Trading Up: The New American Luxury

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, e

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?

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 whic

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.