Trading Up: Why Consumers Want New Luxury Goods... And How Companies Create Them - Hardcover

Über die Autorin bzw. den Autor

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.

Auszug. © Genehmigter Nachdruck. Alle Rechte vorbehalten.

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 phenomenonincluding increased discretionary wealth and the changing structure of the American householdhave 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 and even survive. The New Luxury sweet spot is where companies are able to move off the traditional demand curve and achieve high margins and high volumes at the same time. Our research shows that New Luxury goods typically account for up to 20 percent of a categorys unit volume, but 40 percent of its dollar volume, and a remarkable 60 percent of its profits.

We have also seen that New Luxury is becoming a presence in many categories beyond the twenty-three we originally studied. Even in such categories as financial services and healthcare, we are seeing the emergence of companies that are creating premium offerings, targeted to the mass affluent, which display genuine product and services differences along with emotional appeal.

We have also seen that the trading up consumer behaviors (including rocketing, which means spending a disproportionate amount of income on a single category) have become increasingly pronounced and are followed even by consumers who cannot be considered affluent. Now that most consumers can afford to buy the goods that fulfill their basic survival needs and still have cash available, they will buy products and services that are emotionally meaningful to them.

Finally, our research outside the United States has shown that trading up is a global phenomenon, as relevant and powerful in Europe, Canada, Australia, Japan, and other parts of the world as it is in the United States. The sociodemographic trends that drive trading up in other geographies are similar, with only minor differences in degree and rate, to those that drive trading up in the US. The size of New Luxury in these geographies is also similar. We estimate the size of the European and Asian New Luxury market, for example, to be about $400 billion, the same size it is in this country.

The Debate around Trading Up

Its not surprising that trading up should be such a durable phenomenon, because, in fact, it is nothing new. Around the world, people have been trading upseeking to enrich their lives and engage their senses and emotions through wonderful goodsfor centuries. Whats different about trading up today is its availability to a much larger percentage of the population, and there are vastly more premium goods and services to trade up to.

There is another difference: our attitude about consumption. As long as people have been trading up, we have also been debating, philosophizing, and moralizing about it. We have worried and felt guilty about buying things that are not strictly related to our basic needs (food, shelter, clothing) and are bought simply because we want them. In ancient Greece, luxury goods were condemned because they were considered a corrupting influence. The ancient Romans passed laws to regulate the consumption of certain goods.

Over the years, philosophers, economists, and social observers have joined in the discussion. Adam Smith (Scottish philosopher-educator-economist, 17231790), author of Wealth of Nations and a father of capitalism, argued that opulence and freedom are two of the greatest gifts a man can possess. He believed that the individual desire for improvement led to a collective economic good, creating employment for many and wealth for the state.

Thorstein Veblen (American economist-social scientist, 18571929), author of The Theory of the Leisure Class (1899), is probably the most-cited observer of the social scene relative to consumption. He observed that, in a highly organized industrialized community such as ours, a persons reputation is based on his pecuniary strengthhow much money he has and the best way to show that strength is through the conspicuous consumption of goods.

In the 1950s, production, as well as consumption, came under close scrutiny. In The Affluent Society (1958), John Kenneth Galbraith (American economist-educator-writer, born 1908), argued that our ability to produce goods would eventually exceed our desire to buy them.

In the last...