In 2002, two consultants wrote a book named “Trading Up”. The authors believed that higher population income levels and societal behavioural shifts were driving middle market consumers to purchase higher priced items while cutting back on things they did not care about.
The book has helped brands in different categories restructure their value proposition. They’ve been able to position themselves at higher price points with resulting higher margins without sacrificing too much volume. “Premiumization” and “New Luxury” were born.
More than a decade later, this economic trend is alive and well. Emerging markets middle classes aside, further factors are contributing to this. The advent of the digital world has not only allowed consumers to purchase luxury goods online, but has also widened their horizons in available luxury products and services. Globalization has equally contributed to this growth in knowledge by fostering travel and information exchange.
All these shifts have affected the big luxury brands. Known in the past for poor use of technology, luxury companies now reach out to consumers through social media and mobile apps.
On the distribution front, emerging sales channels such as outlets and established specialty premium eTailers like Net-a-porter add to the proliferation of channels in which the clear distinction between mainstream, premium and luxury become blurred.
New market entrants, such as value-priced Italian make-up retailer Kiko, that cleverly integrate aspirational elements into their brand DNA, create a dilemma in the minds of the consumer between a premium “illusion” and low prices.
As a result, mainstream, premium and luxury segments are sometimes hard to tell apart. We call it the new luxury continuum. Non-luxury companies continue to take advantage of this continuum to develop brands, product and service offerings to enter the lucrative premium segment.
An excellent recent example has been DS Automobiles. In 2009, French car manufacturer Citroen launched its most premium line - labelled “DS” - with the hope of adding a more premium clientele to the Citroen franchise. The new sub-brand, consisting of three different models, featured its own visual identity, but always with the Citroen endorsement in all its brand manifestations.
Citroen has now shifted up a gear and “freed” its DS line from direct association with the mother brand.
Trading-up brands is an important trend across industries and continents. More importantly, doing it right is more difficult than ever. Brands need to carefully review their competitive brand landscape to understand their trading-up opportunity and what the implications of such a move would be.