Trading Up (revised edition) Why Consumers Want New Luxury Goods . . . and How CompaniesCreate Them

by Silverstein, Michael J.; Fiske, Neil; Butman, John

• ISBN13: 9781591840800
• ISBN10: 1591840805
• Edition: Revised
• Format: Hardcover
• Copyright: 2004-12-29
• Publisher: Portfolio Hardcover

Summary

First published to media acclaim in October 2003, Trading Uprevealed how today’s middle-class consumers are seeking higher levels of quality, taste, and aspiration than had ever been possible before—in their choices of cars and clothing, vodka and beer, golf clubs and dolls, and much more. The book identified a major opportunity for entrepreneurs and innovators, managers and marketers, in every category of consumer goods and services. Now Michael Silverstein and Neil Fiske have thoroughly revised this BusinessWeekbestseller with new research and new insights into the still- growing phenomenon of trading up.

Author Biography

Michael Silverstein is a senior vice president of The Boston Consulting Group. He has helped clients develop new premium-priced products that command $4 billion in retail sales.
Neil Fiske is the former head of the Chicago office of The Boston Consulting Group and is now the CEO of Bath & Body Works.

Table of Contents

Preface by Leslie Wexner	vii
Introduction to 2005 Edition	xiii
1 Trading Up to New Luxury: An Overview	1	(14)
2 The Spenders and Their Needs: Sociodemographics, Emotional Drivers	15	(37)
3 The Creators and Their Goods: Definitions, Forces, Practices	52	(24)
4 Inside the New American Home: Retailers, Appliance Innovators	76	(29)
5 Eating As an Emotional Experience: Panera, The Cheesecake Factory, Trader Joe's	105	(23)
6 Awakening the American Palate to Wine: Kendall-Jackson	128	(24)
7 The World Is a Sexy Place: Victoria's Secret	152	(16)
8 The Old World in New Luxury Bottles: Belvedere, Boston Beer	168	(19)
9 Demonstrably Superior and Pleasingly Different: Callaway	187	(17)
10 Only the Best for Members of the Family: American Girl, Pet Food	204	(14)
11 A Cautionary Tale of an Old Luxury Brand: Cadillac	218	(18)
12 The Opportunity: Growth Areas, a Work Plan	236	(36)
13 A Call to Action	272	(4)
About Our Sources	276	(9)
Acknowledgments	285	(6)
Index	291

Excerpts

Introduction to the 2005 Edition Since the original publication of this book, in October of 2003, we at The Boston Consulting Group have watched as the trading-up phenomenon has continued to grow, to influence our society, and to be widely recognized as one of the most significant business trends in decades. Since publication, we have seen that the social and economic drivers that originally produced the phenomenon?including increased discretionary wealth and the changing structure of the American household?have not abated. Most important to our business readers, we have been pleased to see that companies that create New Luxury goods have consistently outperformed their competitors.But we have been doing more than watching. We have been involved with many companies that seek to pursue a premium strategy as an avenue to growth and have found that the management practices we outlined in the book are broadly applicable and replicable, and can be refined and adapted for a wide variety of companies and industries and management styles. We have conducted more research into consumer attitudes and behavior. We have analyzed additional categories of goods and services, and broadened the scope of our inquiry to include markets outside the United States. We have tracked the performance of the ?New Luxury 15,? an index of fifteen publicly traded companies that create premium goods in a variety of categories. The findings of our work convince us, more than ever, that the trading-up phenomenon is a fundamental, ubiquitous, and long-lasting aspect of our consumer-driven global economy. Perhaps most important, the trading-up phenomenon has lasted over time and has proven to be as influential in bad times as it is in good times. When we first started talking about trading up, some observers dismissed it as an anomaly, a short-lived trend that came about as the result of an unprecedented confluence of factors, including a strong economy, remarkable consumer confidence, and a buildup of home equity. Our continuing research shows, however, that consumer buying of New Luxury goods is not much affected by economic conditions, and that the performance of companies providing New Luxury goods remains strong even in a downturn. Based on our analysis of twenty-three categories of goods and services, we estimate that New Luxury reached $400 billion in 2003 in the US and will continue to grow at the rate of about 15 percent per year; we expect that it will reach $1 trillion by the end of this decade. It is actually a global phenomenon, with the UK, Scandinavia, and Japan matching the US in growth. In 2003, the New Luxury 15 companies achieved an average sales growth of 19 percent, significantly higher than the 3 percent growth in the GDP that year. These companies also did well by their shareholders, achieving a median total shareholder return (TSR) of 26 percent for the three-year period from 2001 to 2003, versus a 4 percent median annual TSR for the S&P 500. Such excellent performance fuels the continued growth of New Luxury. We have also seen the dramatic transforming effect of trading up and trading down on categories, retailing, and markets. Trading down is when consumers choose the low-cost alternative in product categories of little importance to them, and it is an essential part of the larger phenomenon. Without the availability of low-cost alternatives and commodity goods in a very wide range of categories, many consumers would be unable to afford the New Luxury goods they want to buy in the small number of categories that are most meaningful to them. In category after category, the entry of a New Luxury brand, combined with trading up and trading down behavior, has caused its category to polarize. Both the growth and profits in the category move to the high and low ends of the price spectrum, while companies offering conventional goods get ?stuck in the middle? and struggle to succeed a