Customer Reviews

Trading Up: Why Consumers Want New Luxury Goods--and How Companies Create Them

5 star:		(19)
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3 star:		(4)
2 star:		(2)
1 star:		(1)

 

 

NOTE: This review of the Revised and Updated edition may also be featured in combination with other reviews of the earlier edition.

This is a revised and updated edition of the highly-praised and award-winning bestseller which first appeared in October of 2003. Obviously, Silverstein and Fiske have since learned a great deal from responses to their analysis of "New Luxury": a rapidly developing socio-economic trend as America's middle-market consumers are trading up to "products and services which possess higher levels of quality, taste, and [key word] aspiration than [other] goods in the [same] category but are not so expensive as to be out of reach...[trading up to products and services which] sell at much higher prices than conventional goods and in much higher volumes than traditional luxury goods and, as a result, have soared into previously uncharted territory high above the familiar price-volume demand curve."

The significance of this paradigm shift continues to have profound implications for literally anyone who competes each day for consumers' attention, consideration, and (most important of all) business. Hence the importance of this revised and updated edition. For decision-makers in most local chambers which do not offer luxury products and services, the challenge is to convince prospects (e.g. for membership, sponsorships, and for placement of advertising) that the total value far exceeds the given cost. (I agree with Warren Buffett that cost is what is charged but value is what a buyer think it's worth.) For example, many people will join a local chamber to "trade up" IF they perceive that, by doing so, they will then have access to better as well as more extensive networks of business contacts. In this instance, prestige and luxury are synonymous.

Think about it. How to explain the spectacular success of diverse companies such as Starbucks, Martha Stewart Living Omnimedia, Lexus and BMW, Williams-Sonoma and Bed, Bath & Beyond, Restoration Hardware, Victoria's Secret, Prada, Coach, Panera Bread, and Callaway? Granted, most consumers cannot afford to purchase everything from companies such as these but an astonishing number of consumers are not only willing but eager to pay a premium for at least a few of the products offered.

Why? Silverstein and Fiske offer several reasons. New Luxury merchants never underestimate their customer; they shatter the price-volume demand curve; they create a ladder of genuine benefits (i.e. technical, functional, and emotional benefits); they escalate innovation, elevate quality, and deliver a flawless experience; they extend the price range and positioning of the brand; they customize the customer's value chain to deliver on the benefit ladder; they use influence marketing to "seed" success through brand apostles (i.e. "evangelism"); and finally, they continually attack the category like an outsider. What Silverstein and Fiske offer is this volume is a rigorous analysis of those companies which continue to be most successful in the New Luxury economy. They also explain in detail precisely HOW they achieve such success.

I loved this book for several reasons.

1) The premise made sense from the beginning
2) They backed it up with real data and examples
3) The book was highly readable (not an academic snooze inducer)
4) The information is useful to my business

A brilliant successor to Paco Underhill's outstanding "Why We Buy."

Are people shallow if they identify with certain products or lifestyle choices? Perhaps. What this consumer trend says about people is not the issue. It's about how businesses must adjust to this phenomenon to remain viable.

The book visits the concept of "Death in the middle." The market is polarizing more than ever. The biggest successes are either the lowest cost or the highest. People are moving away from the mid-range products. Your product is either a commodity or a specialty item.

People are choosing which goods that they want to be identified with - good that define their passion and personality. They will spend a great deal more on these few items. Everything else is unimportant, so the cheaper the cost the better.

So if you are a marketer, position your products as either the lowest cost or the highest. If you are a product manager, design your products to fit one or the other class. Don't die in the middle.

I wonder if we'll see this phenomenon in books. Maybe we'll start seeing $75 luxuriously bound books for people who love reading. I'll keep watching Amazon.com to see if anyone tries it.

Michael Silverstein has written a built-to-last business book about a global phenomenon that is not going away unlike so many other business fads. Trading Up and trading down has a transformational effect on more and more categories, retailing and markets. Silverstein clearly explains that the increasingly sophisticated consumers of the critical "middle market" have been key to drive a polarization of the product and service offering to the high and low ends of the price spectrum. Woe be to the businesses which continue to offer conventional goods and services getting "stuck in the middle." Think for instance about the Big Three of Detroit, traditional airline companies, and some chains of department stores.

Although Silverstein focuses on trading up in this book, he mentions elsewhere that in 2004 in the U.S. alone, trading down was at $1 trillion almost twice as big as trading up. The "savings" that consumers get from an increasingly efficient economy can be re-injected in even more consumption. This consumption frenzy has resulted in abysmal saving rates that will haunt the U.S. when ongoing demographic changes will start to undermine the financial stability of complementary sources of income as Peter Peterson correctly points out in "Running on Empty."

In the meantime, smart entrepreneurs and companies have reinvented their marketplace by making "massstige" or mass prestige products available to an ever-growing proportion of the critical middle market. These products command a price premium over conventional offerings, but are priced well below super-premium or old luxury products. Furthermore, these mass prestige products are pretty resilient in a downturn economy.

