Brands Are Misreading a Fractured Consumer Market, Costing Them Long-Term Growth

Consumer spending is splintering. High-end buyers are still spending freely on quality and convenience, while the middle is hunting for justification-based value, and lower-income consumers are restructuring around access. Three different behaviors, three different motivations, yet most brands are responding to all of them in the same way: cut prices, lean on AI, and chase the short-term signal.

Thomas J. Thompson has watched this pattern play out before. As Chief Economist at performance marketing agency Havas Edge and an Entrepreneur in Residence at Harvard Alumni Entrepreneurs, he applies behavioral economics to understand what's actually driving consumer decisions, not just what the conversion data suggests. What he's seeing in 2026 is a market that's been misread. "Chasing immediate ROI with AI and short-form content is easy, but it risks sacrificing long-term brand equity," he says. The problem isn't the tools. It's the assumption underneath them.

• Mind the middle: "I don't think consumers weakened, they've just become more intentional. What we're seeing now is not a pullback, but a sharpening in how and why they spend. Spending has held up, but it's become more conditional," Thompson explains. He pointed to a "shift vibe" driven by layoffs, AI fears, and tariffs that pushed brands to cut prices. "You saw McDonald's bring back value meals. The dollar bin comes back. But at the top end, they are still spending on convenience and quality." That response reflects a broader misunderstanding of what’s actually driving their behavior.

• The broken assumption: What brands are missing is that the consumer isn’t moving as one. Thompson described this as an E-shaped economy. "You have that top tier that's buying whatever they want, the middle moving toward value for quality, and the lower end trying to make ends meet," he says. Yet brands treat all three the same. "Some marketers treat value as price cuts, when that larger middle segment is seeking for value in quality."

• Category chain reaction: "Take Sleep Number, for example. Their problem isn't just the bed, it's that fewer people are buying houses. If you're not buying a house, you're not getting a new bed, so they cut operating expenses and marketing," Thompson notes. That pressure forces a tradeoff. "Are you sacrificing brand equity for immediate ROI? You're going to start chasing that." History shows this isn't a new response.

Thompson traced this pattern back to postwar television. "Brands were paying for soap operas and weaving in product placement," he highlights. Thompson explains that during recessions, storytelling gives way to simple price-driven ads, saying, "Borax, 99 cents at your grocery store. Go buy it." In other words, storytelling gets replaced by pure transaction. That tension still exists in media today. "Video isn't going away; it's just consumed differently. It's still expensive to reach audiences; targeted placements still command attention through CTV. The fundamentals haven't changed."

• Every percent counts: "At that point, you're just hoping to catch an attentive audience thinking, 'My wife told me I have to buy something today. What was it? Oh my god. A mattress ad. Click.’ I can’t say it never happens, but we’re talking a fraction of a percent," says Thompson. In doing so, brands narrow who they're trying to reach. "This push toward AI and short attention spans means we're only pursuing the active seeker, not building an audience that moves from passive to active."

• Algorithms over equity: Without that long-term brand building, memory disappears. "AI can quantify some intangibles, but creativity and brand memory can’t be automated; they’re earned over time, not clicks or views. If all I see is a six-seconds ad that says something was $9.99 today, I don't remember what that was. You're not building a memory structure," he adds. And without that recall, consumers turn to AI instead. "So of course, I'm going to ask AI as a trusted source for answers." That shift creates another problem: brands then misread why the sale happened in the first place. "You get incorrect attribution because you think cutting price drove the sale, but it didn't. It was just the day I was buying the mattress."

• The live advantage: "If you're looking for ROI, you need maximum reach, so instead of building up over time, you go all-in on live sports," Thompson emphasizes. That demand is expanding what counts as premium inventory. "I played lacrosse in college; I never thought there'd be a pro lacrosse league, but ESPN sees the demand for live sports. Even if the WNBA draws less than the NBA, it still reaches a larger audience than watching a 1964 episode of Gunsmoke on Tom's TV channel." Formats will keep evolving, but brands that balance short-term ROI with long-term storytelling will outperform those chasing short-term conversion alone.

The brands most exposed right now aren't the ones with the weakest products. They're the ones that looked at a fragmenting consumer market, called it a downturn, and responded by cutting everything that doesn't convert today. Brand memory doesn't show up in a dashboard. Neither does the audience you stopped building three quarters ago. People are still spending, still choosing, and still paying attention to brands that give them a reason to. "Consumers are choosing carefully rather than stepping away. It's not the price. Value means justified rather than cheap," Thompson concludes.