RT-The 'New Luxury'-Despite the Economy, Pursuit of 'New Luxury' Redefines How, Why and What We Buy,
Despite the Economy, Pursuit of 'New Luxury' Redefines How, Why and What We
Buy, According to New Report From The Boston Consulting Group
Shifting Demographics, Lifestyles and Stress Levels are Compelling Consumers
To 'Trade Up' to Ultra-Quality Refrigerators, Vodka, Pet Food,
Lingerie and Much More
BCG Report Says Companies Need to Act Now or Face 'Death in the Middle'
BOSTON, Nov. 21 /PRNewswire/ -- A report released today by The Boston
Consulting Group (BCG) describes a sea change in consumer behavior that is
forcing many brand giants to revise how they develop, position, price and sell
products.
"We may be seeing one of the greatest shifts in consumer buying habits and
taste since the 1950s," said BCG partner Michael Silverstein, co-author of
"The New Luxury: Why the Middle Market American Consumer Wants Premium Goods
and How Companies Create Them," which is based on extensive client work and
consumer research.
Said BCG partner and report co-author Neil Fiske, "Despite the recession,
the shift to 'New Luxury' has been mounting and constant."
"New Luxury" refers to the phenomenon of middle-market consumers' escaping
the extraordinary stresses of modern life by carefully choosing high-quality,
high-performance, emotionally satisfying goods and services -- once the market
of the rich and elite, according to the report. Most important, middle-class
consumers are willing to pay premiums of up to 10-times conventional price
levels for many New Luxury items, opening a window for companies to achieve
significant margin and profit growth and gain competitive advantage. At the
same time, there are hazards for companies that ignore or fail to interpret
New Luxury correctly.
New Luxury Has Staying Power -- Even in Tough Times
Even in the current downturn, when consumers might be expected to cut back
on spending up, they have not, according to the report. In fact, consumers
have been gravitating to New Luxury in record numbers:
* Sales in the U.S. of Mercedes cars were up 16% for the first nine
months of 2002.
* U.S. sales of BMW and MINI cars were up 16% for the first half of
2002.
* Starbucks, a New Luxury pioneer, posted sales growth of 24% in fiscal
2002, even topping 22% in 2001. Fiscal 2003 is off to a good start:
Revenues were up 24% over October 2001 and same store sales up 10%.
* For the first half of fiscal 2002, Williams-Sonoma's net revenues
were up 15% and same store sales up 2.9%.
* Panera Bread is a young upstart in the upscale fast-casual dining
sector. For the second quarter of 2002, revenues were up 43% over
the same period the previous year; same store sales were up 6.7%.
* For the second quarter of 2002, sales at The Limited (which consists
of Limited Express, Victoria's Secret and BBW) were up 8%.
* Volume sales of the top New Luxury vodkas, led by Grey Goose and
Belvedere (which are twice as profitable as mass brands), grew at 52%
per year between 1999 and 2001.
* Sales of single-serve bottled water continued to grow at
approximately 30% per year as consumers responded to enhancements
such as herbal extracts, new flavors and vitamin-infusion.
* Between 1999 and 2001, premium chocolates from companies such as
Ferrero Rocher and Perugina grew at more than double the rate of mass
brands.
* Sales growth at Crate & Barrel was 15% in 2001 and 28% at Bed, Bath &
Beyond.
New Luxury Leaders: Driven Outsiders
The report points out that many of today's best performers -- Starbucks,
Victoria's Secret, Sub Zero, Bath & Body Works -- were trailblazers of the New
Luxury phenomenon.
"Many, if not all, of today's 'New Luxury' leaders were formed and led by
outsiders who set out to transform their categories. They became highly
successful because their passion and gut instincts told them that consumers
would 'trade up' if they perceived technical, functional and emotional
benefits," said Mr. Fiske. As a result, companies, such as Viking, Callaway
and American Girl, have transformed their middle-market customers into brand
apostles: consumers who will pay significantly more for products deemed
emotionally satisfying, and who will work hard to get their friends, families
and colleagues to do the same. Basically, the New Luxury leaders are raising
the bar for their competitors."
