If the Great Recession hurt your company’s sales, you might want to look at your product mix.
Think luxury.
Despite the economic collapse, sales of luxury goods remained steady. The number of affluent Americans (households with $100,000 of annual income or more) continues to grow, up 75 percent in the past decade. In 2015, one in five households had earnings of $100,000 or more, compared to less than one in 10 in 1990.
Smart marketers have taken note. While the primary purchasers of luxury goods (e.g., Armani) and services (e.g., at-home avocado wrap) remain the truly rich, several companies have taken ordinary items and super-riched them successfully (e.g., $5 Starbucks mocha frappuccino).
Many luxury brand names have begun offering affordable models, an effort to present wealthy wannabees with less pricey alternatives. Upscale kitchen appliance maker Viking Range expanded its product line to include cookware and cutlery at affordable price points.
How to recession-proof your company
Historically, luxury goods weather the dips in the economy better than mainstream goods. In uncertain economic times, consumers face financial – and often emotional – stress.
And while they may modify their expectations (put off the purchase of a new car or second home), they don’t change their fundamental behavior. The small indulgences that got them through the day (the ice cream cone, the gourmet cookie) before the recession will still be the small indulgences that get them through the day during the recession and into recovery.
Statistics support the strategy. Research at the University of California, Berkeley showed real income for the top one percent of U.S. families grew by 86 percent from 1996 to 2015, while the average gain for the other 99 percent was just 6.6 percent.
So how do you adapt your product mix to include luxury buyers?
Simply raising prices could cost you customers. But a quality product with a quality reputation will continue to be in demand despite hard times. If your firm offers a broad range of products or services, offering several in a luxury category will help blunt the effects of the next recession.
Case study
One classic study published in the Journal of Marketing Research was Williams-Sonoma’s online catalog pricing experiment. The company had a $275 bread maker that sold poorly. But when they positioned a similar bread maker for $429 and placed it next to the $275 bread maker, sales of the $275 bread maker nearly doubled.
In this case, the goal was not to sell the more expensive product – although that would be a plus – but rather to make the price of the first product look inexpensive so consumers bought more of those.
Lead with the most expensive product. Known as price anchoring, it sets the buyers’ expectations for what follows. If the first price they see is very expensive, then they may be more inclined to buy the less expensively priced item that follows.
Timing
Preparing for a recession is best done during a robust economy. Developing and introducing systems, new products or a luxury line during a recession is risky. Consumers are more cautious and are skeptical of anything new. Now, when the economy is improving, is the best time to begin developing your luxury lines.
A strong economy, however, does not guarantee success. Understanding the motivations of luxury buyers is crucial.
According to research conducted at SRI Consulting-Business Intelligence, a Menlo Park, Calif. marketing research firm, three distinct motivations fuel luxury spending:
- Luxury is functional
A customer buys it because it’s of better quality – it lasts longer, has more bells and whistles, or is more dependable.
These are the older, wealthier consumers who are in their peak earning years; empty nesters with large disposable incomes. They want things of enduring value, built to last, “like the good old days.” They make logical rather than emotional or impulsive decisions when they make a purchase. - Luxury is reward
They buy luxury goods as status symbols, to satisfy ego or as a way to say, “I’ve made it.”
These are younger, often “new rich,” who buy conspicuous luxuries. They are making a statement about who they are and their level of importance. “Prestige” or “exclusive” brands work best with this group. - Luxury is indulgence
Buyers willing to pay a premium in order to express their individuality and make others take notice.
More male than female, these consumers are younger and frequently come from wealth. They enjoy the luxuries for the way they make them feel.
Understanding the luxury market, buying motivations and lifestyles will help you sell your whole line of products. Having at least one group of luxury products can create an image of quality for your company.
Best of all, it can help maintain your profitability during lean times.
-Robert Grede, author of “Naked Marketing – The Bare Essentials,” is president of The Grede Co., which offers marketing and strategic planning consulting (www.RobertGrede.com). He can be reached at rg@TheGredeCompany.com.
