Trading Up

Michael Silverstein, Neil Fiske

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Highly Recommend

I'm usually not a huge fan of business books, but this one explained brands very well. Even people who aren't in the upper percentiles of income will splurge on a product that has great technical features and an emotional brand. Skip around and mix examples with theory to get the most out of this.

Notes

They see trading up as a strategy and consistently follow a small number of practices:

  • They deliver genuine technical, functional, and emotional differences in every product or service they offer.
  • They target their consumers tightly, ignoring traditional market segmentations and looking for common attitudes, spending patterns, and habits. [Content helps with this now]
  • They create appealing identities, rich graphics, stunning retail presentations, and engaging shopping experiences.
  • They produce a stream of innovation.
  • They put cost into their products—investing in better raw materials and imaginative design—and gain a return on the investment on the sell side.
  • They create product apostles early, during or before the launch of their goods and services. The apostles act as their compass for market truth.

We played a round of golf with Jake at a public course, during which he described in detail the technical differences and performance benefits of his Great Big Bertha clubs. “But the real reason I bought them,” he told us at last, “is that they make me feel rich. You can run the biggest company in the world and be one of the richest guys in the world, but you can’t buy any clubs better than these.” Then, looking at us with a hint of a smile, Jake said, “When I kick your butt on the course, I feel good. I feel equal. I may make a lot less money than you do, but I think I have a better life.”

Accessible superpremium” products are priced at or near the top of their category, and at a considerable premium to conventional offerings. They are still affordable to the middle-market consumer, however, because they are relatively low-ticket items. For example, Belvedere vodka sells for about $28 a bottle, an 88 percent premium over Absolut at $16.

Most important, New Luxury goods are always based on emotions, and consumers have a much stronger emotional engagement with them than with other goods.

Emotional engagement is essential, but not sufficient, to qualify a product as New Luxury; it must connect with the consumer on all three levels of a “ladder of benefits.” First, it must have technical differences in design, technology, or both. Subsumed within this technical level is an assumption of quality—that the product will be free from defects and perform as promised. Second, those technical differences must contribute to superior functional performance. It’s not enough to incorporate “improvements” that don’t actually improve anything but are intended only to make the product look different or appear to be changed. (American carmakers played that game for years.) Finally, the technical and functional benefits must combine—along with other factors, such as brand values and company ethos—to engage the consumer emotionally.

New Luxury leaders follow eight practices that we’ll talk about throughout this book:

  1. They never underestimate their customers.
  2. They shatter the price-volume demand curve. They don’t settle for incremental improvements or price increases. They prefer the major leap and the big premium. They go for higher prices and higher volume, earning disproportionate profits as a result.
  3. They create a ladder of genuine benefits. They don’t try to fool their customers with meaningless innovations, nor do they try to get by on brand image alone. They make technical improvements that produce functional benefits that result in emotional engagement for the consumer. They don’t try to pretend that better cosmetics are true innovations.
  4. They escalate innovation, elevate quality, and deliver a flawless experience.
  5. They extend the price range and positioning of the brand. Many New Luxury brands extend the brand upmarket to create aspirational appeal and down market to make it more accessible and more competitive and to build demand. A traditional competitor’s highest price may be three to four times its lowest; New Luxury players often have a fivefold to tenfold difference between their highest and lowest price points.
  6. They customize their value chains to deliver on the benefit ladder. They put the emphasis on control of the value chain rather than on ownership of it, and they become masters at orchestrating it.
  7. They use influence marketing and seed their success through brand apostles.
  8. They continually attack the category like an outsider. They think like outsiders, act like mavericks, talk like iconoclasts, and strive never to think of themselves as insiders, even after they have become the leaders in their categories.

Empty nesters are important traders up—married couples, widows, or widowers, with good incomes, whose children no longer live at home.

Divorced women are among the most pronounced traders up. In our survey, divorced women said they would trade up in as many as thirty categories, far more than any other consumer profile.

Dual-income couples with no kids, or DINKs, and dual-income couples with kids, DIWKs, are also New Luxury buyers.

There has also been a rise in second-home ownership. There were 1.7 million second homes in 1980; today [2003] there are over 4 million. Second homes often have at least as much emotional meaning as primary residences.

And yet working women continue to shoulder most of the child-care responsibilities and do the vast majority of housework, including laundry, cooking, shopping for groceries, and caring for sick family members. Married working women with kids are, in effect, working two shifts. They feel overburdened and freely admit that they need help in managing their duties and that they need moments of relief and restoration whenever they can grab them. Because they have the money to spend, they will pay a premium for New Luxury goods that can lighten their workload and soothe their souls.

Divorced people, both male and female, dine out more often, buy cars and clothes, renovate or decorate their homes, take adventure vacations, and purchase apparel and accessories as a way to smooth the transition to a new style of life. They are an important market, with a distinct set of values and interests and a special relationship with brands.

Products and services were always intertwined with these messages, so it gradually became clear to consumers that they were being given permission to consume a little more aggressively than they had in the past—if consumption was in the service of a higher good, such as self-improvement or building relationships. [Key positioning note]

The Four Emotional Spaces

Taking Care of Me: Well-Being, Beauty and Youthfulness, Making Time for Myself

It is about goods I buy to make me feel as good as I can, as immediately as possible. It is about physical rejuvenation, emotional uplift, stress reduction, pampering, comfort, rest, and moments to myself. It includes such goods as personal-care products, ice cream, chocolates, coffee, home-theater equipment, appliances, furniture, and bedding.

