“Affordability” of products and services, both now and in the future, is an issue that seems to lack recognition, for a variety of reasons including aggregate U.S. income trends.
One example of this was highlighted on Wednesday, and was seen in a CNBC article titled “New Cars Increasingly Out of Reach for Many Americans” that discusses the affordability of new cars given median family incomes. The article states that the average price of a new vehicle in 2012 was $30,500, and discusses this figure in relation to incomes.
Seemingly supporting the general concept that new vehicles may be unaffordable for many is that the average age of cars and light trucks in operation in the U.S. reached 11.2 years in 2012, according to Polk.
While affordability (by purchasers) can be difficult to define, and can fluctuate significantly over time, there are many indications that affordability constraints and related pricing issues are significant issues for many companies.
While it is of course difficult to generalize across all firms and industries due to their various characteristics, the following questions with regard to affordability appear to be among those of primary significance:
- What is an affordable product? Can affordability be estimated or measured?
- Can a product or service be somewhat affordable?
- What are the main drivers of product affordability, or lack thereof?
- If a company has a product that is, or will soon become unaffordable, can the company successfully adapt? How might this be done?
- Are (purported) solutions to unaffordable product offerings viable from a longer-term perspective? (i.e. by implementing such solutions, will such implementation cause additional problems?)
- If a company finds itself with an unaffordable product, will this status be transitory or lasting?
- Can high degrees of product “value” (at least partially) offset an otherwise unaffordable product?
Of course, there are many other questions as well. One issue that I mentioned in a September 7, 2010 post (“Premium Pricing Strategies And The Economy“) also seems very relevant:
…are products and services now considered “staples” (i.e. necessary in nature) changing to more “discretionary” in nature? How will this impact firms?
In my opinion such affordability issues will increase given various economic dynamics, and become a primary challenge in corporate strategy and management. This challenge will (very) likely prove to be especially outsized for a variety of reasons.
The Special Note summarizes my overall thoughts about our economic situation
SPX at 1514.87 as this post is written