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James Russo
Executive Perspective, VNU Business Media
What do you do when you want to feel like a million bucks without spending big bucks? Millions of Americans opt for their favorite affordable luxury. For some, it's a made-to-order Starbucks latte. For others, it's a silver champagne bucket. Or a Maine lobster dinner. Or a crocodile credit card holder. Or a premium cut of Kobe beef. Or a set of cocktail glasses from Tiffany. Or a slice of Gorau Glas cheese. Or cashmere socks. Or a box of cognac truffles.
Or an iPod speaker system.
The me moment
Over-stressed, over-worked and out of time, people seek refuge in daily small indulgences that pay big psychological dividends. The irrational exuberance that characterized the dotcom stock market has subsided. The new Fed head has let the word inflation slip into conversation. Real estate prices are on the skids. The always-connected, always-
on consumer wants to turn off the external stimuli and experience a “me” moment that confirms their achievements, their merit, their sense of self-worth.
Many factors converge to spawn a true aspirational shopper, one who finds personal validation in the designer label or top-of-the-line brand. For these consumers, globalization is a two-edged sword that makes more exotic products available at a palatable price, but also makes keeping up with the Joneses an international exercise in consumerism. The events of September 11 have transformed our world view, complicated travel and compromised the national ethos with a sense of vulnerability. To compensate for this pervasive sense of unease, many shoppers give themselves permission to live for the moment, covering their concern with the balm of consumption and immediate gratification.
Tempus fugit
Time flies. Technology re-invents itself at warp speed,
contributing to the proliferation of unedited information streaming past a consumer's field of vision. Innovation can go mainstream in a blink, as hot trends sweep the nation in a matter of days, like this summer's blockbuster item—Croc shoes. Once the exclusive purview of the commercial kitchen, popularized by Chef Mario Batali, Crocs represent that unique item that bridges the unspoken age crevasse, equally popular with teenage girls, boaters, gardeners
and weekenders.
What makes affordable luxury such a ubiquitous phenomenon is the fact that it spans all demographic variables. Everyone aspires, regardless of income, age, race, education or geographic location. What differs is the level of aspiration. For lower income households, a splurge might be a dozen fresh roses from Costco to decorate a dinner table. For middle class consumers, a treat might be trading up to the Outback from McDonald's on a
family Friday night. See chart 1.
For upper income brackets, an indulgence might be a Dacor dishwasher or season tickets to the symphony. For all income brackets, it's the idea of realizing a dream—of reaching higher—that keeps aspirational shoppers coming back for more.
Is a trend brewing?
A case in point illustrating the appeal of upscale goods in an accessible category is beer. According to Beer Marketer's Insight, domestic beer sales have dropped 22% since 2002, 7% of that downward spiral in 2005 alone. Meanwhile, more expensive imported beers have been on a sales binge, moving from a 12 to 13.4 case share in the Q1 2004-2006 period, despite increasing prices more than 5% during that time. See chart 2.
The heady performance of imports vs. domestic beers can be chalked up to their more exclusive image, a positioning reinforced by the premium price point, packaging/label design, as well as advertising campaigns that create an elite aura around the product. The hope is: drink the beer and realize the implied promise of sophisticated living.
Context is everything
There has been a rich discussion in economics literature about the functional vs. social utility of products and services since Thorstein Veblen first posed the “conspicuous consumption” theory in 1899. Many catchphrases attached to this research peppers marketing discussions today: bandwagon effects, snob effects, positional goods, diamond goods, status games, visible goods, fashion cycles and Veblen effects.
Robert H. Frank identified some of the most visible
[high social utility] categories in his book Luxury Fever, where the act of consumption itself telegraphed a cultural message: cars, clothing, furniture, wine, jewelry and sports equipment. If you think about it, the very word consumer derives from the consumption concept, and it is bedrock for the fast-moving consumer packaged goods industry.
And everything is relative
Functional utility is all that matters if you live in isolation, whereas social utility implies a relational context. Consuming upscale products feels good because people believe it elevates their status in the opinion of external observers. In our society, social utility trumps functional utility across the board.
A classic example comes from the annals of the coffee wars—Starbucks vs. Dunkin' Donuts. A consumer-based national poll conducted by ePinions.com showed Dunkin' Donuts Original Blend rated at 4.5 stars, while the much pricier Starbucks House Blend rated 3.0 stars. On the face of it, one would think that consumers would opt for the more palatable option in terms of taste and price. But that's not the case. The Starbucks logo has become ubiquitous
in the hallways of corporate America, and already has made inroads at retail as one of the more successful co-marketing programs.
Retail roadmap
Tapping into the affordable luxury trend is no luxury—it's a profitable necessity. To capitalize on the movement, begin by evaluating high visibility categories and identifying targets of opportunity. Deploy consumer intelligence to inform an integrated marketing, merchandising and communications strategy that appeals to image-conscious prospects and meets their experiential needs. Align those activities with the corporate mission, objectives and trip behavior.
Manufacturers can contribute by identifying high potential brands that support an affordable luxury positioning and exploring the natural progression and development of consumer segments that purchase the brand. Portfolios may need to be refreshed or expanded through new entries or acquisitions, or even through a major re-branding.
The sweet spot for sales in the affordable luxury sector lies at E2—the intersection of consumer experience and emotion.
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