Niche: Why the Market No Longer Favours the Mainstream

I once tried to buy a shirt at Abercrombie & Fitch. It was clear the staff did not want to sell me anything. I could handle the loud music, but their dismay at having to deal with anybody more than a decade or so away from bouncy castles finished me off and so I left.

Leaving all that aside, there was no intrinsic reason why I should not buy an A&F shirt. The styles were similar to those of many other shops, from Ralph Lauren at one end of the market to Gap at the other. Oldies wear such things as often as teenagers. The only difference was that the clothes were more crumpled, more expensive and more heavily branded. But the ageism of the staff and the mood of the store - dark, noisy, faintly threatening - sent the signal that these versions of ordinary clothes were specifically intended for the young.

A&F's business is not clothes, it is niche marketing. This is an idea that has been around for some time. The old assumption that advertising and marketing should aim for sales volume has been superseded by the idea that they should aim for specific sectors. Any loss of volume should be offset by a widening of profit margins; make people feel special and they will be willing to pay more.

The internet ensured that niche marketing became the orthodoxy. Costs are lower online, and tracking consumers in order to spot trends and cultivate loyalty is easier. The approach was crystallised in the idea of the long tail - the total market in niche items is as valuable as or more valuable than the total of mass-market items. This may always have been potentially true, but the internet made it exploitable.

James Harkin, a trend-watcher and social forecaster, starts his book on the marketing pheno­menon of the niche with the traumatic effect that A&F had on Gap. Gap - happy, friendly, no loud music - had been selling clothes to everybody when, in 1999, it realised that it was losing sales to A&F, whose stores were "openly hostile to anyone over 30". Tell me about it.

Over the ensuing years, Gap's cosy liberalism led to a catastrophic decline in sales - not just because of A&F, but because the market had changed fundamentally. Now being in the middle of the road meant being run over. "The missing middle," Harkin writes, "has its origins in social changes going back many decades, but it has recently gathered pace to become the single most important social phenomenon of our times." Er, more important than, say, Facebook, emboldened Arab youth, acceptance of sexual diversity . . . ? Probably not, but never mind, books must be sold.

Harkin identifies a category of "big beasts" whose dominance is being overthrown by niche players. What he says is true enough, but he becomes trapped by the phrase. Halfway through the book, its repetition was undermining this reader's sanity and I found myself counting occurrences. There were six on the two pages I was reading at that moment.

Definition is a problem. In the early stages of the book, we learn that Gap, General Motors, UK Woolworths and Gone With the Wind are all big beasts. Certainly, they are all good stories, but each has quite a different message. GM was damaged not by the niches but by other big beasts - notably Toyota - and by turning itself into a bank making bad cars on the side. Anyway, it has bounced back. As for Woolworths, it was neither big nor beastly, and Gone With the Wind was, well, a book and a film.

This relentless branding of the idea spoils and obscures what could have been a useful analysis of an interesting change in the way we sell and buy. There is something different about the way brands such as Starbucks, Moleskine, HBO and Apple have established themselves. They cultivate not just customers, but fans and, for want of a better phrase, lifestyle adherents. Crucially, they do so with the aid of technologies of astounding precision. "Micro-targeting" is the fine-tuning of the sales effort down to the level of the individual. Our casual acceptance of hyperconnectivity - through social networking, online buying and so on - has created a new form of high-resolution marketing. So, for example, researchers in the lead-up to the 2004 US election could say that Republicans drank Dr Pepper, bourbon and red wine while Democrats drank gin, vodka and Pepsi. This is not trivial. Combining such insights with a few thousand others, researchers can - or, just as alarmingly, think they can - profile every member of the population with enough money to buy a cup of coffee, an iPad or an Aston Martin.

In other words, freeing ourselves of the big beasts is not necessarily a liberation, and this niche phenomenon might just be the latest manifestation of an old process - capitalism's cycle of creation and destruction. After all, if Harkin's favourite phrase means anything, clearly it should apply to Apple and Starbucks as much as to GM and Gap. The new beasts just dress differently.

I like the idea of the book: a mix of stories, analysis, reportage and anecdote is the best way to describe this kind of diffuse process. But, precisely because it is diffuse, the insistence on the idea that it is all one story - the overthrow of the big beasts - just gets in the way.

Niche: Why the Market No Longer Favours the Mainstream
James Harkin
Little, Brown, 256pp, £20

This article first appeared in the 21 March 2011 issue of the New Statesman, The drowned world

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Q&A: What are tax credits and how do they work?

All you need to know about the government's plan to cut tax credits.

What are tax credits?

Tax credits are payments made regularly by the state into bank accounts to support families with children, or those who are in low-paid jobs. There are two types of tax credit: the working tax credit and the child tax credit.

What are they for?

To redistribute income to those less able to get by, or to provide for their children, on what they earn.

Are they similar to tax relief?

