The Oldsmobile market

Wharton has published this intriguing interview with Michael J. Silverstein, author of Treasure Hunt: Inside the Mind of the New Consumer, about how consumers are actively trading up -- and down -- in the marketplace, shrinking total spending on a broad middle range of products. This phenomenon affects a number of different markets, ranging from washers to televisions to cars.

In the interview, Silverstein predicts that consumer spending in the broad middle of many markets, though still very substantial, will decline from 5% to 6% annually over the next few years.

There are two choices that companies have. If you're in the middle market, you have to understand that you fundamentally can't do both things. You have to decide who you are and whom you serve. It's very much the Warren Buffett model of running a company, which is to delay or reduce spending and focus in on delivery of a very successful pricing formula. That's one way. The other way is to turn up the heat on innovation and to think about the emotional characteristics of consumer needs and to give them goods that they can crave, goods that will allow them to celebrate their lives and celebrate their success.

Siverstein is also the co-author of the book, Trading Up.