This isn't going to be what was termed as the case-shaped recovery coming out of a pandemic or a shock. I think the case-shaped economy is increasingly looking like a world in which prosperity and precarity, or I could call it another word, financial uncertainty can coexist for a long time.

3:42The important point is that divergence is no longer simply about income. It is increasingly about resilience, what assets somebody owns, their housing costs, the savings that they've accumulated, their debt, and the financial buffers that they conjure upon. In other words, it's the capacity for people to respond to what happens tomorrow. So two households earning broadly similar amounts can therefore experience exactly the same economy very differently. One may be able to absorb higher prices without materially changing their behavior, whereas another may have to cut discretionary spending and use credit to make more deliberate choices.

4:22That is why, you know, aggregate consumer spending can still look relatively resilient, while very different behaviors are taking place underneath. You may have strong premium demand at one end and significant financial pressure at the other, and the same consumer trading up in one category while economizing heavily in another. So for marketing and business leaders, that changes the question. It is less useful simply to ask, is the consumer recovering or is the market recovering? The more important question now is, where is demand generally resilient? Who is carrying that demand and what is sustaining it?

5:01So for me, the K economy lens is useful. It helps explain how apparent contradictions in the market can be true now. And I believe the evidence is showing it will be true for some time. Yeah, thank you for that explanation. That's really interesting. And it kind of really highlights how many of the issues that consumers are facing right now are quite structural in nature. And it's actually the conditions that their experience have really shone a light on some of the wider issues in the economy and how that can impact people long term. Catherine, just coming to you, and Tony mentioned some of these, but why is the K-shaped economy particularly relevant to marketers at this point?

5:41And what does looking at the market through that lens help us understand? Hi, Anna. Yeah, well, it was really interesting because when we started looking at the K-shaped economy, and this was partly sparked by an article that Tony wrote for Wark before we started research on the guide, was that it reflected changes that marketers were already seeing across categories. So, you know, at the top of the K, spending power is becoming concentrated among affluent consumers. You know, it helps explain resilience and luxury and premium experiences. You know, in a couple of stats from the report, we saw that spending by the top 10 % of US households actually grew 62 % between 2020 and 2025.

6:18So that's recently. And the top 10 % now accounts for more than 45 % of all consumer spending in the US. But at the other end of the K, affordability pressures are changing what people prioritize and what they expect from brands. And in between, as the middle class shrinks, the middle ground that many brands have relied on for scale is becoming harder to defend. And that vanishing middle was one of our warped trends for the marketer's toolkit this year. So you can see the impact of the K-shaped economy is also on business strategy. Some companies are rationalizing portfolios and concentrating investment behind fewer brands.

6:52And others are looking for new ways to create accessible entry points without undermining that premium offer. And across the market, that pricing power and strength of the brand become increasingly important, you know, lessons we're always talking about at WALK. So the K-shaped economy is a useful way of framing questions like who's actually driving growth in your category, where are consumers still willing to spend, and does your proposition reflect that? Yeah, that's really important stuff. Tony, back to you. We know that marketers have always segmented audiences. So why does planning around a quote-unquote average consumer become more risky in this environment?

7:28Does that persona even still exist? Good question. I think the risk is not the average itself. It's planning to the average. Increasingly, the average consumer may exist more clearly in the data than in the market. You correctly say, you know, marketers have always segmented audience. But a lot of commercial planning still assumes there is a reasonably coherent middle. people with broadly similar circumstances behaving in broadly predictable ways and a relationship between income preference and spending that is stable enough to build around now that is becoming less dependable what we are seeing increasingly is a consumer who behaves very differently depending on the category or the occasion they may be intensely price conscious in one part of their life, but they may still pay a premium somewhere else for the product experience or emotional reward that matters more to them.

