They’re sold the same way to the same types of consumers.

Luckily, the wine and iPhones haven’t hit the spam-bucket the way watches have recently. Watch spam is probably running a close third to 419 spam (“Esteemed sir, I am requesting for urgent business relationship….”) and [...]]]> What do fake Rolexes, overpriced wine, and iPhones have in common?

They’re sold the same way to the same types of consumers.

Luckily, the wine and iPhones haven’t hit the spam-bucket the way watches have recently. Watch spam is probably running a close third to 419 spam (“Esteemed sir, I am requesting for urgent business relationship….”) and fake ED drugs. That said, the subject or opening lines of Rolex spam are instructive:

Cheap watches that still elevate your social status.
Tired of being jealous of your friend who owns a Submariner SS model?
Your friend will recognize the Rolex on your wrist.
Watches for people who want to live a luxury life but spend less.

(I read spam so you don’t have to!)

It’s easy to see that these fakes are aspirational goods.

Actually, a real Rolex is an aspirational good too. It keeps time no better than a $15 Casio, though it’s a tad more elegant… and considerably heavier. But the price is so out there — $8,000 and up, I think — that even the biggest poseurs recognize it’s an aspirational good. They’re not fooling themselves.

Fake Rolexes, overpriced wine, and iPhones are little marketing marvels of self-deception.

A friend who’s a high-end wine distributor, and who knows good wine, recently attended a tasting of “mid-price” wines, bottles that might sell for $100 in a restaurant. My friend wrote about the various wines (ellipses omitted)

Dull, a bit thick. Their Chablis was tasteless…also dull. Horrible. Are they kidding? Many of the wines were not sound, going through a secondary fermentation. Many were oxidized. The guy next to me was raving about a chardonnay that was oxidized and [expletive deleted]. The emperor has no clothes.

That’s the way of the world sometimes. The Emperor’s clothiers did rather well, as I recall.

The shop in question is in effect selling iPods and iPhones. Both of those devices are glosses on stuff that had been done before, wrapped in nicer packaging and sold as aspirational goods. People want them — and pay a premium for them — because of the cachet that attaches to them. It’s market positioning that Steve Jobs is brilliant at. I may knock the products as overpriced, but I’m truly in awe of Jobs’ marketing savvy and sense of what consumers desire… or can be convinced to desire.

To most people, wine is an aspirational good, like iPhones, like (fake) Rolexes. People aspire to possessing and using (consuming) it, not just as a visible signal to friends, acquaintances, and random observers, but as a symbol to themselves that they have achieved a certain level of fulfillment and status. For many people buying wine, as long as the liquid is not actually vinegar, the label is what they’re consuming; the product in the bottle is secondary.

No one buys the cheapest thing on the menu, as my friend has reminded me a few times. Pick a price point for an evening out. “I would pay $80 for a bottle of wine at this restaurant.” It’s the aspirational thing, not a particular $80 wine. Show the purchaser the menu, and many who think $80 will buy the $90 or $100 bottle. They’re celebrating something — themselves, basically — and they don’t want to buy the cheapest celebration.

The wine shop figured this out. I’m sure the owner knows the wines are overpriced for their quality level. He also knows that it’s a small number of people who understand that quality level, people such as my friend (I sure don’t when it comes to wine).

He’s selling them a vision of their level and status as reflected through some fermented grapes. The skill with which the grapes have been fermented is only a small part of what he’s selling. Think of it as a different version of love-him-or-hate-him wine guru Robert Parker’s rating scale,where wines he likes score 90+ on a 50-100 scale. In the aspirational wine scale, 90% of the score is aspiration and 10% is actual wine goodness. If a wine hits 100% on the aspirational scale and 20% on the taste scale, it gets a score of (90% x 100) + (10% x 20) = 90 + 2 = 92, which Mr. Parker would consider a fairly good wine.