Trading up is driven by changes to both demand and supply. On the demand side, changes to the role of women as economic agent, the decline of the traditional family, a modified perception of consumption, higher home ownership, more discretionary wealth, and the "savings" passed on to American households by large discount retailers have fuelled the stratospheric rise of the New Luxury market.

On the supply side, Silverstein clearly shows in one product category after the other that the New Luxury trend-setters have been keen to meet that demand. These leaders have made their creed to observe the following eight best practices:

1. New Luxury trend-setters assume that their target customers are very smart. Under no circumstances should these customers be underestimated.

2. New Luxury trend-setters disprove the traditional economic truth that when price goes up, volume necessarily goes down. New Luxury products often embody the 20/40/60 rule. These products regularly account for up to 20% of the category's volume, 40% of its revenues and 60% of its profits.

3. New Luxury trend-setters create a ladder of real benefits. They not only offer a product with a superior technology and/or design that result in a superior functionality, but also, and more importantly, engage their customers emotionally in an uncertain and fast-paced world. Silverstein has identified four powerful emotional drivers, i.e., taking care of me, connecting, questing and individual style.

4. New Luxury trend-setters do not rest on their laurels in terms of innovation, quality and a flawless experience. The ever-faster cascading effect of innovation, quality and flawless experience from top to bottom in more and more categories obliges New Luxury makers to be restless and paranoid in these areas.

5. New Luxury trend-setters reinvent the price range and positioning of their brand by building an aspiration escalator that leads the consumer from the low-end to the high-end with a clear mix of features and benefits at each step.

6. New Luxury trend-setters customize their value chains to deliver what they promise to their target customer segments. Control of the value chain is considered more important to New Luxury trend-setters than its ownership. Like a film director, they have become very good at synchronizing the different actors who help them to be successful in meeting the wants and needs of their target audience.

7. New Luxury trend-setters not only use traditional consumer-research methods, but also spend more time to understand the wants and needs of their target customers. The cultivation of brand apostles and word-of-mouth are critical to develop the desired buzz and viral marketing for maximum leverage in the marketplace.

8. Finally, New Luxury trend-setters consider themselves outsiders rather than insiders. They know that their success today will be just a temporary illusion if they do not continue to set new standards for innovation, quality and a flawless experience.

To summarize, Trading Up is relevant not only to marketers, but also to any consumer who wants to become even smarter in an increasingly sophisticated marketplace.

The trading up proposition is interesting, but the readers can grab the gist of the book by just reading chapter 1 which summarizes the entire book, and chapter 14 which covers the way forward. The other chapters are like exhibits to support the executive summary.

Silverstein and Fiske brilliantly examine New Luxury": a rapidly developing socio-economic trend as America's middle-market consumers are trading up to "products and services which possess higher levels of quality, taste, and [key word] aspiration than [other] goods in the [same] category but are not so expensive as to be out of reach...[trading up to products and services which] sell at much higher prices than conventional goods and in much higher volumes than traditional luxury goods and, as a result, have soared into previously uncharted territory high above the familiar price-volume demand curve." The significance of this paradigm shift has profound implications for literally anyone who competes each day for consumers' attention, consideration, and (most important of all) business.

Think about it. How to explain the spectacular success of diverse companies such as Starbucks, Martha Stewart Living Omnimedia, Lexus and BMW, Williams-Sonoma and Bed, Bath & Beyond, Restoration Hardware, Victoria's Secret, Prada, Coach, Panera Bread, and Callaway? Granted, most consumers cannot afford to purchase everything from companies such as these but an astonishing number of consumers are not only willing but eager to pay a premium for at least a few of the products offered.

Why? Silverstein and Fiske offer several reasons. New Luxury merchants never underestimate their customer; they shatter the price-volume demand curve; they create a ladder of genuine benefits (i.e. technical, functional, and emotional benefits); they escalate innovation, elevate quality, and deliver a flawless experience; they extend the price range and positioning of the brand; they customize the customer's value chain to deliver on the benefit ladder; they use influence marketing to "seed" success through brand apostles (i.e. "evangelism"); and finally, they continually attack the category like an outsider. What Silverstein and Fiske offer is this volume is a rigorous analysis of those companies which continue to be most successful in the New Luxury economy. They also explain in detail precisely HOW they achieve such success.

The past fifteen years have been witness to both negative and positive shifts in the American economy. With the ever shrinking middle class, creating a larger gap between the rich and the poor, American industries are faced with either adapting to the consumer change or becoming extinct. A fairly new trend, which can trace its roots back as early as the 1930's, is the "trading up" phenomenon.

Michael Silverstein and Neil Fiske illustrate the American consumer's ever increasing need to create their individuality from the products they purchase, which creates a greater need for companies to specialize their product within their general market.

American consumerism has little to nothing to do with purchasing what one needs but focuses solely on what one wants. Trading Up is rife with stories from Callaway Golf to Victoria Secret and how each person had to take a risk in order to achieve the monumental success. "Trading up" utilizes emotional engagement as an essential factor in creating and advertising a product. The product must instill a sense of desire within the consumer enabling them to pay a high premium. Yet, emotional engagement is only the beginning.

