Luxury for the Masses

HBR Article by Michael J. Silverstein & Neil Fiske

The Middle Market Consumer

Middle market consumers are trading up to higher levels of quality & taste

Well-educated, well- traveled & have high disposable incomes

In USA – 47 million household have $3.5 trillion of disposable incomes

New Luxury Products

Products that evoke & engage consumers emotions while feeding their aspirations for a better life

Automobiles, home furnishings, appliances, apparel & footwear, food, health & fitness, personal care, sports equipment, toys, wine & spirits

Product Ladder of Benefits

There are THREE rungs of product benefits that companies can capitalize upon

1. Technical2. Functional3. Emotional

Panera Bread vs. Burger King

Panera – high end, up-market bakery café where average meal costs $6

Sales grew 41 % over the last year. Sales - $750 million Burger King – average cost of meal $3 Sales curve- flattened

Categories of New Luxury Products

1. Accessible Super- premium2. Old- luxury Brand Extensions3. Mass Prestige or “Masstige”

Accessible Super- premium

Priced at or near the top of the category, but affordable to middle market consumers.

Starbucks coffee Belvedere Vodka vs. Absolut

Old- luxury Brand Extensions

Lower-priced versions of goods that have traditionally been affordable only to the rich

BMW Mercedes Tiffany Burberry

Old- luxury Brand Extensions

Dual challenge - To continually enhance the brand at

the high–end Avoid diluting it at the low-end

Mass Prestige or “Masstige”

These goods occupy a “sweet spot” between mass & class

Commands a premium over conventional products, they are priced well below super-premium or old-luxury goods

Also known as the New Luxury Brands

Masstige

Zara, Gap, Virgin, Microsoft, Nike, EasyJet, or L'Oreal,

Coach leather accessories – priced lower than Gucci’s but well above Mossimo at Target

Bath &Body Works body lotion is priced at $9, Vaseline intensive at $3, Klein’s at $24

New Luxury Products

When a new luxury brand takes hold it - Quickly changes the rules of its

category Achieves market leadership Force the price-volume demand curve

to be re-drawn Discovers a new price point

New Luxury Products As consumers shop more selectively, the

categories new luxury products occupy, tend to polarize

Consumers trade-up to premium products in categories that are important to them

Trade down in categories that are less important

Death in the Middle - Left in the cold are mid-priced items that fail to differentiate themselves on any of the 3 rungs of the ladder of benefits

New Luxury Products

Most often developed by entrepreneurs who are outsiders with little industry knowledge – Jess Jackson, Leslie Wexner of Victoria's Secret

They cast a critical eye on categories in which products & services have become expensive or stale or cheap & undifferentiated

New Luxury Products

These represent $350 billion or 19% of $ 1.8 trillion of the sales of 23 consumer goods categories

Growing at 10% - 15% annually Whirlpool Duet, Kendall-Jackson

wines, Pleasant Rowland, Starbucks Coffee, Victoria’s Secret.

Whirlpool Duet Laundry appliances – conventional

industry wisdom held that washers & dryers cannot appeal to a consumers emotions

People would therefore never pay more than $ 800 for the two

Duet – European styling, speedier, sleeker, gentler cycles priced at $2100

Whirlpool cannot keep up with the demand

Kendall-Jackson Wines It took France 4 centuries to build the most

respected premium wine industry in the world

It took America less than 30 years to adopt some aspects of the French model, elevate the quality & taste of domestic wines and make it available to the Mass market!!!!!