8:28So rather than thinking about one consumer sitting neatly in one segment, you almost have to think about a portfolio of behaviors within the same person. And that has important consequences for brands, particularly those in the middle market. A broad middle used to provide a certain amount of protection. If you were reasonably priced, reasonably good, reasonably well known, there was a large audience available to you. Now, in a more polarized market, that position becomes harder to defend. Consumers have stronger reasons to ask either, why should I pay more or why shouldn't I pay less? that makes the undifferentiated middle much less comfortable.

9:16You can see an illustration of this in coffee chains. And I was talking to Catherine just yesterday about this. You know, Gregg's has an unmistakable value proposition. Gale's also has built a differentiated premium proposition and both businesses are doing very, very well. The harder territory now is the place in between. So I don't think segmentation matters less. I think it matters more, but the useful unit of analysis is becoming more specific. It is not simply who is the consumer. It is what are they buying, on what occasion, what are they willing to protect, and what gives our brand, and this is important, a genuine right to win, either at the value for money area or at the premium end.

10:05That is why the average consumer becomes risky. It can describe the market while concealing the choices underneath that are actually determining growth. Catherine, what should a brand in a mid-market position actually do? Because it seems like so many are finding themselves stuck and maybe not due to their own marketing choices or brand positioning. It's just that that cohort of mid-market buyers is shrinking in this economy and perhaps faster than they expected. It's a good question and there's not one answer and that's really the point. I tell the challenge is to create a more deliberate choice about where to compete and where you can genuinely create growth.

10:42So an example might be in packaged food. We look at how PepsiCo is cutting around 20 % of its product range and concentrating on fewer, stronger brands and faster growing categories, you know, rather than having that huge portfolio. But at the same time, it's also investing in areas like functional wellness and premium snacking. So one response to the K-shaped economy is greater portfolio discipline rather than continuing to spread and investment across that broad middle. Or another example from the report is Olaplex Hair Care, which is interesting because it's almost exactly the opposite response.

11:15It's a premium product became closely associated with repairing damaged hair, which limited the size of the market. And so it repositioned around a much broader idea of healthy hair, which it could credibly stretch into. And that expanded the number of people and occasions it was relevant. And so this new positioning meant it reversed a 35 % year-on-year sales decline and returned the brand to growth. So the lesson isn't really so much about whether to move up or down the K, it's to be much clearer about where you have a credible source of growth and whether that's focusing the portfolio, strengthening a particular proposition or finding a broader need that enables an innovation and most of all providing a clear reason for the consumer to see value.

11:55Yeah, really important stuff. One of the guide's strongest themes is that value doesn't simply mean low price. This is something that we've talked about at WALK when we've shared previous guides around recession marketing and all of that. But for our listeners, can you explain the difference in those two terms? What does value look like in a K-shaped economy? It's a really important question. And what came through really strongly in the guide is that financial pressure doesn't just reduce demand, it changes the way people decide what's worth spending on. And so in this context, value becomes much broader than price.

12:30You know, it can be convenience or quality. It can also be emotional value, comfort, escape, familiarity, or just a small moment of pleasure. You know, and that's why we're seeing bargain seeking and frugality sit alongside things like the lipstick effect or treatonomics, where little luxuries become more of a necessity. And Kantar research, we quote, found that 53 % of consumers value treating themselves to things that bring them pleasure, comfort, or joy. So that includes a large number of people with constrained budgets. And these aren't necessarily big ticket luxuries. It might be premium coffee, scented candle, or good ingredients for cooking at home.

13:05So there's an opportunity here for brands to justify spending in ways that aren't about being cheaper. St. Pierre's a nice example. It reframed a fairly everyday bakery product like a croissant and brioche as a small premium treat, and actually increased perceptions of value for money at the same time. And so I think the key point is that good value is increasingly about overall the return the consumer feels they're getting, whether that's functional, emotional or experiential, rather than the lowest possible price. You know, one of Euromonitor's trends for this year was reframing frugality. People want to feel they've made a smart choice, whether that might be buying private label instead, it might be finding a dupe or paying a premium for a product that clearly justifies its price.

