New Luxury 0 comments

(P.S: Sorry for any disturbances the advertisements above may have caused you)
Market strategists have long pointed out that there are primarily three sorts of competitive advantage: price, differentiation and focus. It is clear that commodity-like pricing (competitive advantage based on price) squeezes margins and profits, and to earn supernormal profits differentiation and focus is the way to go.

How do we spot companies that can differentiate their products successfully? Some BCG (Boston Consulting Group) guys wrote a book called "Trading Up" which was very illuminating on today's consumer psychology. Drawing on their deep experience in retail consulting, they identified a rapidly developing socio-economic trend: America's (and indeed, developed countries') middle-market consumers are trading up to "products and services which possess higher levels of quality, taste, and aspiration than [other] goods in the [same] category but are not so expensive as to be out of reach...[trading up to products and services which] sell at much higher prices than conventional goods and in much higher volumes than traditional luxury goods"--- these are the New Luxury goods. They deliver key benefits that are increasingly appreciated by the well-educated, comfort-seeking and individualistic consumer of today: innovation, quality, a flawless experience; affordability by a wide range of consumers (by having extended product ranges priced at different levels), customisation, and consistent branding.

I had first-hand understanding of this consumer psychology when doing research for Meiban, which does plastic moulds for Dyson, a British vacuum cleaner OEM which had broken into the US market. It was surprising that Dyson was able to capture about 20% of the US market within two years of its entry, for it was priced at least twice that of the other brands in the market. But it turned out it had techno-chic appeal; their advertisements got the founder to explain its patented cyclone technology (which ensured consistent suction force) and consumers convinced of its technological superiority flocked to it. Apparently the men started taking over the women to vacuum the house after buying a Dyson, and got sufficiently excited to dedicate entire websites to their Dyson vacuum cleaner (emotional engagement: a key feature of the "trading up" phenomenon). This was a prime example of a New Luxury product.

More familiar to many is the Apple I-Pod which has taken the world by storm. It was hardly the first to launch a portable MP3 player (I think Creative was one of the first), but its trademark scroll wheel interface and soft white platform captured the imagination of techno-geeks like no other before it. By creating a cultural phenomenon of people being able to bring their music (a deeply personal thing) everywhere with them, and coupled with their past record of innovation, Apple had secured an emotional link with music lovers everywhere that would be hard to break. Even after two years of relentless competition from new MP3 players made by rivals, Apple still owns a majority of the MP3 player market and is able to retain strong pricing power.

For the small investor, his visits to the shopping centres are opportunities to identify which could be the "New Luxury" items of tomorrow. They should not be difficult to spot. Their counters will have many people crowding around waiting to try the demo or just gawking at the product. And if the product is expensive and still clears the shelves well, then it's time to pay more attention.

References:
(1) Trading Up (by Michael Silverstein, Neil Fiske)
(2) Against the Odds: An Autobiography (by James Dyson)