Trading Up

[raindancer]

Why do people happily pay $6 for a Panera Panini instead of $3 for a sandwich at the deli?

Or $28 for a Victoria’s Secret bra instead of $12 for a generic brand?

Or $30,000 for a BMW instead of $20,000 for a Chevy?

Trading up has become a fact of life.

These purchases reflect an important worldwide behavioural shift. Consumers today are willing to pay a significant premium for goods and services that are emotionally important to them and that deliver the perceived values of quality, performance, and engagement. But in other categories that aren’t emotionally important, they become bargain hunters: a passionate Mercedes driver will shop at Target every weekend; a construction worker who splurges on a $3,000 set of Callaway golf clubs will also buy store-brand groceries.

For many companies today, trading up is a smart strategy for achieving growth and profitability in a world of cost-cutting and shrinking margins. In dozens of categories, new luxury brands are selling at premiums of 20 percent to 200 percent over conventional goods and in much larger volumes than traditional “old luxury” goods.

The authors estimate that in just twenty-three categories, mass luxury goods amount to $350 billion in annual sales with tremendous potential remaining for future growth.