13:48So value is really about the emotional return on purchase. Maybe that's a metric brands should be thinking more about. Tony, consumers are moving between premium and value depending on the category or the occasion as we mentioned. But what does that do to the way that brands think about long-term growth? I think the big change is that growth or looking at growth becomes more granular. So brands need to be asking where, when and why is the consumer still willing to spend? Because a financially pressured consumer is not necessarily a value consumer everywhere. As you mentioned, frugality and premiumization are not contradictions.

14:31Increasingly, they can be two behaviors of the same consumer. They may be trading down aggressively in groceries or utilities or everyday household purchases, but still protects spend on a holiday beauty product or as Catherine has made an example a meal out or a particular brand that feels important to them. So the growth opportunity is increasingly in those pockets of resilient demand the categories and occasions and propositions that consumers are choosing to protect. What can look inconsistent from the outside is often quite rational. Consumers are economising aggressively in some places so they can protect spending that matters more elsewhere.

15:12That has important implications for the mid-tier. Brands that have traditionally occupied a position of good quality at a fair price need to look quite hard at whether that remains defensible. In a more polarised market, they risk being too expensive to feel safely rational but not differentiated enough to justify a premium. That means, cutting long story short, the growth planning has to become more deliberate. Brands need to think about pricing architecture, entry points, pack sizes, premium tiers, and then align investment behind the places where demand is genuinely resilient. At one end, you need credible value.

15:54At the other end, you would need a clear reason for somebody to pay more. The danger is sitting in the middle without enough of ether. So I think growth will increasingly come from identifying where consumers are still willing to spend, understanding why, and then building the proposition around that, rather than assuming a broad economic recovery will lift every part of the market equally. I hope that helps.

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17:06We've talked a lot about the bottom rung of the K, the lower income demographics, and now we've talked about the shrinking middle ground as well. Let's go to the top rung of the K, affluent consumers. They are disproportionately important to growth in many categories. What did you learn, Catherine, from luxury or premium brands about how growth is changing? It's such an interesting area. I mean, researching the report, it was really interesting to see that some of the strongest lessons from luxury actually translate into other sectors. The first was around the shift from volume to depth. In parts of the luxury market, growth is increasingly coming from getting more value from existing clients through stronger relationships, service, experience and lifetime value, rather than continually trying to expand the customer base.

17:53For some luxury brands, the top 1 % to 2 % of consumers already account for more than 40 % of sales, which explains growing investment in personalized services and exclusive experiences. And the second lesson was around pricing power. Affluent consumers may be less price sensitive. But that doesn't mean prices are relevant. The brands that can maintain a premium are the ones that have built enough equity, distinctiveness and perceived value to justify it. Kantar research shows that brands with strong equity can command prices around 14 % higher than their competitors. In the third lesson from luxury was really about accessibility without dilution.

18:30We saw brands using lower price entry points with new beauty products at lower prices, accessories or adding experiences, which brought new customers into the brand without discounting the core offering. For example, luxury bag charms have become a huge trend. And we talk about Coach's Explore Your Story campaign and The Report, which was a super successful campaign, but also really solidified their goal of introducing younger people to the brand as their first luxury purposes. So the wider lesson is that growth doesn't always have to be more customers or more volume. It can come from deeper relationships, branded experiences, stronger pricing power.

19:08and a clearer idea of where you want to create value. Tony, at the other end of the K, what does this new economic reality mean for brands serving consumers who are also really feeling the pinch right now? And based on the headlines that we're seeing at the moment, that doesn't look like it's going to change anytime soon. At the other end of the K, I think the first thing to say is that the answer is not simply more discounting. Cheapness and affordability are not the same thing. When consumers are under pressure, they do not suddenly stop caring about quality or reliability, convenience or an emotional reward.

