 Middle-market consumers, in the United States and around the world, are trading up to New Luxury products and services that deliver higher levels of quality, taste, and aspiration than conventional items. Because New Luxury goods sell for 20 to 200 percent more than standard midprice goods, they deliver higher profits. They also can sell in much higher volumes than superpremium products, and thus have greater potential for growth. Paperback edition—published by Portfolio, an imprint of Penguin Group(USA)—available April 29 | Buy this book at: Amazon Barnes and Noble |
In 23 categories of consumer products and services worth $1.8 trillion in annual sales in the United States, New Luxury goods account for about 22 percent of the total, or $400 billion per year. The total is growing at 10-15 percent annually and will reach a trillion dollars by the end of this decade. The New Luxury market is about the same size in Europe as it is in the United States.
The book that describes the trading-up phenomenon, Trading Up: The New American Luxury, by senior partner and managing director Michael Silverstein and Bath and Body Works CEO Neil Fiske, was originally published in 2003. It has sold more than 100,000 copies worldwide, been translated into five languages, and received the Berry-AMA award for Best Marketing Book of 2004. A second hardcover edition was released in January, 2005 with a new subtitle, Trading Up: Why Consumers Want New Luxury Goods… and How Companies Create Them. The revised and updated edition contains new consumer data, stories about emerging companies and brands in additional categories, and analysis of the trading-up phenomenon in the European and Japanese markets.
Trading Up: Why Consumers Want New Luxury Goods… and How Companies Create Them examines the business and social forces that have fueled the New Luxury phenomenon worldwide, tells stories of successful companies in the most important New Luxury categories, and includes discussion of the practices and methods that companies and leaders can use to take advantage of the trading-up trend. Trading Up was first published in 2003. The revised and updated 2005 hardcover edition proves that the trading-up phenomenon has not only grown stronger and more prevalent in the marketplace, but is now widely recognized by both business and academic observers and is much discussed worldwide.
Trading Up is based on the contributions of many members of The Boston Consulting Group, who have spent years working with and observing New Luxury companies, products, and brands. In addition to the knowledge gained from direct work with clients, the book contains the findings of extensive quantitative and qualitative research. It includes analysis of 23 categories, such as autos, home goods, food, wine and spirits, sports equipment, pet food, and lingerie; interviews with important New Luxury leaders; the results of three consumer surveys taken during the period 2002-2004; dozens of interviews with individual consumers; and a literature review of more than 800 books, articles, Web sites, and other materials.
Three New Forms of Luxury
New Luxury goods and services take three forms, covering an extremely wide range of price points in dozens of categories. They are not always the most expensive items in the category, nor are they always the top of the line for the brand. They always sell at a premium to conventional goods, but are always affordable by the middle-market consumer.
Characteristics
New Luxury is a distinct genre of products and services. Unlike Old Luxury items, which are intended only for the very wealthy, New Luxury goods are meant to be accessible and appealing to a much larger audience. Unlike conventional goods, which compete primarily on price, New Luxury goods command a premium because of their superior quality, performance, and emotional appeal.
This grid shows the important characteristics of New Luxury goods in comparison to Old Luxury products and conventional items. They are emotionally engaging, and although they are sold at a premium to conventional goods, they are affordable (at least now and again) by the middle-market consumer. They have an artisanal quality to them; that is, there are aspects of craftsmanship and the human touch in their production or delivery. (Many of the breads at Panera are baked on premises.) And New Luxury goods are associated with social and human values that are important to their consumers. (BMW owners believe their cars are an essential part of their work-hard, play-hard lifestyle.)
A $6 box of chocolates, a $14 bottle of varietal wine, a $3,000 stove, and a $30,000 car are all New Luxury goods.
Emotional Spaces
Consumers buy goods that engage their emotions in four important "spaces." Many of the most successful New Luxury goods engage consumers in more than one space.
"Taking Care of Me" products help ease the stresses of life and offer a reward for accomplishments or solace for disappointments. Connecting goods help people build, maintain, and enrich their relationships with family, lovers, friends, and colleagues. Questing products and services provide a way for consumers to try new tastes and experiences, learn about ideas and cultures, and expand their horizons. New Luxury consumers favor goods that help them express their Individual Style, associate them with brand values, and signal their interests and passions to others.
A New Luxury product must deliver on three levels. First, it offers technical features that are different from those of its competitors. These features translate into genuine differences in product performance. The technical and functional benefits, combined with brand meaning, lead to emotional engagement.
Demand Curve
Because New Luxury products and services typically sell at premiums of 20-200 percent over conventional midprice goods and in much higher volumes than superpremium Old Luxury goods, they don't fall on the traditional price-volume demand curve. When a New Luxury product is successful, it polarizes its category. Conventional goods are often forced to reduce prices and Old Luxury products often lose volume.