New Luxury: Rewarding for Winners, Costly for Also-Rans
Added Mr. Silverstein: "But the reality is that only a few players in each
category will be able to tap successfully into the new consumer mindset. The
players that 'get it' -- often the iconoclasts and often privately owned
companies -- will enjoy the unusual combination of high volume and wide
margins, and those that don't will lose market share and be forced to continue
chasing thin margins and negligible growth with mass-market offerings."
Succeeding in New Luxury requires accepting the counter-intuitive. The
trusted, old notion that companies win the mass market via price -- low price
-- is no longer a given. The report points out that the brands that are
currently at the greatest risk -- Pontiac, Swanson, Nissan, Ralph Lauren,
Smirnoff, Clinique, for example -- are those that aim squarely at the middle
of market, with average products and pricing.
"Many brand giants are facing death in the middle," said Mr. Silverstein.
Why New Luxury Now?
Every so often, consumers' needs come into alignment with businesses'
ability to deliver new products and services that directly meet those needs,
the report says. The last time it happened was during the 1950s, when
Americans were seized by an insatiable thirst for convenience and mobility.
It's now happening again with New Luxury, as a number of powerful
socio-economic forces converge:
Affluence Is Increasing Along With Spending
* Some 25 million U.S. households now earn more than $75,000 per year,
and they control 77% of the nation's discretionary spending.
Women: The "New Luxury" Pioneers
* Women influence some 75% of all purchases for goods and services, and
most women manage the household's finances. And as even more women
with children enter the workforce, women are still doing an average of
18.9 hours of housework per week, engendering the need for "small
rewards" and occasional indulgences. Hence the success of brands like
Godiva, Coach and Kiehls.
* Our Homes Are Our Castles, Literally
Rising home values have provided the equity necessary to finance
significant improvements. Today, the average "New Luxury" remodeled
kitchen costs more than $57,000. The typical 1950s buffet-style kitchen
cost $9,000 (in 2002 dollars).
Social Instability Can Be Good For Business
* Job security and connections to communities, extended family and even
religious institutions have grown more tenuous, and divorce has
skyrocketed. On some level, high-quality goods and particularly
well-respected brands provide a comforting consistency.
The Power of Influencers: The "Oprah" and "Martha" Effects
* The messages of two media giants involve New Luxury. Oprah Winfrey
tells viewers to take care of themselves, reduce the stress of daily
life, optimize their potential and revel in experience. Martha
Stewart's empire exhorts us to live well and add pleasure and
tastefulness to every detail of daily life.
Where To Get "New Luxury": Prada Bags at Costco?
* Consumers have much more access and exposure to New Luxury goods in
nearly all retail settings. Approximately 25% of the merchandise
offered at Costco, the warehouse retailer, is comprised of New Luxury
items like Waterford Crystal, Prada handbags and Raymond Weil watches.
Powerful Emotional Drivers: "Taking Care of Me," Questing, Connecting and
Investing
Beyond being a reaction to the stresses of modern life -- including the
scarcity of relationships and job and family upheaval -- the New Luxury
phenomenon is tied to specific emotional drivers. The ability to tap into
these emotional drivers is what's behind New Luxury offerings.
"If you look at the most successful New Luxury products and services, most
resonate with at least one, and often several, of four key emotional drivers:
"Taking Care of Me," Questing, Connecting and Investing. For example, the
buyer of a $2,000 Cannondale bicycle may view the purchase as an earned
indulgence, but also as a way to stay fit, explore new places, commune with
nature, meet other bike enthusiasts and make an investment in a product that
will retain its value and quality," said Mr. Silverstein.
In some ways, New Luxury is about self-branding. "Never before have
products been so tied to our perception of who we are and what we stand for.
It's a lonely world out there where the opportunity to meet is measured in
seconds. Many consumers - especially those actively pursuing New Luxury --
know that they have to market themselves aggressively and must make the right
first impression. Today, our products selections are increasingly integral
parts of our identities," said Mr. Fiske.
