Monday, July 16, 2007

Trading up

About 10 years ago I attended an AMA (American Marketing Association) monthly luncheon. The guest speaker, who ran marketing for one of the major winemaking conglomerates, opened his talk with a question: What’s the difference between an $8 and a $40 bottle of wine? After numerous audience inputs about the quality, variety and age of the grapes, the marketer half-kiddingly proffered a smug answer: Thirty-two bucks. He was a smart ass, but his point was well taken. (8/5/07 PS: Take a quick peek at this post for a third-dimension/triangulation peek at choice.)

I’ve yet to meet a company that did not strive to maximize their margins through optimal pricing and positioning. Too often we focus on the rational criteria for consumer purchases – the technical and functional considerations people employ. Companies that successfully market luxury/high-end goods tap (check that: deeply penetrate) the emotional vein too. When they do so, they can leverage premium pricing strategies.

“Questing is the emotional space that has emerged the most strongly in the past several years,” explained Michael Silverstein and Neil Fiske in their terrific marketing tome, Trading Up. “It is all about those goods and services I can buy that will enrich my existence, deliver new experience, satisfy my curiosity, deliver physical and intellectual stimulation, provide adventure and excitement, and add novelty and exoticism to my life.”

If you’re interested or engaged in marketing consumer goods, grab a copy of Trading Up (with thanks to my friend Ben for his recommendation). Therein the authors evaluate a diverse collection of luxury brands – including Viking, Victoria’s Secret, Callaway, Kendall-Jackson, and BMW – while offering pragmatic, employable marketing tools.

Fiske and Silverstein contend new luxury goods cannot be created, by either entrepreneurs or established companies, with the methods traditionally used to develop products and bring them to market. They elaborate eight practices that “new luxury leaders” follow in their marketing:

  1. They never underestimate their customers.
  2. They shatter the price-volume demand curve.
  3. They create a ladder of genuine benefits.
  4. They escalate innovation, elevate quality, and deliver a flawless experience.
  5. They extend the price range and positioning of the brand.
  6. They customize their value chains to deliver on the benefit ladder.
  7. They use influence marketing and seed their success through brand apostles.
  8. They continually attack the category like an outsider.
Americans are increasingly trading up. As a generation, we – unlike past generations that spent less and saved more – have a propensity to spend, to experience, to live in the present and worry less about the future, and to back brands that, as the authors posit, provide a reasonably reliable, efficient, and consistent method for signaling others about who I am or who I would like to be. It’s self-revealing and frightening as a consumer, but salivating and opportunity-ridden for marketers.

Post-script (8/5/07): Cool, quick and somewhat relevant post from Seth Godin about brands. He contends they're the product of [Prediction of what to expect] times [emotional power of that expectation].

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