Today American wines share the same space as the wines from Bordeaux & Chardonnay

Kendall-Jackson Wines Changing pattern of wine consumption –

from jug & bulk to table & branded wines that command an 85% market share

Kendall-Jackson –most successful new luxury products - $600 million turnover

Founded by Jess Jackson – industry outsider - a successful attorney with no experience in wine making

Responsible for closing the gap between super-premium and jug wine

Kendall-Jackson Wines Hole in the market – really good wines that

an average person could afford Emphasized more on taste, texture, blends

& character of wine, rather than the vineyard that they came from – Chardonnay, Pinot Noir

Rather than grow his own grapes, he sourced grapes from different vineyards that “fitted” into his “flavor domains”

Able to produce premium wines on a large scale with strict quality control

Kendall-Jackson Wines Sold them at $5 per bottle, well below

the $10 of boutique wines and well above the $2 of economy wines – new price point

Faced a major size disadvantage in distribution & marketing

Created an unusually large sales team to break the wholesale broker channel to ensure that his wines got the right retail exposure

Kendall-Jackson Wines

“A major advance in wine making came every 50 years or so. That fell to 20 and now it is every 3-4 years. Styles in taste, method of production, blending become obsolete. We have to keep re-inventing ourselves”. Jess Jackson

Pleasant Rowland Pleasant was an educator & TV reporter – could

not find a good doll as a birthday gift for her niece

In 1985 developed a series of girl characters, each based in a historical period, expressive faces & historically accurate attire & accessories

With an investment of $ 1 million, hit the markets in 1986

In the first 3 months achieved $ 1.7 million in sales

Sold to Mattel for $ 700 million in 2000

Demand –side forces Higher real incomes Rising Home Ownership Cash Windfalls – courtesy discount retailers Role of women & changing family structure Higher divorce rates Higher levels of taste, education &

worldliness Greater emotional awareness

Supply–side forces

Entrepreneurs on a personal journey Changes in retailing – the “malling “

of cities Access to flexible supply chain

networks & global resources

New Consumers’ Needs

Classify consumers into emotional pools

Taking Care of me Questing Connecting Individual style

Taking Care of me Involves overcoming effects of too much

work-too little time Typical women who manage homes &

careers, see no point in working hard, earning good money if they cannot spend it on themselves

High-end personal care, bath & body, spas, gourmet groceries, lines & bedding & home electronics are important “Taking care of me” categories

Questing Venturing out into the world, gaining new

experiences & overcoming personal limits Seek out luxury products/experiences that

challenge them & help them define who they are in their own eyes as well of others

Travel, cars, sports equipment, dining out, wines, computers are some “Questing” categories

Connecting

Finding, building, maintaining & deepening relationships

Attracting mates, spending time with friends & nurturing family members

Dining out, travel, gifting, apparel are some “Connecting” categories

Individual style Demonstrate ones’ success in life, express

individuality & personal values to create in him/her a sense of uniqueness

Enable consumer to express their style, knowledge, taste & values

Often an overlap with “Connecting” Apparel, fashion accessories, cars, spirits &

travel are “Individual style” categories

Practices of New Luxury Leaders

Never underestimate the customer – new luxury consumer is informed & knowledgeable. They appreciate quality, innovation & authenticity. Value brand heritage – Kendall Wines

Shatter the demand curve- abiding belief in the elasticity of the demand curve if they offer the right combination of benefits –Whirlpool duet

Practices of New Luxury Leaders Create a ladder of genuine benefits – create a

product that is technical superior, functionally better & emotionally satisfying

Escalate innovation & elevate quality- market for new luxury is rich but also unstable as new competitors enter market & standardize innovations – all cars now come with anti-lock brakes, anti-skid, safety bags, power windows etc. Winners in this segment render their own products obsolete before competition does it – shorten the development cycle, control those elements in the Supply chain that are critical.

Practices of New Luxury Leaders

Extend brand’s price range & positioning – move up-market to create aspirational appeals – move down market to make their products more accessible & competitive - Mercedes

Customize & control the value chain rather than own it

Use brand apostles Attack the category like an outsider

without the baggage of pre-conceptions.

The Certainty of Change

There remains vast potential to Reshape categories Create new winners Prod rebirth & growth in mature

markets

The Certainty of Change

Product Managers must always be on the lookout for

Ebbing consumer interest Sudden shifts in tastes Rise of a category transformer

The Certainty of Change

Businesses that have failed to note that the consumer has gotten smarter & more active, need to get busy…. listening & responding….at every level