I'm finishing Mickael Silverstein's impressive book Treasure Hunt and I trully feel that he put his finger on a major trend. The market of almost every goods and services is increasingly polarized. Both ends of the consumption spectrum are gaining valuable shares, while brand in the middle are slowly but steadily losing the marketing battle. The autor calls it "Death in the middle" Silverstein makes it clear that it's a trend and we have to remind us that middle-market products and services are still earning the major part of every but few categories.
In a fragmented market, why is that polarization occuring ?
The main reason has to be the popular perception that every goods are made equal. Consumers (all of us) see less and less differences in technical features, performance, life span and general product value. Categories in which we can make a difference between products (in which we are a kind of expert) become our trading up categories. We are basically over-spending for these goods because we understand why we are paying a premium.
The market reaction : make luxury products available to (almost) every budget. In the 80s, brands took the luxuty market over Signatures and the "masstige" category was born making some luxury-like goods available to mass market. The starting point of that micro-trend would be Karl Lagerfeld & Sonia Rykiel Kookaï ad campaign¹.From the demographic perspective
An alternate way to explain the trend would be wealth inequality.
The high net worth Canadians (those with a net worth of at least US$1 million excluding primary residence) grew of 7.2% in 2005. The Select Club of Canadian dollar millionaires now has 230,00 members.² That make a luxury good market raise possible. But it doesn't help to explain the pressence of so many Volvos at Dollorama...
My cool is cooler than yours
The demographic reasons aren't the only explaination, there also is a consumption choice. The expected return to un-materialistic values (common idea in the 80s) didn't happen. Individuality and the quest for social standing helped luxury goods to gain in importance.
We tend to gain prestige and status by possessing fashionables, state-of-the-art gadgets, luxury goods, valuable objects, etc. In order to afford these "treats", we have to cut on something else. Because we hate privation, we tend to rather go for a trade down. Volvo owners go to Dollorama because they choose a different budget segmentation. Instead of decreasing the amount of goods, consumers prefered to push further the competitive consumption. The enlightening Nation of Rebel remembers us at which extend we are constantly seeking for differenciation and status, while contribuing to the vicious circle of overconsumption. If no one ever bougth a $40-k car, it would be a need for anyone.
Because I deserve it...
Lets not forget that we are living in an increasingly stressful world. Time is in short supply for new riches and treats are a major consumption trigger. From your daily Starbucks to expensive night care products, every goods join the "shopping therapy" and the pleasure hunting.
Because luxury depends on your everyday consumption, choices of new luxuries will depends on one's taste and budget. The same restaurant can be consider as a regular destination for someone and the "going out" treat of the year for someone else. "Starbucks, early on, recognized that while not everyone can afford to go to Tiffany's, they can enjoy the small indulgence of a grande nonfat latte."³
From standing to showing off Some Internet sites, namely eBay and eLuxury, made luxuous goods more affordable and reduced the importance of the shopping experience. Premium brands have to find a new way to ensure their exclusive nature to avoid the erosion of the "Rarity principle"⁴
«To maintain their dream value and avoid the risk of commoditization, luxury brands must be desired by all... but consumed only by the happy few.»Craven & Read - Emerald Management
On the top of new distribution channels that increasingly bring luxury products within everyone's pocket, copies and conterfeits take a part of the market. According to many, copies would now worth between 5 and 7% of overall sales.
Facing that challenge, tradionnal (new) luxury brands have to ensure their relevance by pushing further the prestige of shopping in their boutique destination and distinctive signs of their originality. More and more Starbucks-to be will try to get their share of the "I deserve it" market.
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¹ Luxury, just live it - BrandChannel.com
² According to Dennis Pickett, CEO Amex Canada in Rich Reward - Marketing Magazine
³ Why Up-Branding is Here to Stay - Ad Age - May 28, 2007 (subscribers only)
⁴Online Luxury for the Masses - BrandChannel.com
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