Sunday, May 17, 2009

The Luxury of Ignorance?

"Why pay more?" Suddenly, it's nagging at almost all of us: the line used in a million uninspired advertisements for products and services claiming to be as good as the ones carrying a bigger price tag. In straitened times, as money flows more slowly, there's more reason than ever to examine the rationale behind paying more for something than you need to. In this vein, I was interested to read Seth Godin's take on this in his most recent blog (kindly passed on to me by Catherine Monahan, creator of a wine and website called le beast)

Luxury vs Premium
Luxury goods are needlessly expensive. By needlessly, I mean that the price is not related to performance. The price is related to scarcity, brand and storytelling. Luxury goods are organized waste. They say, "I can afford to spend money without regard for intrinsic value."

That doesn't mean they are senseless expenditures. Sending a signal is valuable if that signal is important to you.

Premium goods, on the other hand, are expensive variants of commodity goods. Pay more, get more. Figure skates made from kangaroo hide, for example, are premium. The spectators don't know what they're made out of, but some skaters get better performance. They're happy to pay more because they believe they get more.

A $20,000 gown is not a premium product. It's not better made, it won't hold up longer, it's not waterproof or foldable. It's just artificially scarce. A custom-made suit, on the other hand, might be worth the money, especially if you're Wilt Chamberlain.

Plenty of brands are in trouble right now because they're not sure which one they represent.

When you apply Godin's theory to wine, it's interesting to consider which wines really enjoy premium status, and which are luxuries. Traditional European wines applied the premium system assiduously: you paid more for a Reserva or a Premier Cru, and still more for a Gran Reserva or a Grand Cru. All of these were supposedly from better vineyards and/or more expensively made and aged. Then a pesky little boy called Robert Parker came along and impudently - but accurately - pointed out that some of the emperors were more shabbily dressed than their supposedly humbler subjects. And that some of the smartest players carried no quality credentials at all - apart from the score Parker himself had given them out of 100.

Today, I'd say that top Burgundies and Bordeaux probably fit into Godin's classification of "premium" in much the same way as a custom-made suit. And the same might have been said for Penfolds' tiers of Bin numbers. But what about Cloudy Bay, which is now produced in prodigious quantities but maintains an extraordinary image of rarity. No longer the best wine in its region, it still carries a quality image that presumably satisfies those who pay twice as much for a bottle as they would for something from a neighbouring vineyard.

The cult California Cabernets and Australian Shirazes can at least usually stake a claim to genuine rarity and to - relatively - higher cost production, but are they premium or luxury products. Or are they uncomfortable mixtures of both? Premium in the extra perceived quality they deliver but luxury in the distance between their astronomic price and the price at which they could be profitably sold.


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  2. Interesting piece! In addition to these luxury and premium wines there are those wines which seek to don the mantle of luxury or premium by deliberately taking up 'quality' cues in their packaging in order to 'dupe' the ignorant consumer whether by words (Reserve, Estate, Old Vines, Chateau) or images (mimicking 'fine wine' labels) or bottles (4x4 deep punted heavy ones, old style wire netting, yellow 'Cristal' type cellophane on a bottle of bubbles etc). Do they damage the true premium products by profiteering on the back of a hard won reputation or is it irrelevant because the target audiences are different?

  3. A good point. I remember a record company exec showing me a platinum disc which had been sold as a "limited edition". How, I wondered, could it possibly be "limited"? His answer was direct: "It WAS limited - to the number we could sell". The trouble is that I'm far from sure that "Limited Edition" these days really fools anybody any more than the "closing down sales" used by some retailers.