Michael Silverstein -- Trading Up: The Consumer-Driven
Revolution
Rotman School Lifelong Learning 2004, June 6, 2004, 10:05
a.m.
These participant's notes were created
in real-time during the meeting, based on the speaker's
presentation(s) and comments from the audience. These should not
be viewed as official transcripts of the meeting, but only as an
interpretation by a single individual. Lapses, grammatical
errors, and typing mistakes may not have been corrected.
Questions about content should be directed to the originator.
These notes have been contributed by David Ing
(daviding@systemicbusiness.org) at the IBM Advanced Business
Institute ( http://www.ibm.com/abi).
Introduction by Roger Martin
[Michael Silverstein]
About frugality, not excess consumption
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Deciding categories that are personally important, and
becoming an expert.
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Trading down in categories that are not important.
Need to get inside the heads of a small number of
individuals
Framework: technical, functional and emotional benefits
Premium market (20% to 100% higher price) is growing
Real technical benefits:
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Adding back cost
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Spending more to deliver better
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Raw materials, design, authenticity, being real and
powerful
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This translates into functional benefits.
Consumers can describe functional benefits
Not a static position: it's a perpetual war.
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Winners are taking 20% of volume, and 40% of profits, taking
60% of category profit.
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BCG was doing a study of a troubled food company, and this
translated into a $200M opportunity.
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Then did work for Victoria's Secret, which was reaching a
plateau
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Introduced Body by Victoria.
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Microfibre, comfortable, sexy and glamourous.
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Women though probabilities were lower on Sunday to
Thursday.
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This is all about insurance, because you'll never know what
will happen.
Consumers decide what's important.
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They trade up in 3 or 4 categories
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$50K to $150K incomes
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52M or 53M households, that control 70% of discretionary
income.
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Households: Internet-savvy, read, tell others people
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Homes, kitchens, home theatres, luxury cars, eating out at
slightly better restaurants, because she's too busy to
cook.
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Organic, spending money on yourself.
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Distortion of your income: what's important
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1973 to 2003: middle class got rich
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100% recession proof
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Sucking sound at the top and bottom of market.
Son Charlie came into office on Sunday morning
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Doing e-mail.
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Golf is Charlie's favourite sport.
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Went to golf school
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Have now become a golf nut
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At 2 p.m., snuck out to Glencoe golf course.
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Wanted to play a fast game, met Jake
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Has Callaway, etc., Jake hits 330 yards
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Got golf anxiety, managed 150 yards
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Jake is a carpenter, 6 a.m. to 1:30 p.m., making $52K per
year, and he's single.
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Plays golf 9 months per year, twice on Sunday
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Jake distorts his income: $7K on golf, on $40K net
income
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He buys the clubs that any CEO can buy, but he can hit them
better.
Ely Callaway:
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Was CEO of Burlington Industries.
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Got a $2M golden parachute.
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Move to Temucula (near San Diego), where no one creates
wine.
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Sells winery for $80M.
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On golf course, buys Hickory Stick golf club.
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Found designer, who had greater oversized tennis head.
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Built a club with a 25% larger head, different way of
putting shaft into
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Demonstrably superior, pleasingly superior.
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Club is easier to hit.
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Titlist had most expensive driver, $200
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Goes from #445 on equipment manufacturing to #1 in four
years.
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Proceeds for the book go to the Rotman School
[Tapes not shown]
This phenomenon is happening in a wide variety of products,
from durables to disposables.
Chart: consumers are trading up, trading down, or not buying
at all.
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In sit down restaurants, people are trading up.
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In cars, an escalation up.
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Dogs: have a $2000 dog, 4 centuries of breeding
- You don't feed this dog Purina.
- He gets a kibble that is 3x more expensive than Purina, plus
white meat chicken because he likes it.
Realignment of consumer needs and business capability
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53M household is not spending out of league, not crazy
consumption.
