December 28, 2009

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About the Authors

Trading Up
The New American Luxury
By Michael J. Silverstein and Neil Fiske, Penguin Books, 2003

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Mr. Silverstein joined The Boston Consulting Group in 1980. His second book, Treasure Hunt, was published in May 2006 and has received critical acclaim. With Kate Sayre, he is coauthor of a third book, Women Want More, which is being published in September 2009.

hy do people happily pay for a anera anini instead for a sandwich at the deli

r for a ictoria s ecret bra instead of for a generic brand r instead of hevy for a for a

shop at arget every weekend a construction worker who splurges on a set of allaway golf clubs will also buy store brand groceries or many companies today trading up is a smart strategy for achieving growth and profitability in a world of cost cutting and shrinking margins n dozens of categories new luxury brands are selling at premiums of percent to percent over conventional goods and in much larger volumes than traditional old luxury goods he authors estimate that in just twenty three categories mass luxury goods amount to billion in annual sales with tremendous potential remaining for future growth

rading up has become a fact of life hese purchases reflect an important worldwide behavioural shift onsumers today are willing to pay a significant premium for goods and services that are emotionally important to them and that deliver the perceived values of quality performance and engagement ut in other categories that aren t emotionally important they become bargain hunters a passionate ercedes driver will

Neil Fiske was named Chief Executive Officer in June 2007. He was recognized as Marketer of the Year and Retailer of the Year in 2004 and 2005 by Womens Wear Daily.

Whats Inside:
WHY YOU NEED THIS BOOK

NEW LUXURY IS MORE THAN MARKETING THE PRACTICES OF NEW LUXURY LEADERS

Trading Up | Michael J. Silverstein and Neil Fiske

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The Nutshell
WHY YOU NEED THIS BOOK rading p combines social insight rigorous research and business acumen to tell the fascinating story of the consumers who trade up to the new merican luxury and the companies that create it NEW LUXURY IS MORE THAN MARKETING ew uxury good cannot be imagined developed manufactured distributed or marketed following conventional middle market business attitudes or practices although many business assume they can be ompanies assume that the ew uxury consumer will be seduced by a high price point but ew uxury consumers do not automatically assume that if it costs more it must be better hey are sophisticated enough to evaluate the technical and functional benefits of a product and to trust their own emotional reactions to it e heard over and over again from consumers that the most expensive entry in a category is not always the best s one consumer put it uxury can sometimes mean better quality and last longer but sometimes it s cheap and flimsy
uthors ichael ilverstein and ublisher enguin ooks pages eil iske

ew uxury is much more than a marketing exercise although marketing is of course a key part of the process ut ew uxury goods are not created solely in the marketing hey are created through all the management disciplines and often through unconventional marketing methods THE PRACTICES OF NEW LUXURY LEADERS ew uxury leaders and their companies follow a set of management practices that are different from those of conventional or ld uxury goods

About the Book

Trading Up | Michael J. Silverstein and Neil Fiske

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creators sing them ew uxury companies have shattered conventional beliefs in nearly all aspects of product creation and distribution including ideas about price ceilings price ranges brand extendibility consumer sophistication market stability and the innovation cascade Never underestimate the customer. n every ew uxury category consumers are more affluent better educated and more sophisticated than ever before n the categories they care about they consider themselves to be knowledgeable and even expert hese consumers appreciate traditional quality technological innovation and emotional authenticity hey care about the heritage and history of a brand and are interested in the category as a whole Shatter the price-volume demand curve. he masstige segment for example is to of many personal care categories and growing at twice the industry average ub ero shattered the conventional wisdom that there was no substantial household appliance market above the price point is the most profitable car company in the world with unit volume of its ew uxury models ten times that of other superluxury cars Create a ladder of genuine benefits. erhaps the most important of the ew uxury practices is ensuring that the products deliver a ladder of genuine differences technical functional physical and emotional

Escalate innovation, elevate quality, and deliver a flawless experience. he market for ew uxury is rich in opportunity but it is also unstable his is because technical and functional advantages are increasingly short lived as new competitors enter the market and because of the relentless download pressure of the innovation cascade hat was luxurious and different today becomes the standard brand of tomorrow Extend the price range and positioning of the brand. any ew uxury brands extend the brand upmarket to create aspirational appeal and down market to make it more accessible and competitive and to build demand Customize your value chain to deliver on the benefit ladder. ew uxury creators often work outside the established value chain in order to overcome the structural barriers that stand in the way of small producers hey put the emphasis on control rather than ownership of the value chain and become masters at orchestrating it Use influence marketing; seed your success through brand apostles. n ew uxury goods a small percentage of category consumers contribute the dominant share of value n intense continuing focus on these core customers will yield early signs of a shifting

What was luxurious and different today becomes the standard brand of tomorrow.

