Showing posts with label surveys. Show all posts
Showing posts with label surveys. Show all posts

Monday, March 17, 2014

The Drive to Luxury: Commodity Fetishism or Innate Human Need?

Over the last several decades, across the globe, there has been a marked increase in consumers' collective demand for luxury goods.  What are luxury goods and why do consumers seem to express such an insatiable demand for them?  While most researchers cannot agree on a standard definition for luxury goods, they generally agree that it is any consumer product or item that is not a true "necessity."

In other words, access to potable water is a necessity to survive in the world, but owning a diamond-studded watch is not.

Some researchers argue that the luxury marketplace focuses the consumer on a perceived need to belong to an elite group and manifests desire for extremely high quality products, often far in excess of actual need.

Some political commentators on the left have argued that luxury goods are a negative form of "commodity fetishism," a term coined by Karl Marx. Marx decried the capitalistic drive toward exclusionary private property and seemingly irrational desire for classist exclusion that he believed luxury goods represent.

He argued that humans were encouraged to ascribe irrational value to arbitrary materials (such as gold or diamonds), which then are perceived as having a false "intrinsic" value in the marketplace.  He argued that such exclusion was designed to oppress the working classes, and served no other socially beneficial goal.

Yet, despite persistent economic turbulence and political instability in many emerging markets, the global luxury goods market remains largely robust.  Indeed, the pursuit of luxury has been a sustained growth trend, even in societies that have experienced substantial political perils.

But is this trend just a blip, or a new long-term reality?

I contend that the drive toward luxury is a positive feature of normal human economic and psychological development, and not just a short-term phenomenon or an irrational manifestation of oppressive capitalism gone awry.

As any human society develops, its' collective needs and consumer preferences will gravitate from satisfying the lower-level human needs (such as general stores selling staple household goods) toward increasing demand for brands that represent quality, the respect of others and social achievement.

Maslow's hierarchy of needs is a theory in psychology proposed by Abraham Maslow in his groundbreaking 1943 paper "A Theory of Human Motivation" in Psychological Review:

In essence, Maslow argued that all human behavior can be analyzed within the general framework of this pyramid, representing a dynamic progression toward higher thought processes and a greater degree of social functioning as one's temporal needs are met.

In other words, once a person's immediate physical needs and safety/security are satisfied  he will gravitate toward forming communities and families, and eventually, trend toward morality and achieve self-actualization.  Without one's lower-level needs met, that person -- and eventually his entire society -- will flounder.

From the perspective of predicting and analyzing consumer behavior, Maslow’s hierarchy can be thought of as also predicting macro-level social mobility and consumer preferences.  Such a model allows one to understand trends in demographics, and even develop sound long-term financial and investment strategies.

In other words, in a properly functioning society where social mobility is fluid, eventually, the retail options will become higher-end, and luxury goods retailers will move in.  The “local hardware store” will be replaced by a mass market retailer.  The mass market retailer eventually will be replaced by the shopping mall.  The shopping mall eventually becomes filled with luxury goods retailers.

Therefore, over time, as societies economically, psychologically and demographically evolve, luxury goods should become both desirable and attainable.

Financial data bears this trend out. Standard & Poors Global Consumer Enterprises Index is comprised of thirty of the largest publicly-traded companies in the GICS consumer discretionary sector that meet specific investability requirements.  The index provides exposure to leading publicly-listed companies in developed markets, which meet minimum international revenue exposure requirements.  100% of the companies included relate to consumer discretionary spending.  

Since this custom Index was created by S&P in 2009, it has demonstrated 5-year annualized returns of 25% growth, an astounding rate of return: 

Empirical consumer survey data bear out this trend, as well.  In a recent survey conducted by Empathica Consumer Insights Panel, the largest reported reason that consumers made a luxury purchase was to "reward themselves" (31.9%), although many consumers also indicated they were finally getting around to buying a luxury item that they had previously delayed purchasing (17.5%).  

Others bought a luxury good for a significant other (12.5%), or said they had extra money to spend and just wanted one (11.5%).  Despite the recent recession, three out of four consumers indicated that they perceived that there are the same or even more luxury brands available today than there were two to three years ago, making this luxury goods market more competitive than ever.  Interestingly, 28% of consumers also report that they will tell others about their luxury purchase through social media sites like Twitter, Facebook or blogs.

Therefore, consumers consistently express a deep need to have the ability to "reward themselves" through the purchase of a luxury good that was not a true necessity.  The approval, perceptions and respect of others played a critical role, as well.

Over time, I predict that this drive toward luxury is here to stay, as it represents the innate human drive to progress toward higher levels of achievement and acquire the respect of others, and not simply irrational exuberance or the exploitation of artificial demand.

