- The Washington Times - Sunday, September 30, 2007

There was a time when coffee was coffee, ice cream was ice cream, and sofas didn’t come with the option of handcrafted, down-wrapped cushions.

Yesterday’s lack of choices seemed so … limited. Now, a cup of coffee comes with a set of options (foam? sugar-free vanilla syrup? double shot?) to rival those at a BMW dealership. A fancy ice cream shop can create your cone with ingredients chosen by you, just for you.

Thus the $5 price tag on a snack that used to cost $1.

Call it “luxflation,” says Pamela Danziger, founder of Unity Marketing, a consumer research firm, and the author of “Shopping: Why We Love It and How Retailers Can Create the Ultimate Customer Experience.”

“Marketers continually have to inflate the value of the products they produce,” she says. “People like things that are better. It is human nature to want something more.”

The luxury market — or “old luxury” — used to apply mainly to luxury goods such as cars, watches and home furnishings, says Ms. Danziger. New luxury is in the mind — or the cute Starbucks cup — of the beholder.

Old luxury was about materials. New luxury is about the experience.

For an increasing number of consumers, the emotional response to the $5 cup of coffee — perhaps the leitmotif of new luxury — is worth it, says Kenny Herbst, assistant professor of marketing at Wake Forest University’s Babcock Graduate School of Management.

“You are paying to have that positive feeling from a specialty coffee store,” Mr. Herbst says. “Carrying around that cup, it looks like you can afford coffee from that store; you’re not just bringing a cup from home. The emotional response is a big part of it. You really don’t want to spend five times more on that coffee.”

Take away the coffeehouse experience — with the piped-in jazz music, soothing color scheme and comfy chairs — and consumers might indeed balk at the price tag.

“If you walked up to someone who is looking to buy a pound of coffee [about $4 at the grocery store], and you said, ‘Here is a $5 cup,’ they would tell you that is too expensive,” Mr. Herbst says. “But if you are at a coffeehouse, you know you are going to pay for the experience. It is a custom-made experience. What you are doing is shopping versus buying.”

Same goes for the designer ice cream. For the price of a generous Cold Stone Creamery “Love it” size cup, a shopper could pick up a half-gallon or two at the supermarket.

But that half-gallon wouldn’t have a custom mix of Gummi bears, pie crust and Snickers bars.

Cold Stone, with 1,400 stores, bills itself as “the ultimate ice cream experience.” The stores have unique ice cream flavors such as cotton candy and cake batter. The toppings are displayed in glass containers. Ice cream lovers choose their ingredients, and the staff mixes the concoction just for them on a cold marble slab. The final result is luxury and calories in a waffle cone.

“You know your dollars could buy a couple of pints of regular ice cream,” Mr. Herbst says, “but you are going to pay more for something handcrafted just for you.”

Michael Silverstein, managing director of the Boston Consulting Group and author of the book “Trading Up: Why Consumers Want New Luxury Goods — and How Companies Create Them,” says consumers are on the hunt for goods that leave them feeling special.

In his research, Mr. Silverstein has found that most people don’t trade up in many categories. One might buy the fancy ice cream but carry an inexpensive wallet or insist on a high-end car but make his own coffee at home from a can of Maxwell House.

Therefore, all those options aren’t really confusing, Mr. Silverstein says. Whether it is a home theater system or a martini, that consumer has enough information to know exactly what he wants.

“Most people don’t trade up in many categories,” he says. “They have one, two or three categories. They actually care about these categories. They choose and study. They investigate and talk to their friends. It’s not really confusion — they know what they want.”

Small new luxury goods have flourished in part along with the economy of the past decade or so, Ms. Danziger says. For most people, the cost of necessities such as food and shelter are still relatively low compared with income, she says. Though many people would balk at a big luxury such as a motorboat, they hardly pause at the idea of a small luxury such as a $5 cup of coffee.

Many financial experts harp on the “latte factor” — the idea that if you took the $5 you are spending on daily coffee and invested it, you would have a nice nest egg for retirement in 30 years. However, Ms. Danziger says for many consumers, the latte-factor idea is as far off as a vacation home.

“We want our pleasures, and we want it now. Today,” she says. “Little things like coffee are so easily affordable, and you get a tremendously better experience at a place like Starbucks.”

As small items become “luxflated,” a new category of big-ticket items has been created, Ms. Danziger says. The makers of old luxury items such as Coach handbags or Mercedes automobiles have created lower-priced lines, enabling those who seek luxury to get the real deal at an entry-level price.

“Anywhere we look, there has been a lot of movement up and down the scale,” Ms. Danziger says. “We now have luxury brands that are available to the masses while mass goods are moving up with more special features.

“So many people couldn’t afford the $700 bag,” she says. “But they can get the $300 bag for a little indulgence.”

A new example of this is the clothing line created by designer Vera Wang for the discount department store Kohl’s, Ms. Danziger says. The average shopper probably cannot afford one of Miss Wang’s $10,000 wedding gowns but likely can drop $50 on a blouse.

Mr. Silverstein says in his book that there is a “ladder of benefits” when a product tries to make inroads in the new luxury market. It must have technical differences in design or technology. Those differences must contribute to a superior performance. It must engage the consumer emotionally.

Thus, the $20 martini or the $40 hand cream is born.

“When a new luxury brand solidly delivers the ladder of benefits, it can catch fire,” Mr. Silverstein writes. “It will take hold in the minds of the consumer and quickly change the rules of its category and grow to market dominance.”

Starbucks and Victoria’s Secret are two good examples of those that have grown to dominate. They offer a tiny bit of luxury at almost every mall in the United States.

In fact, lots of shoppers can’t remember what life was like before the skinny latte.

“Today’s luxuries become tomorrow’s necessities,” Ms. Danziger says. “Taking the extraordinary and making it ordinary actually puts a lot of pressure on the top level to create more luxury at the high end.”

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