Emotional Spending
Trading
Up
If you pay even casual attention to consumer trends, you may well have noticed that "premium" goods and services are thriving in practically every category — Panera sandwiches, Sub-Zero refrigerators, Starbucks coffee, Callaway golf clubs, BMW cars. And if you pay any attention to economic trends, you probably won't be surprised to hear that the top fifth of American households ranked by income saw their earnings rise faster than any other group between 1970 and 2000 — by 70%, in fact, in real dollars — and now control 63% of the country's net worth. Finally, most observers of social behavior probably have a sense that it's not just the top fifth buying "new luxury" goods: Practically everyone is willing to pay a premium in at least one category, partly because shopping is now a source of emotional fulfillment and meaning for many.
All this has been written about before, both by those who applaud the "democratization" of luxury and taste and by those who deplore the democratization of selfishness and conspicuous consumption. Michael J. Silverstein, of the Boston Consulting Group, and Neil Fiske, his former colleague and now the president of Bath & Body Works, are in the applauding camp. Their Trading Up: The New American Luxury waves away the likes of Juliet Schor's The Overspent American and assures us that the "New Luxury is good news for America" because it "offers a new kind of emotional engagement" to consumers and gives business leaders "a new way to think about growth, profitability, and the art of fulfilling dreams."
The business leaders are the target readers, as the book is set up to help them cash in on the trend. Along the way, Trading Up offers plenty of ammunition to naysayers: Silverstein and Fiske draw on many interviews with New Luxury consumers, and they often come across as fairly shallow and unpleasant people. "The quality of our appliances represents us," one woman declares after bragging about her kitchen setup. Other women talk about spending their way through breakups in bouts of therapeutic or "revenge" shopping. A Callaway fan bluntly tells the authors that "I feel good, I feel equal" when his fancy clubs help him beat them at golf. "I may make a lot less money than you do, but I think I have a better life." Later the same guy explains another of his "luxury" habits this way: "When I'm on a date, if I say 'Give me a Sam Adams,' I know she knows I'm special and I have some taste." If that's true, it probably says more about his taste in women than in beer.
Whatever you make of the pros and cons of the trend, Silverstein and Fiske have gathered a slew of case studies and some fascinating material. While the emotional component of shopping and marketing is something others have addressed, it's still surprising to find that it apparently applies even to such workaday items as the washer-dryer. The authors say that they spoke to owners of Whirlpool's premium-priced Duet model and "found an emotional connection stronger than we have seen in any other category." Whirlpool, they add, is now pursuing a "laundry room as family hub" strategy.
More broadly, Trading Up is probably onto something when it notes that the willingness of consumers to pay a premium in some categories makes them price-sensitive in others. Thus offerings in the middle range (neither luxuries nor bargains) get squeezed. The authors are also wise to stress "the collapse of the innovation cascade": The differentiations in style or technology that mark luxury goods can quickly become standard features throughout entire categories, upping the pressure to innovate again if you want to stand out.
The authors frequently return to the idea of the emotional connection between consumers and their purchases, but one interesting aspect of this they hint at but never quite say aloud. There seems to be a conundrum built into the "trading up" idea. A major theme among the entrepreneurs in the book is that, as one puts it, "sophistication and taste are now within reach of the middle class." Yet the one characteristic that nearly all the model companies seem to enjoy is high profit margins. Shouldn't "sophisticated" or "savvy" (a word the authors apply to younger New Luxury adherents in particular) consumers and high margins have trouble co-existing?
Emotion, presumably, is the key. Something stronger than logic has to come into play if you're going to get your customers to swallow a big markup. Think back to that Callaway fan — he didn't say that he is equal to the authors and has a better life. He said he feels equal and thinks he has a better life. Perhaps that was a slip of the tongue. Or perhaps he is the savviest man in the book.
This review appeared in the October 15, 2003, The Wall Street Journal.
