Trading up: spa retailers can cash in on one of America's hottest marketing trends

Pool & Spa News, Sept 3, 2004 by Julie Sturgeon

A new style of customer has been frequenting retail stores. These middle-income shoppers are more than willing to spend $5-plus on a gourmet coffee drink, even though a $1 cup of joe can be gotten down the street. They'll opt for a professional-grade gas cooktop or hit the links with $3,000 custom golf clubs, knowing more affordable options could be attained.

According to the authors of Trading Up: The New American Luxury (Portfolio Hardcover, 2003), these customers are "trading up," paying a premium price for goods and services that exude quality and taste. Flying in the face of the old adage "the higher the price, the lower the volume," companies such as Panera Bread, Victoria's Secret and Callaway Golf are reaping top dollar for upscale versions of ordinary items. While consumers certainly have plenty of options at lower price points, they are falling all over themselves to buy these products.

The secret: The companies first offer products that stand out from the rest of the pack. Then they promote those products with positive brand messages and--bingo--consumers become emotionally engaged in desiring the items.

This trend can be seen in portable spa showrooms as well, retailers report. With a high-quality product, a marketing plan that stresses the benefits of upscale add-ons and a confident sales staff willing to go after higher-dollar sales, spas packed with all the goodies have been a big hit with customers lately.

Exploring the concept

Best-selling book titles aside, this concept of middle-class Americans sacrificing in one area of their lives to afford luxury in others isn't entirely new, according to Joe Pilotta, vice president of research at BIGresearch in Columbus, Ohio. Frankly, when times were good last decade, retailers simply didn't pay attention to the evidence staring them down at their cash registers, he says.

After 9/11 ushered in tougher economic times, however, the strength of some higher-end firms stood out like a beacon: Fancy restaurant chains such as P.F. Chang's China Bistro were surging ahead with 35 percent growth in 2003; BMW saw vehicle sales increase 10 percent in the United States; and retailers such as Restoration Hardware and Williams-Sonoma raked in double-digit sales increases.

"In today's world, luxury increasingly is defined as an expression of individuality," says Marcus Matthews, executive vice president and partner at Kanga Research Associates in New York. "Luxury brands have become not just ends onto themselves, but also means to even larger personal aspirations."

The items that Americans are willing to spend more money on range from disposable items to durable goods to services, says Michael Silverstein, senior vice president of The Boston Consulting Group. He co-authored Trading Up with Neil Fiske based on his client research. Home improvement items--including portable spas--rank as the single-largest category in new luxury spending trends, accounting for $100 billion annually.

Silverstein's research reveals that 96 percent of Americans spend a disproportionate amount of their income in one or two product categories of great importance to them. So, how can retailers effectively reach customers who are willing to spend more on portable spas? According to Silverstein, they should tap into one of the four emotions that fuel these decisions. (See chart on page 26 for more information on these emotions.)

"Spas are an important category since they cut across three emotional spaces: 'Taking care of me,' 'Connecting' and 'Individual style,'" Silverstein says. "But most [people] sell the product like it's a commodity. People think this [trend is due to] marketing, It's not. The consumer wants real benefits and is very open to trading up."

To strengthen the benefits message, retailers should focus on the value of add-on options. For example, how the spa's exclusive jet system provides advanced hydrotherapy, or how the high-tech electronics foster a soothing atmosphere.

Reading Silverstein's book reaffirmed Seattle retailer Alice Cunningham's conviction that higher-priced spas can sell well in her market. The co-owner of Olympic Hot Tub Co., stuck to her guns over some of her salespeople's objections regarding the firm's high-end pricing structure. If customers perceive the value, then the higher prices won't be overwhelming, Cunningham argues. "You just need to figure out another way to present it, and price is not it," she adds.

Since adopting the trading up attitude, Cunningham has seen add-on sales soar by 30 percent this year, with four out of five customers who examine the firm's top-of-the-line models springing for the extra options. "My customers are happier," she notes. "I mean, you only pay for it once. And how many times has someone cheapened out [and bought the less-expensive option] and then regretted it?"

Nancy Knickerbocker reports similar experiences in Dayton, Ohio. "People are paying more for their spas than I paid for my first car in 1984," says the vice president of sales at Knickerbocker Pools & Spas. "I don't know where the ceiling is."