Men, too, seek moments alone but are more likely to retreat to a room equipped with a personal computer, a premium sound system, or a home theater.

Taking Care of Me goods are also tools that help busy consumers leverage their time better. These include restaurant dining, premium convenience foods for consumption at home, and laundry appliances that make doing the wash easier and less time-consuming.

Connecting: Attractiveness, Hooking Up, Affiliation, and Membership

More often, however, the language of goods in dating is about signaling our taste and knowledge, achievements and values, and those qualities are the very basis of New Luxury things: the liquor we order, the lingerie and clothing we wear, the jewelry and accessories we display. But it is not only a language of display; it is also the New Luxury objects and experiences we talk about—from a description of a wine we enjoy to describing a trip we took. It is very unlikely that conventional middle-market goods will be referenced in dating conversations. “I really love to drink Gallo jug wine” or “I wear Sears chinos” may be telling statements, but they’re not very impressive.

Questing: Taste, Adventure, Learning, and Play

It is all about those goods and services I can buy that will enrich my existence, deliver new experience, satisfy my curiosity, deliver physical and intellectual stimulation, provide adventure and excitement, and add novelty and exoticism to my life.

New Luxury consumers want to experience travel that does more than give them a rest and a getaway. Seventy percent of our respondents also said that “knowledge is the greatest luxury.”

Individual Style: Achievement, Sophistication, and Success

Even if we don’t exactly believe in what the advertisers tell us, we are aware of the messages and know that others know them, too. [Similar to the Kevin Simler article]

Unlike the professional manager, who argues that he could run any business, New Luxury leaders want to create and build only a specific business whose products are of great interest to them. They really love their wines and golf balls, stoves and dolls, groceries and lingerie.

This emotional connection to the core of the business makes for a leader who is very different from the executive whose decisions are based on more conventional concerns—such as what will advance his career, what will most likely be approved by the board, what is easiest to accomplish, what has “always been done,” what will please the analysts or press, or what will build the bottom line the fastest.

Conventional middle-market goods, by contrast, are driven by only the most obvious of shared values: convenience and cost. [Brands must extend beyond that - can't win the race to the bottom as a startup]

Although the brand name is of tremendous importance, it is rarely promoted without a connection to a specific product or product attribute, or to the story of the leader or company that created it.

Absolut vodka, by contrast, built its brand on what became a famous advertising campaign: brilliant visual interpretations of the bottle shape. But Absolut is now little more than its famous brand name; the vodka itself has become the standard pouring brand at many bars. Belvedere and Grey Goose, in contrast, the leading premium vodkas, connect their names to specific attributes of taste, distilling techniques, country of origin, awards, and bottle innovations. [Connect the brand to technical product features that matter]

When the superpremium model fails to offer technical and functional benefits, it can coast for a while on the emotional engagement—but not for very long. And no matter how successful—even iconic—a product is, it can swiftly be dethroned by competitors who understand the escalating tastes of consumers and invest in a benefit ladder that aligns with them. In categories of durable goods, the dethroning can take less than a decade. In consumable goods, it can happen in two years or less.

“In the early 1960s, we had a yellow Caddy with bright yellow interior. All the kids wanted a drive home from Little League in that car. But over time the quality declined. They priced up the cars but provided no innovations. They clung to their reputation, but it was an empty shell. Every three years I was buying the same car. New model year, but no changes. General Motors was milking the brand.

The phenomenon is almost infinitely extendable because the capacity of businesses to innovate is unlimited and the emotional needs of consumers are never entirely filled.

There are many opportunities for growth in consumables, such as tea, and durable goods, such as clothing, but the greatest potential for New Luxury growth may lie in services, including financial and legal services, educational and health-care services, elder care and child care, pet care, travel and real estate, car care, and home maintenance services.

New Luxury could extend even deeper into the services realm by transforming public and quasi-public services such as transportation and education. Limoliner, for example, is a premium bus service that travels the Boston-New York route.

New Luxury creators and retailers understand, however, that the Web is about Connecting and Questing as well as sales. [Crazy that the authors saw this in 2003]

Seniors represent an enormous potential market that New Luxury goods creators have yet to fully tap.

Just as important as knowing where to look is learning how to look for opportunities within a category.

  • Patterning. Rather than looking at the category as it currently exists, patterning is a process of looking for elements and trends within the category itself, and in other categories, that can provide insight into what the category could become.
  • Idea seeking in different geographies and cultures. Crate and Barrel, Starbucks, Samuel Adams, Kendall-Jackson, Whirlpool Duet—all these brands have roots in western European ideas, primarily because that is where Americans have visited the most in the past three decades.
  • Social research. What are Oprah Winfrey and Martha Stewart talking about? What are the magazines covering? What television shows are hot?

For Execution:

  • Concept articulation. This may involve the creation of a white paper—an extensive written description of the concept—but it should always be refined into a clear, easy-to-remember, highly distinct phrase or idea. For Victoria’s Secret it was “2/7ths.”
  • Rapid prototyping. The New Luxury winners develop prototypes quickly and take them into the field for testing with real users and, especially, expert users. Ninety percent of the concept testing we have seen, when done without working prototypes, is a waste of money and time...They should not be expected to define the product itself, however, but rather how they want to feel when interacting with the category.

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