Last week I listened to a presentation by Michael Silverstein, author of Treasure Hunt: Inside the Mind of the New Consumer. Those of you who have read this blog know that there are few things guaranteed to annoy me more than hearing someone pitch the proposition that something about consumers is new or different. Consumer behavior may be changing in response to changing circumstances, but the needs and desires behind that behavior have changed little over the years.
There can be little doubt about the soundness of Silverstein’s premise, which is that the middle market is an increasingly risky place for brands to be. In his earlier book, Trading Up: Why Consumers Want New Luxury Goods, Silverstein wrote about middle-class consumers choosing to indulge in premium products. Then, in his follow-up volume, Treasure Hunt, he documents the share loss of the mid-price automotive segment in the United States (-12% between 1994 and 2004) at the expense of both the trade-up (+8%) and trade-down segments (+4%). He cites similar trends for washing machines, TVs, women’s apparel, hotels and groceries. Silverstein states, “Our research shows that the majority of American consumers trade down relentlessly.”
A quick analysis of U.S. BRANDZ data provides corroborative evidence that more people believe brands are too expensive. Between 1998/9 and 2006, across a broad portfolio of 185 brands, the average level of agreement with the statement that a brand “Costs more than I’m prepared to pay” rose from 47 to 55 percent.
But, in my opinion, trading down is not a new behavior. Neither is it a behavior that exists in isolation. That is, people don’t just trade down to save money. They trade down in order to save money for some other purpose. So trading down is part of a broader strategy of trading off one thing against another.
I don’t know about you, but as a kid I never felt I had enough pocket money to buy all the things I wanted. As a result, I had to make trade-offs. I might forego chocolate-covered “Wagon Wheels” from the school “tuck shop” for a week or so in favor buying the latest Messerschmitt Bf110 Airfix kit. I was probably somewhere in the middle of the pack when it came to how much allowance I received, but it never seemed like it was enough. Someone else always had more, and could afford to buy the latest cool thing (or else his parents could afford to buy it for him).
For brands to stake out a great position by positioning themselves as a quality product at a low price isn’t new, either. In the United States, from the 1980s on, Suave shampoo was extremely successful with a “works as well as more expensive brands” promise, which was later extended to other related personal care categories. In the U.K. laundry detergent category, Surf occupied a budget positioning for decades, and in the U.K. confectionary market, Revels used to advertise that it gave you all the variety of a luxury box of chocolates for less money. What is apparent from Silverstein’s book is that the practice is spreading into other categories, notably retail, electronics and travel.
So if trading off is not new, then what has changed? I would argue that there are three basic factors that make this behavior more apparent today than it has been in the past:
First, an overall increase in disposable income level affords people the opportunity to make more choices about how they spend their money. In Treasure Hunt, Silverstein points out that in the United States, this increase has come primarily from the increase of women in the workforce. He focuses his analysis on households with an income of over $50,000, a group which represents a much larger proportion of households in the U.S. than in Europe or elsewhere.
Second, the number of choices offered to people has proliferated. You only have to visit a supermarket in the United States or Europe to know that the number of items offered has increased dramatically even in the most mundane categories. This range of choice allows people far more options to trade up or down. New and cheaper financing options also put more goods are within people’s grasp.
Third, the basic quality of goods has typically improved relative to the price paid. While we may still moan about the fact that many manufactured goods are not as durable as we would like, it is probably also true that we pay a lot less for them, in real terms, than we would have twenty years ago. In our BRANDZ analysis, the proportion of people rejecting brands as “too cheap to be acceptable quality” dropped from 20% to 15%.
But existing within this changing environment are people who are motivated, as they have always been, to get the maximum amount of satisfaction from their purchases. One could argue that the ever-increasing media focus on the lifestyles of the rich and famous has resulted in increased desire for the latest flat-screen TV, luxury car or fancy hotel suite. While this may be a contributing factor, I believe that people have always aspired to buy the best they can in the product categories they care about, making the necessary trade-offs to get what matters most to them.