That, I think, is the kind of rating scale people use in evaluating any non-necessary good; the functional aspects are only part of the score, sometimes a small part. Otherwise a Casio and a Rolex would score about the same… or maybe the Casio would score higher, since it doesn’t drag your wrist down. (On the other hand, I recall a James Bond story where Bond, James Bond wrapped his Rolex around his knuckles to punch someone out; maybe for those in a certain line of work the Rolex would get some points as a weapon. I hear Robert Ludlum’s next book is called The Bourne Chronograph.)

A fake Rolex, an iPhone, and a $100-at-a-restaurant bottle of mediocre wine represent three different colors across the spectrum of aspirational goods. The fake Rolex is just that, a fake; the intent to deceive is outward only, the aspiration naked. The mediocre wine contains both self-deception and outward deception; the buyer pays for something where price (a/k/a reputation) is pretty much the only indicator of quality the buyer understands. The iPhone is a quality device that works rather well; the buyer is overpaying a bit for the cachet, and often self-deception (“I’m cool, I have an iPhone”) is greater than outward deception (“there goes another iPhone geek”).

Indeed for some the iPhone is the new Rolex, a fashion accessory as well as a utility device. The difference is that the spread between utility cost and actual price is thousands of dollars for the Rolex and a few bucks for the iPhone.

If you’re on the marketing side, positioning your product as an aspirational good, if applicable, is a great way to increase profit margins, though it may or may not maximize total profit.

If you’re the buyer, it never hurts to consider explicitly how much extra you’re willing to pay for cachet rather than pay for play.

=============

For the record:

• I don’t have an iPhone, but I do have a wool-and-cashmere sport jacket I wear on some client visits that is priced above utility cost.
• I know very little about wine, though I can tell the difference between Two-Buck Chuck and an extraordinary 1988 Chateauneuf-du-Pape my friend shared with me last month; I rarely buy a bottle in a restaurant, but if I do I’ll keep it under $40 because I simply don’t know enough to warrant spending above that point. I’m content with the quality of most wines at that price point, even when I can tell the difference.
• I do not have a Rolex, real or fake, but I do have a Citizen watch that cost $129 fifteen years ago; I bought it because part of the money went to support Dennis Connor’s America’s Cup team. Yup, that’s why I bought it. Really.

So I certainly fall into the aspirational-good trap myself. As I get older, though, I try to be more aware of it, more cognizant of how people are marketing to me.

And if I see one more newspaper article that confuses cachet (ka-SHAY, positive reputation) with cache (kash, a store or stockpile), I’ll scream.

To be, or not to be…. For in that sleep of death, what dreams may come!

(This passage must set the record for titles derived from a single chunk of text. [...]]]> If there’s nothing certain, as Ol’ Ben put it, but death and taxes, Hamlet wrestled with only part of the question in his most famous soliloquy:

To be, or not to be…. For in that sleep of death, what dreams may come!

(This passage must set the record for titles derived from a single chunk of text. Off the top of my head: What Dreams May Come, with Robin Williams. The Undiscovered Country, Star Trek. To Be or Not to Be, starring Jack Benny. Perchance to Dream, a book by the late Robert B. Parker. And I’ll bet there are at least a few more.)

Anyway, so Hamlet spoke on death. He covers taxes, too:

This heavy-headed revel, east and west, makes us traduced and taxed.

But it was another tax I’ve been thinking of lately, the tax to browse content on the Internet.

Advertising.

I have no problem with advertising per se. It’s a trade I’ve been willing to accept: Pay for my content by positioning ads where I can see them. Up to now, I’ve been content with that trade.

However, in the past few months, advertisers have, I believe, failed to uphold the implicit bargain as we struck it some years ago:

1. There are an increasing number of interstitial ads, ads I must wait out or dismiss before seeing the content I clicked on. I don’t like it, but I understand it.
2. The on-page ads have begun increasingly to use Flash, suck up bandwidth, and delay access to and responsiveness of the page I sought.