No. They don’t have much to do with tax. They’re more of a welfare thing. You don’t need to be a taxpayer to receive tax credits. It’s just that, unlike other benefits, they are based on the tax year and paid via the tax office.

Who is eligible?

Anyone aged over 16 (for child tax credits) and over 25 (for working tax credits) who normally lives in the UK can apply for them, depending on their income, the hours they work, whether they have a disability, and whether they pay for childcare.

What are their circumstances?

The more you earn, the less you are likely to receive. Single claimants must work at least 16 hours a week. Let’s take a full-time worker: if you work at least 30 hours a week, you are generally eligible for working tax credits if you earn less than £13,253 a year (if you’re single and don’t have children), or less than £18,023 (jointly as part of a couple without children but working at least 30 hours a week).

And for families?

A family with children and an income below about £32,200 can claim child tax credit. It used to be that the more children you have, the more you are eligible to receive – but George Osborne in his most recent Budget has limited child tax credit to two children.

How much money do you receive?

Again, this depends on your circumstances. The basic payment for a single claimant, or a joint claim by a couple, of working tax credits is £1,940 for the tax year. You can then receive extra, depending on your circumstances. For example, single parents can receive up to an additional £2,010, on top of the basic £1,940 payment; people who work more than 30 hours a week can receive up to an extra £810; and disabled workers up to £2,970. The average award of tax credit is £6,340 per year. Child tax credit claimants get £545 per year as a flat payment, plus £2,780 per child.

How many people claim tax credits?

About 4.5m people – the vast majority of these people (around 4m) have children.

How much does it cost the taxpayer?

The estimation is that they will cost the government £30bn in April 2015/16. That’s around 14 per cent of the £220bn welfare budget, which the Tories have pledged to cut by £12bn.

Who introduced this system?

New Labour. Gordon Brown, when he was Chancellor, developed tax credits in his first term. The system as we know it was established in April 2003.

Why did they do this?

To lift working people out of poverty, and to remove the disincentives to work believed to have been inculcated by welfare. The tax credit system made it more attractive for people depending on benefits to work, and gave those in low-paid jobs a helping hand.

Did it work?

Yes. Tax credits’ biggest achievement was lifting a record number of children out of poverty since the war. The proportion of children living below the poverty line fell from 35 per cent in 1998/9 to 19 per cent in 2012/13.

So what’s the problem?

Well, it’s a bit of a weird system in that it lets companies pay wages that are too low to live on without the state supplementing them. Many also criticise tax credits for allowing the minimum wage – also brought in by New Labour – to stagnate (ie. not keep up with the rate of inflation). David Cameron has called the system of taxing low earners and then handing them some money back via tax credits a “ridiculous merry-go-round”.

Then it’s a good thing to scrap them?

It would be fine if all those low earners and families struggling to get by would be given support in place of tax credits – a living wage, for example.

And that’s why the Tories are introducing a living wage...

That’s what they call it. But it’s not. The Chancellor announced in his most recent Budget a new minimum wage of £7.20 an hour for over-25s, rising to £9 by 2020. He called this the “national living wage” – it’s not, because the current living wage (which is calculated by the Living Wage Foundation, and currently non-compulsory) is already £9.15 in London and £7.85 in the rest of the country.

Will people be better off?

No. Quite the reverse. The IFS has said this slightly higher national minimum wage will not compensate working families who will be subjected to tax credit cuts; it is arithmetically impossible. The IFS director, Paul Johnson, commented: “Unequivocally, tax credit recipients in work will be made worse off by the measures in the Budget on average.” It has been calculated that 3.2m low-paid workers will have their pay packets cut by an average of £1,350 a year.

Could the government change its policy to avoid this?

The Prime Minister and his frontbenchers have been pretty stubborn about pushing on with the plan. In spite of criticism from all angles – the IFS, campaigners, Labour, The Sun – Cameron has ruled out a review of the policy in the Autumn Statement, which is on 25 November. But there is an alternative. The chair of parliament’s Work & Pensions Select Committee and Labour MP Frank Field has proposed what he calls a “cost neutral” tweak to the tax credit cuts.

How would this alternative work?

Currently, if your income is less than £6,420, you will receive the maximum amount of tax credits. That threshold is called the gross income threshold. Field wants to introduce a second gross income threshold of £13,100 (what you earn if you work 35 hours a week on minimum wage). Those earning a salary between those two thresholds would have their tax credits reduced at a slower rate on whatever they earn above £6,420 up to £13,100. The percentage of what you earn above the basic threshold that is deducted from your tax credits is called the taper rate, and it is currently at 41 per cent. In contrast to this plan, the Tories want to halve the income threshold to £3,850 a year and increase the taper rate to 48 per cent once you hit that threshold, which basically means you lose more tax credits, faster, the more you earn.

When will the tax credit cuts come in?

They will be imposed from April next year, barring a u-turn.

Anoosh Chakelian is deputy web editor at the New Statesman.