Making Luxury Affordable
Consumers grow accustomed to purchasing premium products at affordable prices

“Luxury” – The very word sounds lavish. And consumers through the ages have been on a quest to attain products that only a few can afford. What has been true through the course of human civilization is still true today: People want the premium products both because they are the best, but also because they are recognized by their peers as being highly valued. Unfortunately for the rank-and-file consumer, until recently most luxury brands were reserved for those who could afford to pay lofty prices.

But times have definitely changed. The rise of the mass-market channel as the favored shopping destination for value-conscious shoppers has caused a sea-change in the way manufacturers create and market products. Retailers, in turn, have had to learn how to retain a competitive edge, as products – luxury and otherwise – become ubiquitous across various retail channels. Manufacturers have also had to balance their desire to expand upscale brands into new markets against possible loss of brand equity, which can lead to erosion of brand from the point of view of both consumers and retailers.

Simulating the high-end product to stimulate sales

The number of consumers shopping mass-market and discount channels continues to rise. High-end manufacturers looking to capitalize on this trend have responded by introducing line extensions that offer many premium-product brand names (and features) at more affordable prices.

“For manufacturers, the ability to leverage their high-end brands across multiple channels and at different price points provides a competitive edge in the industry,” said Peter Greene, vice president and general manager of NPD Houseworld. “Such a strategy works to promote brand awareness among diverse consumer groups, thereby increasing the chances for manufacturers to capture larger shares of the market and improve their bottom lines.”

Like manufacturers, retailers use product differentiation to help retain a competitive edge as well. This is especially true in the case of mass merchants and other retail channels not traditionally associated with marketing high-end merchandise. According to Greene, “by including high-end brands in their portfolios, retailers position themselves to better compete within and outside their respective channel of distribution. At the same time, this strategy works to enhance a retailer’s image as a source of quality products.”

A prime example of the move toward affordable luxury can be shown clearly in the consumer electronics industry. According to Ross Rubin, director of industry analysis for NPD Techworld, “plasma displays for high-definition television, or HDTV, are among the most expensive electronics products that can be purchased today, but some manufacturers have appealed to the low-end of the videophile market by creating EDTVs, or enhanced-definition televisions. These often stylish products produce somewhat better pictures than standard TVs, but they sell for substantially less than their high-definition counterparts.”

“EDTV is a classic example of choosing style over substance,” Rubin continued. “These more affordable EDTV sets can be hung on the wall or mounted on a stylish stand, but as more high-definition content becomes available, these sets will not be able to display it.”

“Almost-There Syndrome”

EDTV is an example of what NPD’s Chief Indusry Analyst Marshal Cohen has dubbed the “Almost-There Syndrome.” Consumers have shifted from being polarized at both ends of the retail spectrum, in effect buying only premium luxury products or the lower-quality, low-price products. Said Cohen, “value shopping is no longer a necessity or even a hot trend; it has essentially become a lifestyle. The concept is now focused on the lower end of the high-end market, turning products in the opening price ranges within the luxury market into the hottest sellers.”

For example Cohen notes that luxury retailer Coach has been successful in this arena, by carefully controlling the opening price point for the luxury market. “Coach strives to be an aspirational brand,” he says, “yet they still provide low-priced options for consumers who are concerned with affordability. While a calfskin briefcase or leather coat might be beyond a certain customer’s means, a belt or keychain might not be.”

Even the auto industry is following suit. Mercedes Benz, for example, recently introduced a lower-priced car to appeal to the “Almost There” market, while being careful not to dilute their upper-end market. Said Cohen, “Consumers with Mercedes tastes on a Volkswagon budget, now have the option to step up and get the brand they have wanted for so long, possibly becoming a brand-loyal Mercedes-Benz buyer in the future. The upper-end customer is not affected, because virtually no consumer who can afford a $60,000 would trade down to a $30,000 car, if they could help it.”

The way to an aspirational consumer’s wallet?

Within the food and beverage market, higher priced restaurants, premium ice creams, imported chocolates are just a few of the “affordable luxuries” sought by more consumers these days. But most of these consumable luxuries are within in the reach of the average American – it’s only the frequency of consumption that is at issue.

“Perhaps most desirable luxury within the food market that most can not yet afford has to do with food preparation,” said Harry Balzer, vice president, NPD Foodworld. “The luxury that most Americans would like, but only a few can afford, is a paid chef. Now, however, the food and beverage industry has found ways to partially fulfill that desire by offering myriad heat-and-eat meals, gourmet frozen meals and take out meals from restaurants of many stripes.”

According to Balzer there will be a time, in the not-too-distant future, when cooking a meal from scratch might just become a recreational lark for the rank-and-file consumer. “When we start to cook for the fun of it, rather than for the nightly need to feed the family, it will be interesting to see what he ever-evolving definition of ‘luxury’ might then become,” Balzer opined.