19:48If anything, the decision becomes more considered because there's less room for a bad purchase. So value becomes broader than price. It might mean that something lasts longer, performs more reliably, saves time, comes in a more accessible size or format, overall just gives the confidence to the consumer that money has been well spent. That requires quite an important challenge for brands. I mean, how do you improve accessibility without stripping away the things that made the brand worth choosing in the first place? Now, there are lots of ways to do that before reaching for blanket discounts. We've just mentioned a few.

20:34But the issue with discounting is an over-reliance on discounting can create a second problem. It, as you know, can create weaker margins. But also it gradually erodes the perceived value of the brand without necessarily addressing why somebody who may be struggling can still justify the purchase of it in the first place. I also think, at the bottom point of the K, there is an important issue of dignity here. Financial constraint does not mean consumers stop wanting quality of choice. As I say, in many cases, it makes them more demanding about what earns their money. So I would frame the opportunity as making the value proposition easier to understand and easier to access, rather than simply making everything cheaper.

21:22There was a phrase that I come back to is the constraint does not remove preference. It raises the burden of proof on brands at the bottom of the K. So brands serving this end, therefore need to make it very clear why the purchase is worth making and then remove as much friction as possible from being able to make it for consumers. Tony, you make a point that digital platforms didn't create the two-speed or the K-shaped economy, but they can accelerate the divergence between the two rungs. How is technology amplifying some of the economic divides we've been talking about? Yes, AI did not create the K economy.

22:04And there are two sides to how AI is accelerating the forces behind it. So from a consumer perspective, AI has dramatically reduced the cost of being informed. It can confirm and compare prices, products and alternatives, identify trade-offs and help someone reach a decision much faster than they would have before. This is potentially very positive. It gives people access to a level of research and comparison that previously required a lot of time and effort. So that is good news. The second effect is on brands and markets. AI, as mentioned, is increasingly becoming an intermediary for discovery and choice.

22:45Instead of a consumer visiting 10 websites and comparing products themselves, an AI tool, whichever one you use, can increasingly be used to do much of that work and present a much shorter list of options. Now that changes the competitive environment for a brand. If products become easier to compare on price, quality, performance, reviews, then being broadly good enough becomes harder to defend. In other words, AI could intensify some of the same pressure as we are already seeing in the middle of the market. If you are neither clearly better value nor genuinely more differentiated, an AI system can expose that very quickly.

23:27So for me, one of the most important implications is that as comparison becomes cheaper, differentiation becomes more valuable. And I think that is where the technology point connects back to the wider K-shaped economy. AI is simply not another marketing channel. It is beginning to change how consumers value brands and how they compete for consideration in the first place. Really interesting stuff. And just going back to what was in the guide, Catherine, because you found a similar K-shaped pattern in the adoption of AI tools. What does that look like and what does that mean for marketers within this context?

24:07Yes, AI is relevant to everything these days. And in researching a report, we found that AI may reinforce some of the divisions we're already seeing in the K-shaped economy, you know, in the way that Tony described, but also because the first reason is adoption is not evenly distributed. Research among US consumers found that people with higher incomes and education levels were more likely to know about and use AI. And the difference between platforms is striking. One survey found that 80 % of clawed users earn more than$100 ,000 a year, compared with 37 % of meta AI users. So that matters because AI itself can create advantages.

24:44You know, shopping is a good example. A study of UK and US consumers found that using AI for product discovery, largely in the way that Tony was talking about, spent£118 more per basket on average. and 68 % of them said AI gave them a greater confidence that the products were right for them. And this effect was particularly strong for higher consideration purchases, where, you know, getting the decision wrong feels more costly. So it's potentially a reinforcing effect. Wealthier people are already more likely to adopt AI, and they become better equipped to research, compare, and make confident purchasing decisions, while other consumers may miss out on all of these benefits.