New Luxury Leaders Follow Eight Practices
New Luxury Leaders follow a set of practices that enable them to create premium products and services, build their businesses, and continually improve them.
Michael J. Silverstein
Michael J. Silverstein is a senior partner and managing director of The Boston Consulting Group and the former head of the firm's global Consumer and Retail practice.
Neil Fiske
Neil Fiske, a former BCG partner, is CEO of Bath and Body Works.
John Butman
John Butman, who collaborated in the writing of Trading Up, is the author, editor, or collaborating writer of more than a dozen books on business and social change.
Silverstein and his former BCG partner, Neil Fiske, have been studying this phenomenon, which they term "trading up," for the past 10 years, during which they have analyzed more than 30 categories of consumer goods and services and surveyed 2,300 consumers about their buying habits. Their new book… documents their investigation into the forces driving this trend and profiles companies that have cracked the code to success in this market.
—Linda Tischler, Fast Company
If you've wondered why Panera shops pop up in our landscape while McDonald's struggles, this book offers a convincing answer: Consumers today will pay more—a lot more—for certain items that they find especially satisfying. How entrepreneurs created such goods—things that provide "masstige," prestige for a mass market—is the focus of Trading Up.
The question for entrepreneurs—at whom this book, with its admirable sangfroid, is aimed—is: Why do some New Luxury products explode, while others belly-flop harder than a plunging Cadillac Cimarron?
A construction worker spends $3,000 for a set of Callaway golf clubs. An executive drives a BMW but buys household staples at Costco. Why?… That's the question driving Trading Up by Michael J. Silverstein and Neil Fiske…. Its examples are fascinating.
Are you average? No one pays attention to average anymore. Average is invisible, doomed to failure. Trading Up makes the persuasive case that the easiest, most profitable way to change a market and win big is to go for the top. The best, after all, is never average.
If the decade of the nineties belonged to low-end brands like Wal-Mart, Southwest Airlines, and Costco, the decade of the zeros belongs to high-end brands like Starbucks, Callaway, and Kendall-Jackson. Trading Up offers an insider's look at the winning brands and strategies in this rapidly developing 'new luxury' market.
Silverstein's book… chronicles the aspirational manners and consumer preferences of contemporary Americans. The book… is an upbeat survey of a range of consumer brands—Whirlpool, Belvedere, Williams-Sonoma—which, the authors argue, are successful because they appeal not just to the material needs of consumers but to their emotional desires. The book, which draws on interviews with covetous consumers, provides an even juicier read than its fictional counterpart.
Trading Up, a new book by Michael Silverstein and Neil Fiske…. is almost entirely devoted to the matter of who buys what as well as to the whys and the wherefores…. In the course of their work at BCG, they have spent more hours than I guess even they care to think about investigating why people will spend $6 on a Panera panino when they could have bought a $3 sandwich at the deli.
In Trading Up, coauthors Michael Silverstein and Neil Fiske…. argue that the top end of the market is the best place to make profits in a world of cost cutting and shrinking margins. Pass the Chateau Margaux and let's drink to that.
During the 20 years I taught M.B.A. students there were about four books published that were so important, well researched and readable that I found a place for them immediately. Trading Up is of that quality for it contains concepts that when understood will greatly enhance a business person's chance of success.
Trading Up is far more than a dissection of a single consumer trend. It is packed with insights on how shoppers think and behave. I found it incredibly smart and illuminating.
Silverstein rattles off a wide-ranging list of retailers he says should continue cashing in on consumers' gravitation toward higher-priced products in their everyday lives.
The best book on High Disruption is Trading Up: The New American Luxury by Michael Silverstein and Neil Fiske.
Insightful, anchored in reality, pointing management toward opportunities for profitable top line growth.
For further information about how to take advantage of the trading up phenomenon, please contact Michael J. Silverstein at silverstein.michael@bcg.com.
In a Harris Interactive poll of 2,300 middle-market American consumers, 96 percent of the respondents said they regularly buy premium goods in at least one category.
There are 47 million households in the United States with incomes of more than $50,000. With an average household size of 2.6 people, that's nearly 122 million Americans with the means and the desire to trade up. Consumers with very high incomes, $150,000 and above, can afford to trade up in many categories. Those with lower incomes selectively trade up in some categories and trade down in others. Many consumers spend a disproportionate amount of their income in one or two categories of great importance to them, a practice known as rocketing.
Ninety-six percent of American consumers say they often pay a premium for New Luxury goods. Most of these consumers are members of the "mass affluent" with household incomes of $50,000+. But, because many of these items have low ticket prices, even households with lower incomes can participate.