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It's about consumers deciding that they like Starbucks, or
Second Cup.
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Mass markets: Walmart, Costco, have lowered costs of most
goods.
Women are the driving force behind luxury.
- In household where only the man works, zero increase in real
income.
- Women increase the real income, but do 85% of household
chores.
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- 28 hours per week of home work, in addition to 40 hours in
day job
- Encouraged by Oprah: girl, it's okay to take care of
yourself.
- College
- Growth in travel
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- Come home and want to change the way we live.
Barriers to entry in markets is declining
- Requires conviction.
- Big companies are ignoring this.
- Have inventors with passion.
Fred Carl, who lives in Jackson, Mississippi.
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A home builder
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Building a home, wants to make the kitchen beautiful.
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GE ovens are $350, control temperature plus or minus 30
degrees
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Cooking a turkey with 30 degree variance: only 10% cooked
perfectly
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Viking oven: an insurance policy, $4125 for oven
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15,000 BTU on each cooktop
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Some single ovens, some double ovens.
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Less utilization than GE ovens
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Base technical: a commercial grade oven
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Functional: fast heat
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Most important: puts a crown on the owner
Why the movement now?
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Stressed and tired
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Insecurity
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Isolated and fearful
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Underappreciated
Emotional drivers
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Individual style
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Taking care of me
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Questing
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Connecting
Panera Bread: came out of no where
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Was going to BMW, went to Woodbridge NJ
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Place was packed at lunch
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Sat with three women, all admin assistants, all had
boyfriends, not happy in relationship, not happy in jobs, yet
happy and smiling
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Asks why are you here?
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Spent $8 or $9 for lunch.
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The chicken in the sandwich has grill marks for me; not
iceberg, arigula; not Hellman's mayonaise, but pesto mayonaise
made today; and foccacia today.
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Thought of lunch in Italy a year ago on a mountain -- don't
have the boyfriend.
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The "me" button.
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Questing: my home is my castle
Individual style
Exploiting trading up:
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Emotional, functional and technical benefits.
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Can also trade down: from BMW 5-series, make 3-series and
1-series
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Mastige: mass with prestige
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Neil Fisk, co-author, went to the Limited, Bath and Body
Works
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Was selling apple shampoo to babysitters
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Wexner put together a strategy, and after 1-1/2 years, the
CEO did nothing.
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Created the world's best candle, $25, when nothing else sold
above $16
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Now into aromatherapy, skin care
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A lot of market research will reveal nothing about trade-up
opportunity.
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Don't need to splash, need to place product in consumer's
hands.
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Need to be precise in target
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Need to find cravers: people who will spread the
word.
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Can be fearless in pricing.
Checklist for growth:
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Deliver technical, emotional and funcdtional benefits.
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Rich and graphic consumer marketing.
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Visually stunning at retail.
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Continuous stream of innovation
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Have to constantly look out in the world: competitive
patterning.
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Don't have to first, but have to be fast.
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Extend, dominate.
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Own everything about this consumer.
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Engage, with the consumer saying yes.
[Questions]
Upscale products, upscale marketing
Demographics. Observations beyond consumer goods to
business-to-business?
Financial services?
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Some becoming more commodity.
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Need a better service bundle.
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Preferred mortgage vendor, but people on the Internet
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This isn't a sweet opportunity
If have 5-series and then 3-series, how to deal with
cannibalization if the 3-series is too good
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BMW is a great example.
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Later this year, will have 1-series at $24K, Pontiac
killer
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Also have invested at getting features to 6-series and
7-series
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Very segmented in marketing
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5-series and 7-series are 10 year different
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1-series will be different
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Mini Cooper is an icon car
Shift to emotional needs?
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Focus groups: don't find them useful anymore
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Have moved to one-on-one conversations
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e.g. went to women, had them open up the lingerie
drawer
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North Americans will reveal themselves
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Also, participation research: go shopping with consumers,
see what they do
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