Marketers who understand the 20/40/60 Rule are more likely to raise their returns.
Michael Silverstein’s seminal book, Trading Up, made a significant impact on my marketing worldview by documenting how companies create high-end brands that appeal to affluent and mass-market consumers. The book was – and remains – a great business case for the power of premium brands.
I first met Michael when we appeared together on a panel sponsored by House & Garden magazine. We got along very well. Of course, it didn’t hurt that Trading Up featured one of my high-end home clients as a case study.
One of the book’s biggest takeaways was a concept called the “20/40/60 Rule.” In every category, the high-end brands in the category typically accounted for up to 20 percent of the unit volume, 40 percent of the dollar volume, and a remarkable 60 percent of the category profits. The team noticed this pattern across every business category that they studied – home goods, clothing, food, sporting goods, you name it.
Over the years, I have quoted the 20/40/60 Rule many times to demonstrate that a high-end branding strategy is more than a marketing gimmick. On the contrary, it is a fundamental business strategy that can radically drive corporate profits. In the home category, Michael’s research definitively illustrates that high-end brands drive the profits in the sector.
Someone recently asked me if the 20/40/60 Rule had survived the Great Recession. So I decided to check in with Michael and hear what he had to say.
The good news: “it is alive and well.”
“The recession has been tough,” he told me. “What it has done is raise the returns of winners in new luxury and kill the secondary players. Category leaders have widened their lead and their profit. Think Hermes and Cartier, Audi and BMW, Victoria’s Secret, Starbucks and others.”
And the outlook remains sunny. Looking ahead, Michael’s research suggests that a high-end branding strategy remains a solid bet. As he told me, “I see the premium space as growing as the world fights its way out of the malaise.”
- The high-end space is still a good place to be for home brands.
- The outlook is positive for the coming years.
- However, as always, competition remains stiff and marketers must fight to remain differentiated and relevant to their consumers.
If you are interested in learning more about Trading Up, click here.