What may be different today is the angst expressed by the people interviewed for Treasure Hunt. While the title of the book may summon up memories of party games, these people often express a much darker view of making trade-offs:
“It’s a struggle every single day,” says Sarah Montfort, a married mother of three living in Arlington Heights, Illinois, who scrimps and saves to make sure her kids get a good education. She has stopped shopping at Jewel supermarkets in favor of Wal-Mart and Sam’s Club. When she does shop at Jewel, she only buys items on sale. “National brands are generally more expensive, so we buy off-brands except for where it really matters in quality…”
“I have the bag lady fear,” says Lauren James, a single professional women living in downtown Chicago. Her fear that she will end up as an old woman living on the street, however, does not stop her from spending $600 a month on personal appearance.
“We are overwhelmed by financial matters,” says Joyce Reilly, married mother of four daughters. “It’s really hard to save.”
Reading Treasure Hunt, I am left with the feeling that what has changed over the years is the degree of insecurity people feel—the nagging doubts about whether their lifestyle is good enough, and the anxiety that it could all be taken away from them tomorrow. It seems that moving up on Maslow’s hierarchy of needs does not necessarily make people any happier with their lives; they just find more things to worry about.
What the book does confirm, however, is that there is a major opportunity in just about every product and service category to help ease consumer insecurity by providing quality, low-cost options, and further, that any brand that only occupies the middle ground of quality and price is at risk of losing substantial share as trading-off behavior becomes more prevalent. While most apparent today in the United States, there is little doubt that trading-off will become more apparent elsewhere as disposable income and standards of living improve.
Treasure Hunt, in spite of examples drawn from elsewhere in the world, seems to be to be very focused on changes taking place in the United States. Do you see any evidence in your country that people are trading up or trading down more than in the past? Is this new behavior, or one that is simply more visible today? Please let us know.
Tags: Nigel Hollis,
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March 6th, 2007 at 6:45 am
Wow, where to begin? You have opened up several avenues for comment in this post. At the outset I agree that trading up or down is pervasive — not only is it occurring in retail, I would posit that it is driven by retail. In the retail business, we have a saying, “the only things found in the middle of the road are dead armadillos.”
But to return to some of the themes you posit.
• The shift within the automotive category is driven by lease financing. Not only can the mid-level executive now afford a “Bimmer”, but it is also possible to lease a Chevy for less than $200 per month. The proportion of new sales on lease has expanded from about half to just about all within luxury marques, while expanding in all other auto categories as well.
• With respect to trends in all other categories, I can only say “Wal-Mart”. Wal-Mart’s mission is to deliver an affordable standard of living to all Americans. More than any other force, they have given the poorest access to material goods, while driving down costs of everything for everyone. Like them or not, they have accomplished it. So the mindset of spending less has been imprinted in the national psyche for every possible type of product or brand.
• You point out that the number of choices has expanded. The average supermarket carries between 45,000 and 50,000 SKU’s, while Wal-Mart Supercenters carry three times that. ‘Nuff said.
So where does this take us? I agree that more stuff at cheaper prices doesn’t make us any happier or more secure. I’d go as far as to say it is counter to creating security. Like the country song says, “200 channels on TV and nothing on” – more isn’t necessarily better. There are several well publicized studies (The Paradox of Choice) indicating that the more we have to choose from, the lower our satisfaction with our ultimate choice. We end up with far greater uncertainty about the road not taken.
But to conclude, I’d like to return to the original theme – is there a place in the middle of the road to flourish? I’d like to suggest that there certainly is. Why is the best selling car in the US the Toyota Camry? Followed by another mid-level mid priced car – the Accord? Both of those cars offer all the amenities only found in luxury cars just five years previously. I think the key point to consider is that one person’s middle is someone else’s high (or low). The middle is never a fixed point, it fluctuates depending on prevailing economic winds. It remains for the marketer to ensure that the brand stands for something to ensure that it is not defined in abstentia by its competitors.
March 6th, 2007 at 9:08 am
Hi Philip, thanks for the comments, interesting additions.
This post was tough to write because there are a number of avenues that I could have pursued, for example the rise of China and India as the world’s factories for cheap manufactured goods, or the role of perceived differentiation plays in allowing brands to support a price premium.
What particularly interests me from your comments is the idea of a fluctuating middle ground. It certainly would suggest that brands ought to ensure presence at several different price points but with clearly differentiated offerings.