25:21And so I think there's two implications from this. You know, firstly, don't assume AI as a mass behavior, understand which audiences are using which tools. But also, is AI becoming part of how consumers shop? You know, when consumers are using AI to research a category, compare brands and narrow their choices, you know, look at how well your brand shows up. Yeah, I think that's really interesting stuff, especially within the context of what we're seeing around a wider AI backlash as well. There's people who are leaning into AI for product consideration. And then at the same time, there is broader mistrust around this technology and how it can reshape human perceptions and all of that stuff.

25:58I think this is going to be a really important area to watch moving forward. Tony, I want to come back to you for a bit of final advice. So in the context of the K-shaped economy, what questions should marketers and business leaders be thinking about as they plan for the year ahead? Not sure it's going to be advice. I can have a view. I'm sure Catherine will have more to add. But I think business leaders and marketeers should start by challenging some of the assumptions sitting underneath their own growth plans if they are not doing so already. And it really boils down, in my mind, to a number of questions.

26:33The first could be, you know, are our assumptions or your assumptions about the consumer still true. If behaviour is becoming more fragmented, then historic averages and broad segments may be giving us a less reliable picture of future demand. Another question is, where is growth genuinely coming from? Is it broad-based or is it increasingly be carried by a smaller number of consumers, categories or occasions or geographies? Two businesses can report the same growth rate but may have very different underlying qualities or forms of growth underneath. Another one is, what does value actually mean in our market?

27:14This is maybe the biggest question and opportunity and linked to that, you know, have we earned the right to command a premium or do we have the credibility to compete on value? In a K economy, not all growth is equal. leaders need to understand who is carrying it and what economics and how durable it is then i think the question is are we investing behind the consumers and the occasions where resilient demand and our own brand advantage actually overlap for business leaders that naturally leads into bigger choices around you know portfolio pricing you know capital allocation management attention.

27:57If demand is indeed becoming more uneven, not every product, customer segment or channel deserves the same level of investment. And I would ask one final question. How resilient is our growth model if consumers are currently carrying the business change their behavior? So for me, the K-shaped economy is not just a marketing issue. It is a question of where growth comes from, how durable it is, and where the business genuinely has a right to win. The biggest risk is planning for a recovery that looks broad in the aggregate, but remains narrow underneath. Catherine, I'm sure you have more to add than I.

28:38Oh, Tony, that was such a good summary. I'm not quite sure, you know, I can add a lot more. So I'll flag three practical points from the K-shaped economy guide. Firstly, you know, be disciplined about where you put your investment you know that's something you've highlighted you know broad portfolios can become harder to sustain so it's really important to be clear about which brands propositions and growth opportunities deserve backing and second don't allow short-term pressure to undermine the brand there's lots of evidence around advertising and a downturn on walk you know strong brand equity gives brands more room to justify a premium resist excessive discounting and protect pricing power you know brands can adapt to a k-shaped market by creating different ways for consumers to participate.

29:20But as you alluded to earlier, Marriott, for example, recently replaced a single credit card proposition in the UAE to two options, serving mainstream and affluent consumers separately, and as a result, increased credit card acquisition by 37%. So, you know, it's not just about different service tiers, but different ways to respond to different consumer realities without weakening that core brand. A final point would be build more adaptability into the way marketing works. Financial mindsets and consumer needs can change much faster than traditional demographic segments. So brands need better signals and models that let them respond without losing consistency or distinctiveness.

29:58So I think we're really very aligned. Thank you both. That is a great place to leave it. And of course, with the headlines that we are seeing around interest rate increases and fuel crises, we know that this issue is not going away anytime soon and we will continue to cover it with interest. Tony, Catherine, thank you for joining me. Thank you very much, Anna. Thanks, Anna. Thank you for joining us on the WALK podcast. WALK subscribers can access the full WALK guide to marketing in the K-shaped economy on WALK.com right now, where there are many more exclusive articles to help navigate this challenging economic period.

30:32If you have enjoyed today's episode, be sure to tap follow wherever you get your podcasts. And until next time, thanks for listening. Thank you.