"Elastic Pricing" At the Core of New Luxury Success
Interestingly, just as consumers have been choosing to migrate up the
quality and price spectrum, traditional "old luxury" brands, such as Mercedes,
Tiffany, Coach and Bang & Olufsen, have adjusted their price points downward
to meet the high end of the middle market, according to the report.
Gold-standard brands have introduced entire lines of "masstige" products
and services that provide access for a new breed of aspirant consumer. At the
same time, these companies have also unveiled super-premium products to appeal
to the elite of the elite. In effect, certain players have widened their
pricing structures to an unprecedented degree -- and it's paying off.
"While a traditional mass marketer's highest-priced product may be
three-to-four times its lowest, New Luxury players often have a
five-to-tenfold difference. Many companies are finding they can price up,
spend back and reap disproportionate profits from higher margin sales," said
Mr. Fiske.
For example, masstige now dominates BMW's product line. The average price
of a BMW in 1991 was $43K; today it is $36K. And while BMW still builds,
markets and profits from ultra-premium cars, 54% of BMW sales are from cars
priced under $40K. The company has never been more profitable.
In the wine category, Robert Mondavi and Kendall-Jackson have led the way
in stretching quality and price upward to meet Americans' increasingly
sophisticated palates. In the last five years, wine prices rose three times
the historical average. In 2001, the over-$10-a-bottle segment grew more than
15%, while jug wine sales declined 4%, and the under $7 segment fell 2%. For
the last three years, home theater systems have been the fastest growing
segment of home electronics. They start at $2,000 and run as high as
$100,000.
How Can New Luxury Laggards Catch Up?
The report says that mass market players that are losing ground to New
Luxury marketers must pay closer attention to consumers' emotional needs.
New Luxury products aren't merely technically and functionally superior;
they portend health and longevity, suggest intense experiences, acknowledge
heightened sophistication and evoke spirituality and sensuality, the report
explains.
One of the chief reasons that the new luxury phenomenon has caught so many
mass marketers off guard, according to the report, is that traditional market
research often misses the emotional underpinnings of consumer behavior. New
luxury innovators often rely less on hard data, choosing instead to spend much
more time in the market and in one-on-one sessions with consumers in all of
their domains. For example, Red Bull built a $100 million "energy drink"
empire without any advertising by marketing its product at the hip scenes --
gyms, lounges, clubs -- of its target consumers.
Said Mr. Silverstein: "The lesson for all marketers is to get back down
in the trenches and refocus on your core customers' environments -- home,
work, play. That will help you understand nuances in the market and shifts in
consumer emotion -- and give you the perspective to generate next-generation
ideas."
About BCG's New Luxury Research
BCG's investigation of the New Luxury phenomenon began in 1998 and is
ongoing. It involves: consulting work with clients in a range of categories;
gathering and analysis of socio-economic data; in-depth interviews with
company leaders and consumers; quantitative nationwide polls regarding
consumer attitudes and behavior; analyses of a continuum of product and
service categories, including apparel, appliances, automobiles, cosmetic
surgery, cruises, electronics, food and beverages, personal care, pet food and
travel; and a literature review of more than 700 books, articles, Websites and
other media.
About BCG
The Boston Consulting Group (BCG) is a management consulting firm
recognized as a global leader in competitive strategy, corporate development,
and shareholder value. It has over 50 offices in 34 countries.
If you would like a copy of "The New Luxury: Why the Middle Market
American Consumer Wants Premium Goods and How Companies Create Them" and/or
other summary materials, please contact Elizabeth Case at Sommerfield
Communications, Inc. at 212-255-8386 or elizabeth@sommerfield.com.
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SOURCE The Boston Consulting Group
/CONTACT: Elizabeth Case of Sommerfield Communications, Inc.,+1-212-255-8386,
elizabeth@sommerfield.com, for The Boston Consulting Group/ |
