Opinion: Analysis: New consumer chooses treasures over bargains

For the past decade, an analysis of retail data has shown a clear propensity on the part of America’s retail shoppers to cross-shop within general merchandise categories. Even the rich and affluent will buy their high-involvement couture outfits from Neiman Marcus while shopping at Target for everyday kids’ clothing destined to be outgrown within the month.

But now comes the phenomenon of “the treasure hunter,” so ably described by Boston Consulting Group’s Michael Silverstein in his new book, “Treasure Hunt: Inside the Mind of the New Consumer.”

While economists have noted, with nodding heads, the continuing upward climb of the “trading up” segment, expected to be a $1 trillion category by 2010, few until now have recognized the more powerful growth rate of the “trading down” segment, which is growing at double the rate of its “up” counterpart and is projected to hit $1.5 trillion by the end of the decade.

Who are they and why do they buy?

According to Silverstein, 86 percent of Americans “trade down” in five or more categories while 62 percent “spend up” in a handful of categories that matter most to them. Interestingly, the top categories in both segments are the same: homes; transportation; dining out; food and beverages; and personal items including apparel and personal services.

Consumers will “treasure hunt” for varying reasons. For some it’s the willingness to “trade down” on nonessential purchases (inexpensive, everyday wine at Cost Plus) in order to “trade up” for more expensive, “reward” buying decisions (a Prada handbag). For others, it’s the pure thrill of the hunt, rooting out a prestigious luxury brand treasure at a factory outlet store. Some will also buy in bulk for a rainy day.

Silverstein also maintains that marketers spend too much time marketing to men and ignoring women who either control or significantly influence purchase decisions in the home.

Irrespective of who’s doing the buying, the desire nowadays is to find the treasure and not just the bargain as in yesteryear. Consumers define treasure as a combination of “best value,” “best quality” and “best price.”

Why is it happening?

Silverstein has coined the phrase “artful consumerism” to summarize the influences that have helped form today’s treasure hunter personality and mindset. These include the doubling of real income during the past 30 years, which has, in turn, released more funds for discretionary spending; the rapid take-off of big-box discount retailers such as Wal-Mart and Costco with their emphasis on everyday low pricing; the continued rise of an affluent middle class that has the willingness, desire and ability to travel and sample life’s experiences; and the growth in home values that has inspired Americans to invest more heavily in their homes.

What about the middle?

While the traditional midlevel marketer is hardly doomed, the future is not rosy. In spite of collapsing sales volumes, revenues and profitability, the mainstream supermarket and department store emporiums will continue to survive and generate cash flow.

For the majority of the still-vast middle market, the future is one of shrinkage. As an example, while Mal-Mart and other price-oriented retailers have experienced annual growth rates of 20 percent to 40 percent, traditional supermarkets have lost 30 market share points, with the average department store losing 50 share points since 1970.

The lesson out of all of this for marketers and retailers is to escape the no-man’s-land of the middle. At one end, there’s the emerging “new luxury” category where goods and services are priced 20 percent to 40 percent above average and where the category continues to grow at astonishing rates up from $400 billion in 2003 to $605 billion in 2005. At the other end, there’s the even faster growing “treasure” segment.

What’s a marketer to do?

Marketers are failing to exploit the emotional bond between consumer and brand. “Most companies have too superficial an understanding of who their customers are. They focus on markets, not real people. They need to come from behind the one-way mirror of market research and feel the emotion of shopping and spending.”

Silverstein’s point has been backed-up by the late retailing genius Stanley Marcus, who decried the current practice in department store retailing whereby merchandisers responsible for product selection and ordering no longer touch the customer. Instead they rely primarily upon computer data to do the job.

Silverstein advises marketers to leverage the emotional side of spending by creating a regular cycle of innovation for premium-priced, trading up products, or relentlessly driving down costs while still offering a product that’s good, satisfying and appealing.

Says Silverstein, “The new cheap is not just cheap; it’s good.”

Alf Nucifora is a California-based marketing consultant. He can be reached at alf@nucifora.com.[[In-content Ad]]