In an exciting and provocative new book entitled Trading Up, Boston Consulting Group members Neil Fiske and Michael Silverman help to explain the seeming disappearance of the middle class shopper. In recent years we have seen the growing strength of the down market and the better market which has put serious pressure on mid-market retailers and vendors. Some pundits have posed that this customer has simply gone away as America has split into two classes, Rich and Poor. Fiske and Silverstein would explain the change in a different way: The Middle Class consumer is still with us; they just dont shop like one anymore.
Instead, the authors explain: “More and more the middle-market consumer is a person who selectively trades up to new and better products and services, trades down in others to pay for his or her premium purchases and, in the process, drives innovation and growth in previously stale markets.”
They go on to clarify, “The profile of the American consumer is changing. The middle-market consumer of today is better educated, more sophisticated, better traveled, more adventurous and more discerning than ever before.”
And, finally: “The combination of trading up and trading down leads to a “disharmony of consumption”, meaning that a consumers buying habits do not always conform to her income level, increasingly ignoring the conventional mid-price product.”
Fiske and Silverstein describe the products they trade up to as the “New Luxury”. These are “products and services that possess higher levels of quality, taste and aspiration than other goods in the category but are not so expensive to be out of reach.” New Luxury goods are “always based on emotions, and consumers have a much stronger emotional engagement with them than other goods.”
The authors explain further: “Emotional engagement is essential, but not sufficient, to qualify a product as New Luxury; it must connect with the consumer on all three levels of a “ladder of benefits”:
Technological: “it must have technical differences in design, technology or both.
Functional: “those technical differences must contribute to superior performance.
Emotional: “the technical and functional benefits must combine to engage the consumer emotionally.”
In this kind of shopping environment, categories “tend to polarize. Consumers shop selectively. They trade up to the New Luxury product if the category is important to them. If it isnt, they trade down to the low-cost brand, or even go without.” In other words, while one category may be important to one customer, it may not be important to another. Customers select carefully those areas of importance and are willing to make purchases of significance. In doing the research for the book, the authors found that “96% of consumers say they will pay a premium for at least one type of item.”
The authors note that both retailers and manufacturers must choose which market they will serve, the commodity/price market or the aspirational one. “Companies that offer such (mid-price) products are in grave danger of death in the middle — they will unable to match the price of low-cost products or the emotional engagement of New Luxury goods.” This is exactly the predicament in which department store retailing finds itself.
Our sporting goods industry has been stuck in the middle and, now, if the assumptions of the authors are true, we are destined to perish there as well. As we have written before, our industry is based on new, fresh, aspirational and inspirational products. We need to emphasize those qualities, if we are going to survive as an industry.
Technology, functionality and emotion have all been hallmarks of the products we sell in the sporting goods industry. If we can build those kinds of products again, I am sure we will see the industry thrive once again.
Retailers and vendors must commit themselves to one core or primary consumer (even though they may serve many others) and then organize their merchandising and marketing strategies around that core.
Leslie Wexner, founder of Victorias Secret was quoted in the book: “Women need underwear, but women want lingerie. I like to be in the “want” business. The margins are better than in the “need” business.”
“Trading” up may be the way for us to move from “need to “want” again.
