By Suzana Lay, Head of Brand Team & Planning Director
You may have noticed over the past few months that media focus has returned to the ‘K-shaped economy’. The term emerged shortly after the pandemic and describes an economic recovery that splits the middle class, with one group growing richer on rising asset values and savings rates, while another is squeezed by inflation and the cost of borrowing.
In the US, recent data reveals that the advertising market is showing a K-shaped dynamic. While the total market rose 1.9%, the top 10 advertising categories jumped 4.6%, but all other ad categories fell 1.5%.
In the UK, the cost-of-living story is often told as though everyone is being squeezed in roughly the same way. But the reality is somewhat different. Some households have significant disposable income and accumulated wealth; others have seen spending power eroded by a range of rising costs.
Given the tendency to talk in broad terms about the UK’s ‘cost of living crisis’, WARC recently urged marketers to understand the implications of this ongoing economic phenomenon in its new report: ‘The end of average: marketing in a K-shaped economy’.
The report highlights that higher income households in the upper arm of the K are showing spending resilience and are more willing to pay for premium products and experiences. However, the lower and middle income households are under greater pressure, so are more cautious in their spending, making very deliberate purchase decisions.
WARC argues that If income, wealth and spending patterns continue pulling apart, brands will be dealing with audiences that may look similar in terms of demographic characteristics, but who are actually facing fundamentally different economic realities. They warn that while marketers have traditionally relied heavily on averages – average household income, average customer value etc – this at best smoothing over different consumer realities and at worst providing inaccurate data on which to base marketing decisions.
Marketers must rethink segmentation for the K-shaped economy
From a real world media perspective, one size clearly does not fit all. But the marketer response to the K-shaped economy should not simply be more segmentation, followed by a premium proposition/strategy for affluent consumers and a value one for squeezed consumers. As we all know, consumer behaviour is less rational than that.
PwC has found planned cutbacks across every UK spending category, but with significant differences by age and category — younger consumers, for example, are more protective of fashion, health and beauty expenditure, even if that means cutting back on some purchases that other groups may view as essential.
The changes we’re seeing as a result of the K shaped economy mean that some of the approaches marketers have traditionally used to define audiences are becoming less reliable for understanding spending behaviour. Audience segmentation is a fundamental principle in media, but its limitations are becoming increasingly apparent. A segment can be perfectly targetable and yet increasingly meaningless commercially.
In the K-shaped economy, a more nuanced approach to segmentation and targeting is required.
Don’t rely on affluence as a proxy for propensity to spend
Traditional targeting often asks “can they afford it?” Increasingly the more useful question is “will they spend on this?“. Income, postcode, socioeconomic group, age and property ownership remain useful signals. But this does not tell you whether someone considers your category worth protecting when household budgets are under pressure. The real world media approach is tooverlay demographic and affluence targeting with category expenditure, purchasing behaviour and attitudes towards that particular category.
Understand where your category sits in the household’s hierarchy
Price-constrained consumers aren’t necessarily searching for the cheapest products; they’re deciding selectively where to economise and where paying more remains worthwhile.
We’ve seen this first-hand within the leisure and events sector. Rather than focusing solely on ticket price, we repositioned the proposition around a value-led package offer. The approach drove stronger ticket sales and was subsequently replicated across multiple venues and event types. Categories that can demonstrate value, whether through experience, convenience, exclusivity or added benefits, are often better positioned than those competing purely on price.
Target around opportunity, not simply audience concentration
Traditional audience targeting remains important, but understanding the quality of the opportunity can be equally valuable. In one campaign, we moved away from a lower-cost, in-house YouTube buying approach and invested in a more premium programmatic solution. This gave us access to YouTube inventory via CTV environments and significantly greater control over contextual placement. Rather than focusing solely on audience characteristics, we could be more selective about the content environments in which the brand appeared.
While the investment was higher, video completion rates improved by approximately five percentage points. The result reinforced a simple but important lesson: not all impressions carry equal value, even when reaching broadly similar audiences.
Measure efficiency against valuable reach
For brands operating in a K-shaped economy, however, efficiency cannot be measured purely through cost metrics. Real-world media planning requires us to consider the quality of attention, the relevance of context and the likelihood of influencing behaviour. In our experience, the cheapest route to reach is rarely the same as the most effective route to business outcomes. When consumers are making increasingly selective spending decisions, marketers should be equally selective about where and how they invest media budgets.
The K-shaped economy is an important reminder that consumers respond differently to changing economic conditions and these differences don’t reside neatly within clear demographic groups or audience segments. They exist within real lives, real priorities and real purchasing decisions. That’s why we believe in real-world media thinking.
The most effective strategies are rarely built solely on broad economic trends, audience profiles or the pursuit of lower costs. They’re built on understanding what people genuinely value, where a brand fits within those priorities and the environments in which marketing can have the greatest impact.
Whether that’s creating propositions that strengthen perceived value or investing in media environments that deliver stronger engagement, the principle remains the same: effectiveness comes from understanding how people behave in the real world. In a K-shaped economy, that understanding matters more than ever.
Photo by Bruno Kelzer on Unsplash
