What Happens When the Wealthy Become Price-Conscious? - Citigroup (NYSE:C), Honda Motor Co (NYSE:HMC)

By Peter Atwater

Last week's Wall Street Journal offered a cornucopia of articles on the current robustness of the economic high end. Porsche is reporting a record backlog for certain models of its Cayenne SUV, and retailers like Saks (

SKS

) have seen a notable drop in their need for price discounting. But I was most struck by the comment from Melanie Healey, group president for Procter & Gamble's (

) North American business that she “believes the buying habits [of the wealthy], and the wealth divide, will continue in the U.S., noting ‘I think it will be lasting.' " As someone who has focused a great deal on the asymmetry of our current recovery, the “wealth divide” was nothing new. And the fact that companies are now tailoring specific strategies to capitalize on it is not at all surprising. But it is the sustainability of the divide that I worry about.

(To see Howard Simons' piece on why China's buying of Euro debt makes sense, click here.)

Increasingly everywhere I look, from the president's new jobs proposal/tax plan, to the various austerity programs in Europe, to Citigroup's (

) credit card marketing strategies (in the Wall Street Journal earlier this week) to college admissions (covered in this morning's New York Times), I see organizations not only looking to the wealthy for opportunity but outright survival. To all, the rich will provide. From experience, I have learned that the more we think something is true – and the more of us who think it – the less true that something is likely to be. And I am already beginning to see cracks in the “rich will provide” business model. In higher education, for example, I am seeing “able” families less “willing” to pay the price for either private or out-of-state public colleges and opt for far cheaper in-state public alternatives. As one parent put it to me recently, "There is no first class cabin at college."

(To read Sterling Wong's article about AT&T's bid for T-Mobile and whether it is Anti-Competitive, click here With governments around the globe increasingly “voluntelling” the wealthy to contribute more in order to close fiscal gaps, I expect that we will see more examples, like higher education, where the wealthy will cease their now increasingly obvious voluntary subsidies and choose cheaper alternatives. An Acura, after all, is still a Honda (HMC). But I would not underestimate the devastating financial consequences. For many bar-belled businesses, the top 10- 20% likely make up 80-90% or more of the profits, particularly in today's economic environment in which the low end is under intense price pressure already. (To see Michael Thomsett's article on agribusiness leveraged ETFs being the best commodity play, click here.) For business leaders and policymakers, I don't think it is too soon to consider what happens not if, but when, the wealthy become price-conscious. As we have already seen across the public sector and elsewhere in the private sector, “willingness” and “ability” are not conjoined like Siamese twins. And with wealthy nations already showing a clear decoupling, I think it is now only a matter of time before the wealthy themselves follow suit. To read the rest, head over to Minyanville.

Market News and Data brought to you by Benzinga APIs