TREASURE HUNT Treasures

I recently finished reading TREASURE HUNT, the follow-up book to the best-selling TRADING UP. In TRADING UP, Michael Silverstein (along with Neil Fiske) profiled the reasons why consumers choose to pay a premium price for luxury goods/services. This time around in TREASURE HUNT, Silverstein (along with John Butman) profiles the middle market consumer and the reasons why they sometimes choose to trade-up and most times, deliberately trade-down to purchase less expensive goods. He also gives businesses advice on how they can better appeal to the middle-market consumer at both the high-end and the low-end of a market.

There’s much to explore about the book over on the Treasure Hunt website with preview PDFs (synopsis & intro) and video snippets from the author. Below you’ll find elements of the book that I found worthwhile. As for the book itself … it is definitely a worthwhile read.

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Treasure Hunt
The title of the book stems from Silverstein positing that consuming “… has become a treasure hunt—a constant search through the world’s incredibly vast and ever-changing store of goods and services, with the goal of finding the perfect value every time.” (pg. 5)

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Bifurcation Nation
Silverstein contends consumer markets are bifurcating into two fast growing segments. “At the high end of the market, consumers are trading up, paying a premium for high-quality, emotionally rich, high-margin products and services. At the low end, consumers are relentlessly trading down, spending as little as possible to buy basic, low-cost goods that still deliver acceptable quality, reliability, and increasingly, elements of fashion and current design.”(p. 4)

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Trading-Up Market Size vs. Trading-Down Market Size
Using Boston Consulting Group data, Silverstein projects the market size of the trading-up segment to be $535 billion in annual spending and the market size of the trading-down market is an astounding $1 trillion dollars a year.

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Market Capitalization Comparison (year 2004 figures)
Market capitalization of the top ten trading-up companies: $55 billion.
Market capitalization of the top ten trading-down companies: $476 billion.

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Biggest Trading-Up Categories
The following categories typify areas consumers willingly spend more for:
1 | Travel and Entertainment
2 | Homes and Home Renovation
3 | Cars
4 | Restaurants/Dining Out
5 | Home Goods
6 | Food and Beverages

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Biggest Trading-Down Categories
These are categories where consumers deliberately spend less for:
1 | Homes and Home Renovation
2 | Cars
3 | Restaurants/Dining Out
4 | Travel and Entertainment
5 | Food and Beverages
6 | Personal Services

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Reasons Why Middle Market Consumers Trade-Down
1 | They are savvier than ever and take great pride in out-smarting companies by finding ways to get products/services at the lowest possible price.
2 | They do not think there are meaningful functional differences between goods at two different price points.
3 | They were taught by their parents that being thrifty is virtuous.
4 | They do not believe in excessive consumption.

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“The Want List”
Silverstein writes that middle-class consumers keep an ever-changing dream list of items they want. Because these consumers never earn the money to buy items on their want list, they will, many times, make trade offs by not buying a $7,000 Rolex and instead, settling for buying a $1,500 HDTV.

For marketers, Silverstein makes a very astute observation, “If you can understand the want list of your consumers, you may discover that you are competing not only against other companies in your category, but also against completely different categories where consumers might spend their discretionary dollars.”(p. 56)

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The Trading Up Trap
“Companies that pursue a trading-up strategy, for example, will usually make some incremental technical or functional improvements in their offering, and hope that the emotional value will soar. But they don’t or won’t, make a full commitment to the strategy. They won’t put enough cost in the product. They’ll rely too much on advertising to build the brand. They won’t listen well enough to consumers about what they like and dislike.” (p. 229)

Comments

[Jason]

I always find it funny that the Walmart and Sam's parking lots are full of luxury cars. I guess they got rich for a reason.

[Steve Liberati]

Best example I can think of are Chevy's Tahoes and Caddy Escalades. Just look who your typical driver is (note I didn't say owner as most are leased). They're bling blinged out with chromed-out rims, tinted windows, and expenseive wax jobs. Most of their drivers live in apartments and don't have a pot to piss in. But they have "traded up" their choice of car, stretching their wallets thin...all for the way the car makes them feel (like they're rich). In sum, people buy based more emotion than on reason. Nothing groundbreaking here.
Nice review nonetheless.

[Christopher grove]

Interestingly enough both the trading up & trading down lists contain the same product categories for 5 out 6 of the categories in each list. This would seem to indicate that the type of consumer is the determining factor governing whether a trade up or trade down is undertaken. I doubt that this surprises anyone, but it would be interesting to have more information on the consumers that fell into each category: is the split a simple thrifty consumer/aspirational stretching wallet consumer one or is it more nuanced than that (eg: consumers spending less on cars in order to be able to trade up in homes, in the hope of a better ROI)? I know that the Want List point answers this partially, but does it explain why both of the lists are so similar?

[johnmoore (from Brand Autopsy)]

Christopher … good fodder, thanks for adding it to the mix.

As for why the similarities between trading-up and trading-down categories exist, Silverstein points to these categories as being the battleground for companies. The premium market is growing as is the bargain market but for those companies competing in the middle, sales are stale.

TREASURE HUNT includes an interesting chart listing the Top Ten Trading-Up Retailers and the Top Ten Trading-Down Retailers:

Top-Ten Trading-Up Retailers:
(1) Coach; (2) Whole Foods; (3) Tiffany; (4) Williams-Sonoma; (5) Limited Brands; (6) Cheesecake Factory; (7) Nordstrom; (8) Neiman-Marcus; (9) Saks; (10) Brinker.

Top-Ten Trading-Down Retailers:
(1) Wal-Mart; (2) Home Depot; (3) Target; (4) Lowes; (5) Kohl’s; (6) Costco; (7) Staples; (8) TJX Companies; (9) Family Dollar; (10) Dollar General.

To explain exactly how/why consumers decide to trade-up or trade-down, Silverstein introduces “The Value Calculus” concept. All consumers match purchases to what they value be it excitement, usability, price, etc. Silverstein goes into great about this throughout the book so if you wanna learn more, seek out TREASURE HUNT.

Over on the TREASURE HUNT website, Silverstein does a good job outlining the treasure hunt consumer mindset from the trading-up perspective and the trading-down angle.

[jasonford]

Great review. I'm interested in reading this book now.

I see some parallels with The Discipline of Market Leaders (Michael Treacy & Fred Wiersema) which seems to look at these issue from the companies perspective. The authors outline three "customer value disciplines": product leadership, operational excellence, and customer intimacy. The first two map pretty well to trading up and trading down. Product leadership is the discipline of constantly improving your product to lead with innovation and quality (trading up). Operational excellence is a ruthless emphasis on providing the lowest cost through extremely efficient operations (trading down).

The third discipline, customer intimacy (where the company knows its clients so well it always offers the best solution for their needs), is a type of trading up too I guess. A consumer who buys from a company with this model is trading up for the luxury of a company that knows them inside and out - at a premium price point.

[johnmoore (from Brand Autopsy)]

Thanks for the setup Jason ... Booz Allen did a thorough study on the role of CMOs in an issue of Strategy+Business in 2004 and I applied the Discipline of Market Leaders mindset to their study in this vintage Brand Autopsy blog post. It appears you and I are in sync with this. Nice add Jason.