Trading Up: The New American Luxury [Hardcover]

Michael Silverstein (Author), Neil Fiske (Author)

Book Description

Release date: October 13, 2003

A fascinating look at why millions of consumers are "trading up" to premium goods, and how companies can profit from this phenomenon.

Middle-market consumers have more discretionary income than ever before and are willing to pay extra for "new luxury" goods and services-items that deliver higher quality, technical advantages, and superior performance to conventional products. Above all, consumers are looking for emotional engagement-they look to products to help them manage the stresses of everyday life, and to help them realize their aspirations. A new luxury good may be as simple as a shampoo ($9 from Aveda, versus $3 from Suave) that brings moments of comfort and sensual pleasure, or as complex as a car ($26,000 for a bottom-of-the-line Mercedes, versus $20,000 for a Pontiac) that delivers feelings of safety and excitement.

Clothing, cars, beer, coffee, kitchen appliances, lingerie, personal care, pet food, restaurants-in dozens of categories, new luxury goods occupy a sweet spot in the market, because they can sell in much higher unit volumes than "old luxury" goods, but command much higher profit margins than ordinary products. But new luxury leaders-such as Callaway Golf, Victoria's Secret, Panera Bread, Belvedere vodka, Whirlpool Duet, and Williams-Sonoma-create andmarket their goods very differently than do conventional companies. Trading Up explores what's driving this move to premium goods, tells the inside stories of many New Luxury companies and their leaders, and offers insights and methods that can help the reader take advantage of this remarkable phenomenon. The book is based on the authors' experience in helping clients create billions of dollars worth of New Luxury products as well as on exhaustive supporting research.

Editorial Reviews

From Publishers Weekly

In Bobos in Paradise, David Brooks traced the cultural forces behind the rise of what he called the bohemian bourgeois class. Now Silverstein and Fiske take a close look at its buying patterns. Both authors have v-p-level experience at the Boston Consulting Group studying retail practices, and they display deep familiarity with "new luxury" goods favored by a growing segment of the American middle market with more disposable income than ever. They're talking about people who take shopping tips from Oprah and Martha, swear their washing machine makes them happy, and dine at "fast casual" restaurants instead of burger chains. Many chapters focus on companies that produce specific luxury items. Victoria's Secret, for example, was a small, seedy store before it was purchased by a visionary retailer convinced American women would be willing to pay higher prices for attractive lingerie in a boutique setting. There's also the case of Callaway Golf, which was able to target new luxury shoppers to achieve a tenfold increase in revenue within just three years. Even the toy market can become a breeding ground for high-end items, like American Girl dolls, a line with an extensive back story that appeals to the luxury consumer's desire to "know" the pedigree of his or her purchases (just as some wine aficionados jump at the chance to display their mastery of California vintages). Despite the book's slight technical flaws, including a high degree of repetitiveness, its insights into a highly lucrative market (e.g., single women earn in excess of $374 billion annually) make this a must read for anyone interested in practical economics.
Copyright 2003 Reed Business Information, Inc.

From Booklist

Many words can be written that underscore the truth about trading up--or, in these authors' words, "consumers who selectively trade up to better products and trade down to pay for other premium purchases." Writers have documented the trend of middle-market Americans to selectively decide that, say, a luxury automobile or vacation is worth the extra bucks while "sacrificing" other goods, such as dining out or clothing. With much perspicacity and no small amount of statistics, Silverstein and his coauthors underscore with eight practices what leaders need to do, including never underestimating customers to using influence marketing and seeding success through brand apostles. However, many of the examples they use are the "same-old" case histories--Williams-Sonoma, Crate & Barrel, Canyon Ranch, Samuel Adams Boston lager--that have been employed time and time again to illustrate other segmentation and marketing theories. Yet the concepts are valid; the caveats should be heeded. What's needed? Extraordinarly savvy marketers who can stay the course in the toughest of economies. Barbara Jacobs
Copyright © American Library Association. All rights reserved

See all Editorial Reviews

Product Details

• Hardcover: 336 pages
• Publisher: Portfolio Hardcover; First Edition edition (October 13, 2003)
• Language: English
• ISBN-10: 1591840139
• ISBN-13: 978-1591840138
• Product Dimensions: 1.1 x 6.4 x 9.3 inches
• Shipping Weight: 1.4 pounds
• Average Customer Review: 4.2 out of 5 stars  See all reviews (40 customer reviews)
• Amazon Best Sellers Rank: #1,052,944 in Books (See Top 100 in Books)

Most Helpful Customer Reviews

35 of 37 people found the following review helpful

5.0 out of 5 stars New Criteria for Self-Definition June 3, 2004

By Robert Morris HALL OF FAMETOP 100 REVIEWERVINE™ VOICE

Format:Hardcover

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.

23 of 24 people found the following review helpful

5.0 out of 5 stars Outstanding view of the new way people buy April 8, 2004

By Daniel Limbach

Format:Hardcover

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.

20 of 21 people found the following review helpful

5.0 out of 5 stars The Rise of the Super Smart Consumer August 8, 2005

By Serge J. Van Steenkiste

Format:Hardcover

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.