“The health of the consumer is different depending on their household income.” That observation from Walmart increasingly describes one of the biggest challenges facing CPG innovation leaders.

Lower-income households are under growing pressure and making harder choices about where every dollar goes. At the same time, higher-income consumers continue to spend, and increasingly shop in places historically associated with value. Walmart has repeatedly reported that upper-income households are driving its market-share gains. In one quarter, two-thirds of its general merchandise share gains came from households earning more than $100,000 and digital channels. In its May 2026 earnings call, Target management stated, “Consumers shouldn’t have to trade what they want for what they can afford.” By Q2, the retailer said it had reduced prices on more than 10,000 items while continuing to emphasize “style, design and value.”

The implications go well beyond Walmart or Target. We see the same themes across the US channel as retailers grapple with how to serve bifurcated consumers. This creates a fundamental question for Brand Executive Leadership Teams:

Is your innovation strategy designed for the consumer economy that is emerging – or the former middle-class economy?

Simpactful Senior Partner, Heather Burgess, leads the Simpactful Innovation practice with a team of experienced strategy, systems, insights, and forecasting experts. The team has helped major CPG clients transform their innovation strategies and capabilities. She reflects, “The middle of the market can no longer automatically be the middle of the innovation strategy. Nor is it wise to focus solely on a ‘trade up’ strategy while leaving the value tier to private label, given that all consumers are making tradeoffs on where they save or splurge. Winning in a K-shaped economy requires leaders to reconsider not simply what products they innovate, but where they compete, how their portfolios are constructed, the business models supporting innovation, and the capabilities required to deliver dramatically different forms of consumer value.”

Our Simpactful general management, finance and innovation leaders agree these five shifts should be on every brand’s innovation agenda:

1. Redefine Where to Play Around Value Pools, Not Just Categories

Traditional innovation strategies frequently begin with categories, consumer segments, and unmet needs. Those remain important, but increasingly they need another dimension: consumer economic value pools.

Simpactful Senior Partner, Jill McIntosh, spent much of her career at Kroger, where she led the company’s Natural Foods department and understands this shift well. “During my time as Vice President of Natural Foods at Kroger, I was responsible for setting the category strategy and guiding our teams in developing assortments for consumers with very different value equations – from shoppers willing to pay more for meaningful benefits such as better performance, health, convenience or experience – to those carefully managing household budgets while still expecting high-quality, better-for-you options at an accessible price. Retail leaders feel that tension even more acutely today. The strategic risk is continuing to assume that the greatest opportunity lies in the middle.”

CPG leaders should explicitly identify where category growth and profit pools are migrating across value, mainstream, premium and super-premium tiers – and determine where they have the right to win.

The answer may be a deliberately barbell-shaped innovation strategy that follows the consumer rather than a traditional good-better-best architecture. In many categories, this means benefit-packed innovation at the premium end, balanced by innovation and assortment laser-focused on affordability at the other.

2. Innovate the Value Equation, Not Simply the Product

“Value innovation” cannot mean taking cost out of an existing product until it reaches a lower price. Nor can “premiumization” mean adding features until consumers are willing to pay more. Both approaches start in the wrong place.

The better question is: What value does our innovation need to deliver for consumers to feel it is disproportionately worthwhile versus alternatives – and for retailers to allocate space and inventory dollars?

At the premium end, that could mean breakthrough efficacy, multifunctionality, clinically supported benefits, superior ingredients, convenience, or an exceptional experience. At the value end, innovation may come through concentrated formulas, alternative materials, simplified assortments, refill systems, different pack counts, subscription models, or new delivery systems that structurally lower cost.

Price-pack architecture therefore becomes part of innovation. The innovation brief should increasingly begin with a target consumer value equation, not just a product concept.

3. Build Different Business Models for Different Parts of the Portfolio

One of the biggest mistakes CPG organizations can make is attempting to serve radically different consumer needs through the same operating model.

A breakthrough premium innovation may support specialized ingredients, lower production runs, elevated design, high-touch marketing and premium retail environments. A disruptive value proposition may require almost the opposite: fewer components, simplified packaging or product design, alternate manufacturing, limited assortments, different margin expectations and distribution through mass, club, dollar, eCommerce or emerging value channels.

Forcing both through the same performance requirements can make one economically unattractive before it reaches the market. Leaders should therefore ask, “Does our innovation portfolio require multiple business models and/or nuanced success criteria?”

4. Find Partners Who Can Change the Economics

In a K-shaped consumer world, the objective is no longer to own every capability. It is to assemble the right portfolio of brands and channels with an innovation ecosystem that enables faster, better and risk-managed ways to enter unfamiliar spaces and create company, consumer and retailer value.

Heather notes, “Procurement alone cannot solve this problem. Innovation leaders should be looking much earlier for open innovation partners capable of delivering value at both ends of the spectrum – contract manufacturers with different production models, packaging innovators, ingredient suppliers, technology platforms, logistics providers, emerging marketplaces – and even retailers willing to co-create new propositions.”

5. Build an Innovation System with the Capability for Portfolio Sufficiency and Agility

This final implication may be the most important to winning in a bifurcated market.

“Companies will need stronger capabilities to identify emerging value pools, rapidly model different price-cost equations, innovate products as well as experiments, test alternative business models, and reallocate resources as consumer economics change,” emphasizes Simpactful Chair, John Torru. “This is why we have spent the past few years building out a team with deep innovation strategy, consumer insights, strategic sourcing, open innovation, and forecasting to complement our strengths in revenue growth management (RGM), finance, supply chain, and channel sales.”

It also makes AI and advanced analytics increasingly important. AI can monitor portfolio health, help allocate resources, conduct synthetic research, model product costs, and portfolio demand – allowing teams to evaluate scenarios before committing capital.

Most importantly, these capabilities need to operate as an integrated system rather than sequential functions.

The K-shaped economy does not mean every CPG company should race simultaneously toward discount and luxury.

The companies that win will not necessarily have the biggest innovation pipelines. They will have the agility to continually reshape where they play, how they win, and how they deliver value as consumers move in different directions.

Is your brand poised to win in a K-shaped economy? Simpactful can help! Our innovation practitioners work alongside commercial teams and general managers to assess the market, craft practical innovation strategies, and build the internal and open innovation capabilities required to deliver growth across value pools. Contact us today at contact@simpactful.com or 925-234-6394. Visit www.simpactful.com.