Trading Up - Page 3
A new-luxury product must deliver on three levels:
1. It must offer technical features which are different from those
of its competitors. These differences may be in design, in
technology or both. Implicit within this customer awareness
of technical features must be an assumption of quality – that
the product will be free from defects and perform as promised
so as to justify premium pricing.
2. Those technical differences cannot just be for cosmetic
purposes, but must contribute to superior functional
performance. The new-luxury product must perform better
rather than having “improvements” that don’t actually do
anything worthwhile.
3. The technical and functional benefits must combine to
engage the customer emotionally. Other factors like the
perception of the brand will also get added in to the mix but
ultimately, customers need to make an emotional connection
on the strength of what the new-luxury product does.
“Whenever a new-luxury brand solidly delivers the ladder of
benefits, it can catch fire. It will take hold in the minds of
consumers, quickly change the rules of its category, grow to
market dominance – as Starbucks, Kendall-Jackson and
Victoria’s Secret have – and force a redrawing of the demand
curve. As that happens, the category tends to polarize.
Consumers shop more selectively. They trade up to the premium
new-luxury product if the category is important to them. If it isn’t,
they trade down to the low-cost or private-label brand, or even go
without.”
– Michael Silverstein and Neil Fiske
“Consumers, especially those at the lower end of the income
spectrum, often spend a disproportionate amount of their income
in one or two categories of great meaning, a practice called
‘rocketing’. The combination of trading up and trading down
leads to a ‘disharmony of consumption’, meaning that a
consumer’s buying habits do not always conform to her income
level. She may shop at Costco but drive a Mercedes, for
example, or buy private-label dishwashing liquid but drink
premium Samuel Adams beer.”
– Michael Silverstein and Neil Fiske
“We believe that trading up is fundamentally a positive
phenomenon. It is not really about luxury, at all, nor is it about
class, conspicuous consumption, or debt. Consumption is a way
of life and it can be done well or poorly, and trading up to premium
goods is one way to do it well. Most consumers, no matter what
their class or status, use goods to help alleviate the stresses of
modern life and to help realize their aspirations. Most people do
not fool themselves that such goods solve their root problems or
take the place of essentials like wellness and human connection.
Most people are well aware of the limitations of goods. They are
also well aware of their delights. This phenomenon is driven by
middle-class consumers who are educated, discerning, and
ready to engage in the goods and services they consume. They
balance their budgets and trade down in more categories than
they trade up.”
– Michael Silverstein and Neil Fiske
“Trading up is actually a global phenomenon, with the UK,
Scandinavia, and Japan matching the US in growth. It is as
relevant and powerful in Europe, Canada, Australia, Japan and
other parts of the world as it is in the US.”
– Michael Silverstein and Neil Fiske
The key drivers of the trading
2.
up phenomena for consumers
New-luxury is no fad. It is being driven by fundamental, long-term
changes in consumer preferences and circumstances. Trading
up is being driven by a combination of demographic and cultural
shifts that have been building for decades, and will continue to
increase in the foreseeable future. Instead of the average
middle-market consumer being unassuming and
unsophisticated, today’s middle-market consumers are
discerning, have high personal aspirations and substantial clout
as a result of their buying power.
By and large, new-luxury consumers tend to have highly
selective buying behaviors. They make a conscious decision to
trade up to premium goods in specific categories of choice and
then trade down in most other categories of personal
expenditure. Their criteria for deciding in which areas to trade up
and which areas to trade down are both rational (based on
technical and functional considerations) and emotional.
Personal care products Pet food Clothing
Consumer
#1
Household cleaners
For example, consumer #1 has made a personal choice to buy
new-luxury items in three key categories, personal care
products, pet food and clothing. As far as household cleaners go,
however, consumer #1 is happy to trade down and buy
whichever product offers the best value.
Home appliances Wine Toys
Consumer
#1
Travel Automobiles
Consumer #2, by contrast, has a different set of priorities and
preferences. This customer trades up in the areas of home
appliances, wine and toys. To save money, consumer #2 doesn’t
travel much at all and drives a 10-year old car because it meets
basic transportation needs.
The typical new-luxury consumer has an average household
income of $50,000 or more – roughly about 47 million
households in the United States. The higher the consumer’s
income, the more categories they want to trade up in. Once
consumers have a household income of $150,000 and above,
they can afford to trade up in a large number of categories. And
as consumers make deliberate choices to trade up and trade
down, they ignore the conventional, mid-level products which fail
to deliver any compelling reason to buy – either the lowest price
or emotional engagement.