Trading Up - Page 5
n Access to flexible worldwide supply-chain networks –
3. The supply side forces that fuel new-luxury goods
In just the same way as strong forces are driving the demand
side of new-luxury, there are also strong supply-side forces at
work. Entrepreneurs have unprecedented access to capital.
Even small businesses now have the capacity to tap into global
supply networks. Shopping malls have brought many more
specialty retailers into neighborhoods than ever before. All of
these factors have combined to make it easier than ever for
vendors to develop and market new-luxury goods. And this trend
is only just beginning to gather momentum.
The key differences between new-luxury goods and those that
can be classified as old luxury or conventional are:
New-luxury Commodity Old Luxury
Affect Engaging Bland Aloof
Availability Affordable Ubiquitous Exclusive
Price Premium Low cost Expensive
Mass Mass
Quality Handmade
artisanal produced
Social basis Value driven Conformist Elitist
In other words, new-luxury are a very distinctive class of goods.
Whereas old luxury items were exclusive mainly because of the
prohibitive prices charged, new-luxury goods are far more
affordable. New-luxury items command a premium because they
integrate elements of craftsmanship. Many new-luxury goods
are “mass artisanal” – that is, some of their production steps
involve humans while other steps use normal mass production
technologies. The basic pattern or process does not change, but
there will be slight variations allowing the customer to express
their individuality and personal style.
Old luxury goods traded heavily on their elitism. New-luxury
goods are limited but not exclusive. New-luxury goods are
upmarket and more expensive, but still accessible. New-luxury is
all about expressing your shared values more than proving you
have money by buying the absolutely most expensive option
available.
The business forces which have fueled the growth of new-luxury
goods include:
n Changes in the dynamics of retailing – and the rise of
specialty retailers (Crate and Barrel, Williams-Sonoma,
Victoria’s Secret, Bed Bath & Beyond, etc.). These speciality
retailers offer a limited selection of goods in a limited number
of categories at premium prices. Consumers then end up
shopping for the bulk of their purchases at low-cost mass
merchandisers (Wal-Mart and Costco) but flock to the
speciality stores and pay a premium for goods in areas where
they want to trade up. America now has over 45,000 shopping
malls which fuel the increasing demand for new-luxury goods.
The trend now is towards even bigger malls that also
incorporate entertainment features like multiplexes, rides,
themed events, live performances and many more elements
of “shoppertainment”.
enabling smaller companies to use foreign markets to source,
manufacture, assemble and distribute goods. Facilitators are
also available who will help create, optimize and manage
supply-chain networks for their clients. All of this means
retailers can participate in the product design process rather
than simply acting as channels of distribution.
n Increased speed of innovation – it has now become easier for
designers to clone the style, design features, technology or
materials from high-end products and incorporate them into
premium goods. Consumers are pushing manufacturers to
incorporate more technology into their top-end products, and
these features are then cascading down into other price
points at a faster rate than ever before.
n Flexibility in manufacturing processes – allowing new-luxury
goods makers to ramp up production quickly when demand
increases. Typically, new-luxury manufacturers will
outsource complex or expensive manufacturing steps and
then retain the final assembly functions in-house so that
individual product orders can be met. (This is the essence of
the mass-artisanal approach).
New-luxury consumers don’t automatically assume if something
costs more it must be better. They are sophisticated enough to
tell when they are being offered superficial improvements and
when genuine benefits or real differences are incorporated into a
product. New-luxury isn’t really about astute marketing. Instead,
new-luxury goods have to deliver on three levels:
1. Technical features that are different.
2. Genuine enhanced performance.
3. Emotional engagement with the consumer.
Very often, new-luxury goods are created by companies who are
an outsider to the category. They come in free of the constricting
assumptions of the industry insiders. They import fresh ideas
and practices from other industries. Outsiders don’t have any
feel for how many units can be sold at any particular price point
and therefore they develop new-luxury items which conventional
industry wisdom suggests won’t work. Outsiders also can see
the gaps within an industry that the incumbents have
automatically accepted without questioning. They come up
“funny” ideas that will be scoffed at by industry insiders but are
frequently loved by consumers.
“The star of trading up is the American middle-market consumer.
For decades, demographers have loved these consumers
because they were easy to identify and seemed quite predictable
in their behaviors. Companies counted on them, too, because
they had control over them and could tell them what to buy and
set prices as they wished. But the ‘average’ middle-market
consumer is disappearing. More and more the middle-market
consumer is a person who selectively trades up to new and
better products and services and trades down in others to pay for
the premium purchases. New-luxury consumers are so
knowledgeable, selective, affluent, and discerning that
businesses must listen and respond to them as never before.
And although the primary traders up are relatively affluent –
earning $50,000 a year and above – the effects of new-luxury
goods spread benefits to people at all income levels. By
polarizing the market, a new-luxury entry does not drive out
low-cost goods; rather, it helps to ensure they are available. And
the pressure from the most affluent consumers accelerates
innovation at the high end which cascades downward to lower
priced products more rapidly than ever before.”
– Michael Silverstein and Neil Fiske