Silverstein and Fiske refer to a "ladder of benefits", which are key factors in the "trading up" phenomenon. The "ladder of benefits" reshape and provide new meaning to an product already on the market. Through technical differences, superior functional performance and emotional engagement a company would be able to recreate an already existing product and sell it for a premium price. Trading Up is an excellent book to lay the groundwork for a motivated, creative, and business savvy individual, who is ready to take their industry to the next level. The middle class consumer is "trading up," will you?

As the next generation in a family business rooted in luxury, I bought this book to expand my knowledge of the 'new luxury', middle-market consumer. The book was brilliantly written and well executed in terms of the combination of research, data, interviews and testimony complied. The authors made intelligent choices in the companies they profiled and the success tories they told were not only informative and helpful, but were inspiring. The language of the book was very straightforward and succinct. I have made this a mandatory read for anyone that works for me. I also bought and read Living It Up: America's Affair with Luxury by James B Twitchell which I also found to be an excellent read. I began my self-tutelage with Twitchell's book and in my having now read both, think I should have read this book first. This book laid a great foundation for what I met in Twitchell's book. My only complaint was that is was not longer, which is why I rated with 4 out of 5 stars, but I suspect that is just my brain being the sponge that it is and wanting more input.

Boston Consulting Group appears to be a highly successful firm with deep insights into the market. They've worked with Victoria's Secret and helped it to find a killer branding concept. They've got a former employee who helped create the Sam Adams brand. They watch the market, and they survey the market and they've got some helpful observations in this book. Working for a small business in a "trading up" environment in DC's metro area, I find many concepts that are applicable to my work.

I dig the general paradigm behind the book. Travelling around DC, I often wonder why Wal-Mart and Target are into expanding into suburban markets even as I see the increasing economic invincibility of high-end malls like Tysons Corner. "Trading Up" does a good job of analyzing these matters through case studies focused around trends in fast casual dining, car buying, alcohol consumption and other purchasing habits of higher end consumers. They do a good job arguing for increased consumer capital leading a broader section of the population to seek the finer things in life. They come up with a few simple paradigms about how and why people trade-up. Ideas such as "Taking Care of Me" are simple to understand and can provide a few key ideas for growing business seeking to capitalize on this market.

I question the objectivity of this book. In reading a book like "Built to Last", it was clear that the authors sought research credibility first and then conclusions second. "Trading Up", however, feels like a book where the research is designed to give preordained conclusions validity. It points the way toward some helpful companies to look at as role models, but I also feel that there is some bias towards presenting their own clients in a very positive way and that more objective research into the field would be helpful.

I'm very frustrated with the concept of the Revised edition. They move a chapter around. They add an introduction, and they insert some information into their future of "Trading Up" sections at the end of the book. I don't feel, however, that there was a big justification for a second hardcover edition. I feel that it would be more fair to readers to offer a paperback edition with a substantive postcript that evaluates more thoroughly how "Trading Up" has been applied to newer companies. This revised edition is quite a mixed bag. It's challenging to compare to the former edition because page numbers will not match up well. But the information is not substantively different enough to justify the additional purchase. I think that's more marketing than offering value to the book consumer.

Nevertheless, I found this book helpful and it will motivate me to do more research in the area of marketing and probably find even stronger resources.

3.5 stars.

--SD

Silverstein & Fiske do a great job of explaining the apparent dichotomy of BMW's in the Wal-Mart parking lot. Chapter 3 is a great primer for how to market New Luxury. I have read chapter 3 a few times and I keep getting more out of it. This book more clearly explains consumer marketing than the textbooks I read in business school. The book would have been more valuable if they considered how to apply this thinking in a "B to B" environment. Overall, an excellent read but don't take my word for it, visit the Boston Consulting Group web site and download Chapter 1 to get a taste. I bet you will come back here and buy it!

Someone has finally figured out that business books don't have to read like medical journals. "Trading Up" is actually fun. It is filled with consumer insights and annecdotes that have you saying "aha...I do that!" in almost every chapter. I do, in fact, haunt [a store] for bargains so I can splurge on the spa and a good glass fo wine ...

Good writing, however, doesn't mean the book is low on strategy. It is, in fact, some of the best strategic insight into consumer behavior I've read in years. While I picked the book up expecting just another marketing tome....there's not a marketing gimmick in sight. The book is all strategy: a no nonsense recipe for success in today's challanging business climate. It shows us that the "average" consumer is no more. Everyone is "gourmet" in the categories that matter to them...and a bargain hunter those that don't. You can now sell premium price to a mass market...and win big. [just lke ... the many other companies profiled in the book].

It doesn't matter if you're in the appliance business, selling cars, producing food products, running a fast conveninece restaurant, or marketing travel services...if you don't read "Trading Up"...you're gonna find yourself traded out!