America’s Middle Market Wants Luxury

America’s middle-market consumers are trading up to higher levels of quality and taste. The members of the 47 million households that constitute the middle market (those earning $50,000 and above in annual income) are broadly educated and well-traveled as never before, and they have around $3.4 trillion of disposable income. As a result, they are willing to pay premiums for the kinds of well-designed, well-engineered, and well-crafted goods – often possessing the artisanal touches of traditional luxury market goods – not before found in the mass middle market.

As consumers shop more selectively, the categories "new-luxury" goods occupy tend to polarize. Consumers tend to trade up to the premium product in categories that are important to them but trade down – buying a low-cost brand or private label, or even going without in categories that are less meaningful to them. Consequently, people’s buying habits do not invariably correspond to their income level. They may shop at Costco but drive a Mercedes, or they may buy private-label dishwashing liquid but drink Sam Adams beer. Left in the cold are midpriced items that fail to distinguish themselves on luxury or price. Companies unable to match the prices of low-cost products or promise the emotional engagement of luxury goods face "death in the middle."

There are three major types of "new-luxury" goods:

• Accessible Superpremium. These products are priced at or near the top of their category, but middle-market consumers can still afford them, primarily because they are relatively low-ticket items. For example, Belvedere Vodka, which undergoes four rounds of distillations for a smoother taste, is able to command about $28 a bottle, a 75 percent premium over Absolut at $16. Nutro pet food, which contains nutritious ingredients, sells at 71 cents a pound, a 58 percent premium over Alpo, which costs about 45 cents a pound.

• Old-Luxury Brand Extensions. These are lower-priced versions of goods that have traditionally been affordable only by the rich – households earning at least $200,000 annually. In 2002, unit sales of BMW 325 sedans – which consumers buy for their advanced technology, their work-hard, play-hard image, and the excitement of driving them – were up 12 percent over 2001 levels. The Chevy Malibu, by contrast, fails to offer any technological features its rivals lack, or to give drivers any special pleasure in driving or owning it. Despite the Malibu’s $19,000 list price, $10,000 less than the 325’s, its sales were down 4 percent in 2002. Also on the list of old-luxury companies extending their brands are Mercedes-Benz, Ermenegildo Zegna, Tiffany, and Burberry, offering affordable products alongside their traditional ones.

• Mass Prestige or "Masstige." These goods occupy a sweet spot between mass and class. While commanding a premium over conventional products, they are priced well below superpremium or old-luxury goods. An eight-ounce bottle of Bath & Body Works body lotion, for example, sells for $9, or $1.13 per ounce. That’s a premium of 276 percent over an 11-ounce bottle of Vaseline Intensive Care, which sells for $3.29, or 30 cents an ounce. But it is far from being the highest-priced product in the category. An eight-ounce bottle of Kiehl’s Creme de Corps, one of many superpremium skin creams, retails for $24, a 167 percent premium over the Bath & Body Works product – and many brands cost considerably more. Coach similarly positions its leather goods at prices below Gucci’s, but well above those of Mossimo at Target.

How can you benefit from this trend? Cast a critical eye at categories in which products and services have become expensive and stale, or cheap and undifferentiated. Then conduct research with customers and potential customers to find out how to engage them emotionally. This is where projective techniques can be useful – techniques such as story-telling as well as the use of visual stimuli to reach beyond respondents’ rational thinking to the emotional level. To conduct this kind of research, give us a call at Bureau West Research Group, tel: (818) 752-7210.

Sources: Harvard Business School Working Knowledge, April 21, 2003 ; Bureau West research

Sign up for our Research Tidbit email newsletter!  We email Research Tidbits like the one above, at no charge,  whenever we come across information we feel might be useful to our clients (approximately once a month) - and hopefully, they help keep us top-of-mind! 

  Do you know of anyone else who might benefit from these tidbits?  Enter their name and email above and we'll send them a sample tidbit.

Home

Research Tidbits

Tel: 1-818-752-7210

Email: info@bureauwest.com