March 6th, 2007 at 10:09 am
HMMM — As Philip points out, where to begin?
For starters, disposable income in Mexico is at a much lower level than in the US or Europe. After the populist mistakes of the 70’s and early 80’s came a lost decade of spiraling prices, a closed economy and full-fledged economic mayhem. Keeping up with the Joneses was far from the average Mexican’s mind. There has only been a recovery of salaries and an increase of disposable income in the very recent years. Has this happened in all social strata? Sadly, the answer is probably no. There is ample evidence, that although a middle class is somewhat reemerging, the rich have gotten richer and the poor have gotten poorer. The gulf is vast: the richest man in Mexico is the third or fourth richest man in the world (per Forbes), half the population lives in misery. There is, however, a small upper middle class that has benefited from the new economic wellbeing.
Who’s trading up? Perhaps the rich (not the very rich, they’ve never had to) and the upper middle class are. Brands and products that had for decades not been available are now here for the buying. We are far from the endless corridors of corn-flakes at the supermarket, but more choices are there. More media options bring to light hipper and cooler lifestyles that force one to have the latest plasma screen or stand in line for the newest Louis Vuitton bag or spend a week-end at the topnotch spa we really can’t afford. Whether this implies buying store-brand instant coffee, I don’t know but I doubt it, living on credit seems more like it. Having come from a long period of high inflation, saving is not something the Mexican is accustomed to; for the longest time it has not made sense.
Who’s trading down? Perhaps the middle-middle class is. When the economy opened up and foreign goods and brands became available, there is little doubt they were buying them. The recent financial stability brought with it low interest rates, and with them the viable chance to become a home-owner. The real estate market has boomed, and this cannot be explained solely by the rich and upper middle classes. So, the middle-middle class is probably trading down to afford the mortgages and car credits. We have seen increases in sales of store-brands and cheaper alternatives and something called Waldo’s Mart which seems to be everywhere selling household products for one dollar.
Who has the bag-lady syndrome? Who knows? I know I do, but I don’t do much about it. I guess no one does. We can’t shake off the idea that saving is pointless, it’s more of living everyday as it comes.
I truly hope this makes sense.
March 6th, 2007 at 11:08 am
Nigel, here’s some examples of how contrary the trends are in the UK.
People are trading “up” and paying/demanding more for:
- education (far more private schools)
- organic food & local produce
- functional foods (creation of new categories of expenditure in grocery by brands like Benecol, Actimel etc)
- luxury foods (Marks & Spencer, premium supermarket ranges)
But they are also trading “down” in other areas:
- clothing: the growth of both mass-value stores like Matalan and the emergence of designer label limited editions in a wide range of value stores
- travel: easyJet and other low cost airlines, Expedia on the web, and so on
I feel wholeheartedly that your observation on “trading off” is the crucial factor. Many food brands are feeling double pressure from retailer activity. On the one hand, the retailer own label offers equal quality for lower price - so the consumer who wants to save on food to fund other lifestyle purchases will trade down. On the other hand, the supermarkets are offering premium ranges, organic versions etc. and trading up the consumer who prizes quality in what they eat and serve.
Ultimately, perceptions can be changed. Marks & Spencer, mentioned above, are a clear example of a brand that many had written of as ‘dead’, killed by its own middle ground positioning. M&S has reinvented itself quite brilliantly by simply restating and redefining what its offer of ‘quality at a reasonable price’ means to the British customer today. I think, with you, that we’re playing the same game we always have.
March 6th, 2007 at 10:28 pm
Hi Nigel
I write from India , we are experiencing plethora of options in all the categories , any industry .
What is basic for Top Strata of the society is luxury for the middle class in India and in India no body buys a second best brand ( its the matter of perceptions and satisfaction whether it is the entry level car by Maruti (suzuki) or General Motors car . The biggest advantage any Brand is the availability to command a premium over the competition product
March 7th, 2007 at 11:27 am
Thank you Diveya, Graham and Manuel. So what your comments suggest is that trading off is a general behavior. My proposition that it is simply more obvious in the U.S. now than in the past is probably not true? Nigel