Thursday, February 20, 2014

China Viewed as America's "Greatest Enemy" in Gallup Polling Data

A recently released Gallup World Affairs poll surveyed Americans, asking them to name the United States' greatest foreign enemy.  More Americans viewed China, not Iran or Russia, as America's greatest threat.

A majority of those polled (52%) apparently view China's growing economic power as a "critical threat" to the "vital interests" of America into next decade.

Eight years ago, 31% of Americans viewed Iran as the USA's "greatest enemy," compared with 16% today.  China's unfavorable ratings have held relatively steady in Americans' minds, despite the announcement of historic reforms late last year that would shift China's economy to a more consumer-driven model.

In 1979, when Gallup first gathered responses to these questions from a representative sample of Americans, China's GDP was not even one tenth that of of the United States. That year, nearly two out of three of Americans polled reported that they saw China favorably.  

Today, China's meteoric rise has led a majority of Americans (52%) to report China as the world's leading economic power. Further, many Americans are beginning to view China's growing military strength and newfound economic power as a threat to U.S. strategic interests.

Gallup notes that in 1959, President John F. Kennedy gave a speech, noting that when written in Chinese, the word "crisis" is composed of two characters, one representing danger, the other representing opportunity.  Americans clearly see the potential for danger in China, but it is worth noting that commercial trade with China continues to grow, creating opportunity as well. Since China joined the World Trade Organization in 2001, America's trade with China has grown dramatically.  

However, many U.S. government officials have openly criticized Chinese currency manipulation policies and tolerance of counterfeiting as well as human rights abuses.

Saturday, July 14, 2012

Under Armour Lawsuit Full of Rhetoric, but Legal Test is Straightforward

Billion dollar sportswear and sneaker manufacturer Under Armour recently filed a trademark infringement lawsuit accusing Maryland-based startup beverage company BodyArmor of copying Under Armour's name, logo and marketing.  Here are a few observations about this particular lawsuit.

First, purely from a marketing and promotion standpoint, the filing of this case was probably the greatest gift that the startup beverage maker could have possibly received from anyone.

Indeed, the opportunity to generate and benefit from massive amounts of free press was capitalized upon by BodyArmor's owners -- the same mega-entrepreneurs who founded vitamin water, sold that brand to the Coca-Cola Company in 2007 for $4.1B, and who are considered leading experts at creative brand building in the beverage industry.

In fact, normally filing an Answer to a Complaint is a fairly mundane procedural act, as an Answer typically contains standard denials, recitations and defenses, but little fireworks or rhetorical opportunities.
However, seizing the moment and a unique opportunity for using litigation as part of brand building, BodyArmor issued an unusual, nationwide press release along with the filing of its Answer, threading populist themes of "fighting back against trademark bullying," a refrain often cited by accused infringers today.
In its Answer, the Defendant countered by alleging that "[i]t is nearly impossible that consumers or retailers of either brand would confuse the two.  Under Armour and BODYARMOR operate in disparate industries, produce distinctly unrelated products, and share no branding or logo similarities."

Nonetheless, despite the rhetoric of "bullying" and personalities involved, the merits of the trademark case require a fairly garden variety legal analysis. 

The case will turn on the jury evaluating existing marketplace conditions, and determining whether or not consumer confusion is likely based on perceptions of the beverage's name, logo and marketing materials.
To ultimately prevail on its trademark infringement claims, Under Armour will need to demonstrate to a jury, by a preponderance of the evidence, that ordinarily prudent consumers encountering the BodyArmor product and advertisements in the marketplace will likely be confused into believing that the beverage emanates from, is endorsed, sponsored by, or affiliated with Under Armour.

This analysis involves using a flexible eight-factor test called the Polaroid test first articulated by Judge Friendly in a famous case brought by Polaroid against a company called Polarad Electric.

The eight factors described in the Polaroid case are:  the strength of the trademarks involved, the proximity of the products in the marketplace, the likelihood that the second-comer will "bridge the gap" in the marketplace between himself and the senior user, the sophistication of the consumers, any instances of actual confusion, the quality of the junior user's products, the intent of the junior user, and the similarity of the competing marks.
Further, marshaling evidence will entail the parties introducing competing consumer surveys through expert witnesses, who are skilled professionals with advanced marketing degrees and backgrounds, charging hundreds of dollars per hour.

Each expert witness will presumably challenge aspects of the adversary's expert's methodology and reach the exact opposite conclusion about the likelihood of confusion.
The parties and their witnesses will also spend countless hours scrutinizing the respective trademarks bit by bit, comparing them side-by-side, as well as examining the appearance of the respective products themselves.  

But in the end, when all the rhetorical fireworks are over, and the allegations of "fighting back against bullying" die down, the case will ultimately be decided based upon whether the jury believes that Under Armour has sustained its burden of proving that consumer confusion from the beverage is likely under prevailing marketplace conditions.