Trading Up | Michael J. Silverstein and Neil Fiske

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market and ideas for next generation variants features or products Continually attach the category like an outsider. ew uxury creators look beyond their own categories for the trends and patterns that will generate the next breakthrough THE WORLD IS A SEXY PLACE ooking and feeling sexy is a powerful emotional place for ew uxury essons rom ew uxury ingerie ictoria s ecret ver the past twenty years the brand has traded up its customers to higher levels of taste and aspiration across multiple categories he brand took its customers from bland department store staples to more fashionable foundations nd then exner traded them up again to a functionally superior emotionally engaging bra which became a bestseller rands are able to draw emotional responses but only when there is a level of quality that serves as a tangible and relevant foundation y steadily increasing the upper price limit the ictoria s ecret brand has increased its

average unit retail price for bras by almost percent in five years he most important brand apostles for ictoria s ecret are the supermodels hey wear the lingerie and are brand advocates hey create the aspiration of joining a club of the most beautiful women in the world The brand keeps topping itself. oday ictoria s ecret owns the emotional space of feeling and looking sexy for merican women EATING AS AN EMOTIONAL EXPERIENCE mericans love to eat and always have but the eating habits and preferences of middle market eaters are changing essons rom anera read ew uxury ood uppliers

ustomers of rader oe s and anera read have proved that when offered a higher quality and emotionally engaging alternative to the norm they will go out of their way for the experience and they ll happily pay a premium for it arol the administrative assistant claims that she loves taking first timers to anera read

Trading Up | Michael J. Silverstein and Neil Fiske

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ord of mouth enabled rader oe s to build a billion retail franchise despite the out of the way store locations and lack of broadcast advertising ike obert ondavi in the wine industry anera read onald haich used his position as an insider to understand the opportunities presented by the shortcomings of the status quo INSIDE THE NEW AMERICAN HOME he changing character of the merican ome is one of the clearest indicators of major shifts in our society essons rom hirlpool ew uxury ome layers

emotional engagement for consumers ow often have you heard a consumer say that she loves her washing machine hey offer unique high quality products by scouring the world for new and interesting items hey tell product stories that appeal to consumers emotions and provide inspiration and guidance for product use AWAKENING THE AMERICAN PALATE TO WINE he story of trading up in wine reinforces the eight key practices of ew uxury leaders essons rom he aster lender s ew uxury ractices endall ackson ine obert ondavi and ess ackson never underestimated the customer hey believed they could trade up the middle market to high levels of quality taste and aspiration even if there was not a proven model to follow t became their mission and guiding ethos ackson saw the potential to create a new segment in the market with both higher prices and higher volume oday his major brands continue to occupy a position off the demand curve for the industry as a whole

argeting the average customer and testing against the general population are common pitfalls of traditional market research hirlpool uet is disproving the conventional wisdom that there is limited volume in premium priced household durables n comparison to conventional washers uet has genuine technical differences that translate into functional beliefs that lead to unprecedented

Trading Up | Michael J. Silverstein and Neil Fiske

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If they are going to buy your product, it has to be better, it has to be right.
onsumers traded up based on the ladder of genuine benefits he big breakthrough was in taste and affordability but the category overall played to an emotional need for pleasure social connection affinity self expression and discovery ttaining knowledge of wine became a way for consumers to make affiliation and connection with other wine enthusiasts ackson used an open sourcing model to overcome structural barriers e put the emphasis on control not necessarily ownership of the value chain nd he proved to be the master of orchestrating the value chain from an end to end ondavi and ackson recognized that the inspiration and innovation will increasingly come from wine countries of the ew orld DEMONSTRABLY SUPERIOR AND PLEASINGLY DIFFERENT essons rom he allaway corecard ou can t fool the public allaway said f they are going to buy your product it has to be better it has to be right t has to be truly more satisfying than the existing product

allaway understood the importance of investing in technology allaway knew that his customers many of whom thought of themselves as club junkies wanted a steady stream of new products and he provided them allaway has chosen not to extend the price range of its clubs as broadly as other ew uxury makers ut of necessity at first allaway helped make gold equipment more accessible to players by offering it in sports equipment retailers off the golf course n both golf and wine allaway saw industries that had become stagnant and he entered the industry as an outsider unfettered by the conventional wisdom ike all ew uxury innovators allaway was infatuated with his product in a way that industry lifers rarely are ou have to be almost crazy in love with the product that you want to make or the service that you want to sell he said ou have to believe in it FACTORS THAT WILL CONTRIBUTE TO THE SPREAD OF NEW LUXURY ust as ew uxury has arisen as the result of the confluence of social changes and business

Trading Up | Michael J. Silverstein and Neil Fiske

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capabilities its spread will be further enabled by a number of factors reater globalization and influence of overseas markets s the uropean nion continues to expand and accept new member nations and as hina and other sian countries become increasingly welcoming to both businesses and travellers the trading up phenomenon will become more globally influenced onsumers will discover new tastes and styles ideas and interests and look for their mericanized versions back home usinesses will have greater access at lower cost to ideas and supply chain services in countries throughout the world eightened role of the eb and e commerce commerce is currently a minor source of revenue for ew uxury creators but it is growing fast and contributing to sales and brand growth in many ways beyond the direct sales of brick and mortar stores nfluence of solo females oung singles rocket in a relatively small number of categories but divorced women told us they rocket in as many as thirty different categories eniors as heavy spenders eniors represent an enormous potential market that ew uxury goods creators have yet to fully tap here is an opportunity to better serve the senior travel market with clothing luggage health care

products and services food supplements photo and electronic imaging systems travel planning and support services and more ext generation consumers smarter and more sophisticated than ever t is the juniors aged six to eighteen however who represent the greatest potential for continuing and expanding the trading up phenomenon hey are interested in learning travel extensively and are highly attuned to brands and products

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Trading Up | Michael J. Silverstein and Neil Fiske