The latter has caused me to reach a breaking point — minor as it may be — and do something I vowed a year ago I wouldn’t do.

I installed Firefox so that I could use AdBlock Plus.

I pay Comcast for significant bandwidth already. That’s okay, because that’s a fair exchange; if I don’t like their rates, I can go back to Qwest, for example. But I’m tired of advertisers raising the cost of my clicking on content without offering an alternative.

So I have installed my own alternative.

I don’t like Firefox, frankly. It’s clunky compared to both Chrome and IE, though faster than the latter. (Why the heck can’t Mozilla make Ctrl+Tab work? Is it because it’s a Microsoft idea and Not Invented Here? Please!) But AdBlock Plus seems designed for Firefox, and so I’ll trade the inconvenience of Firefox for the convenience of seeing a page before my kids graduate college.

I hate doing this. I feel like I’m breaking a bargain… but I’m not the one who broke the bargain first. If we go back to a world where advertising is lightweight, or if I have alternatives to pay for ad-free content, that’s a different deal. But to the advertisers of the world, I say: Give Me Back My Bandwidth and Responsiveness.

And so, at least for now, advertising is no longer “the undiscovered country from whose bourn no traveler returns.”

Whew. I’m glad I got that off my chest. Now back to our regular scheduled programming.

Those are the questions posed by the place where I’ve been getting my hair cut.

Background: There are at least four places to get my hair cut down at the [...]]]> If you have been giving something away and you stop, do you really make more money? What about raising prices only for your best customers?

Those are the questions posed by the place where I’ve been getting my hair cut.

Background: There are at least four places to get my hair cut down at the bottom of our hill, a one-mile walk away. I chose this particular “salon” (what happened to “barbershop”?) when they opened some years ago because they had an introductory low price and a buy-eight-get-the-ninth-free policy.

Now cutting my hair is in effect a commodity. As you may note from the pictures that sometimes appear atop the page, my hair thickly curled, unstyled, extremely easy to cut. There’s also less of it than there used to be, but that doesn’t seem to affect the price. In other words, I can go to any semi-competent hair cutter and get a similar satisfactory result. I’ve noted that most of the folks who patronize these places also have commodity-type straightforward, simple haircuts. You don’t get to choose your “stylist,” many of whom are relatively transient at these places anyway.

So I differentiate on price, convenience, and inertia. I believe most other patrons of this chain do the same, based on my observations.

The nine-for-eight deal represents inertia. Convenience is the same for all the shops in the area, and I suspect price will be similar, too, for my simple cut. And there’s a 2x multiple, since my son also has easy-to-cut, unstyled hair, and we often patronize this shop together.

I went in to get my hair cut yesterday and found a small sign noting that at the end of the month they were eliminating the nine-for-eight deal “because of the recession.”

In effect, they’ve implemented a 12.5% price increase.

Specifically, they’ve increased prices 12.5% only for their regular patrons. If you didn’t use the place often enough to take advantage of the nine-for-eight deal, your price remained the same.

Now what kind of a business raises its prices only for its best customers?

Enter the law of unintended consequences. I now have reason to consider their competitors that I didn’t have before.

Granted, they were making less margin on good customers than on casual customers. So if some of their good customers leave, their margin per haircut will indeed go up. However, their overhead remains the same, and their total revenue will decline with even a smallish loss of clientele. It’s not like they’re so busy that people see the lines and walk out; they have an enormous amount of excess capacity at most times on most days. In addition, some customers buy the very-high-margin hair-care products on display, meaning that even these “free” ninth haircuts can generate profit.

They likely look at the economics of their situation thus: If they lose one-eighth of their regular clientele, their average margin per haircut will improve while their revenue (and profit) remains the same.

It remains to be seen what percentage of their good customers will explore other options. Inertia is a powerful force even without incentives, and perhaps they will indeed lose less than 12.5% of the business from their erstwhile regulars.

They will, however, lose mine.