If customers are pulling back, it’s time to target premium buyers

As shoppers cut back on unnecessary spending, some businesses are promoting their more expensive goods and services.

And no, it’s not counterintuitive: yes, recessions are times when budget-friendly businesses, like dollar stores, tend to thrive, Jorge A. Guzman, associate professor of business management at Columbia Business School told Inc.com in May. But shifting focus to a premium customer—one who may not feel the impact of inflation as keenly—could be a smart move for companies that just can’t cut prices even as demand continues to linger. Excluding gasoline and auto sales, retail sales rose just 0.7 percent in July, the U.S. Census Bureau announced Aug. 17 — a sign that inflation is still dampening consumer demand.

“There was no way I could compete with the big box stores in terms of prices,” says Jocelyn Ho, founder of Detroit-based potted plant shop Rare Plant Fairy. With a botany degree (which went largely unused in her career in merchandising and quality control at a luxury brand), Ho pursued a hobby of growing rare potted plants and started her business in the early days of the pandemic by selling plants out of her second bedroom . . Today, she runs the business from a 5,000 square meter showroom.

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“There are customers who don’t mind spending $1,000 or $2,000 on a couple of plants,” she says. A single plant can fetch a price in the thousands — although the Rare Plant Fairy also offers more “affordable luxury” options, like rare philodendrons for $75. Although lower-ticket facilities allowed Ho to start her business, it’s the high-end options that really helped her flourish. “As soon as I had the capital to buy rarer plants that could sell for around $100, that’s when I started scaling,” she says. “If I could sell 100 $10 plants or 10 $1,000 plants, of course I’d rather sell those 10.” Despite mounting economic pressures, Ho says her high-end customers have continued to buy plants.

There’s something to be said for making a lot with a little: That’s been the approach that Fair Haven, New Jersey-based interior designer Carol Lang has been leaning into for the past few months. Lang, who launched her business in 2013, recently changed her interior design business to cater primarily to luxury clients, who tend to hire her for more extensive, full-service design work.

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Previously, Lang offered a one-day design service, which involved about two hours of in-person consultation with the client followed by six to eight hours of sourcing and ordering back in her studio. The service, designed as a more accessible option for customers, was set at an “entry price point” that was significantly lower than the cost of a full-service project.

But snarled supply chains in the home industry made it more difficult for Lang to continue this service profitably. “Over the past six months, the time it has taken me to serve those clients at the level I want has not been balanced with the fee that was right and fair to charge,” she says. She would have had to double or triple the price of this offer to adequately compensate for the more complex logistical challenges that now come with ordering home goods, paint and more, she says: “And to significantly increase the price, at my core, doesn’t feel right .”

The better option, she says, was to cut back on this lower-level service and focus on clients willing to pay for more thorough and intensive design services. By rebranding her business, Lang says she has been able to restore the revenue she lost by cutting her one-day service, which previously accounted for about 25 percent of sales. She hopes to restart the lower-priced service in the future, but only when it is again possible to do so.

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Meanwhile, quality over quantity has kept her business going—the same mantra that has guided Erica Pietrzyk, founder of Detroit-based Pietrzyk Pierogi. Pietrzyk sells her Polish dumplings at her location, pop-up events and select grocery stores, including Kroger. They are a premium product; a package of a dozen pierogi sells for $15 to $16. One mass-market option, the family-owned Mrs. T’s Pierogies, costs about $5 for a dozen. But Pietrzyk says customers are willing to spend more for better quality. “Some people are looking to get more value out of what they spend on, as opposed to having more of something,” she says.

A premium price point can also help companies avoid “overselling,” she adds, which can be harmful in the long run. “If your product is someone’s favorite food and you’re constantly out of stock in their grocery store, the customer is going to replace your product with something else,” she says. “So it might be beneficial for luxury brands to focus more on quality rather than mass marketing their products.” Pietrzyk admits her business is currently operating at capacity with its wholesale, storefront and pop-up offerings. Next, she wants to expand her kitchen space so that she can increase production and make it more efficient.

Pietrzyk expects the strong demand to continue. She saw a brief drop in sales when gas prices rose earlier this summer, when customers likely cut back on shopping trips. When she started doing more pop-up events to boost sales around the same time, she saw that nearby customers were more than willing to buy her pierogies.

A $15 package of pierogi may not be a consistent purchase for all grocery shoppers, especially those looking to counter the effects of inflation, but for some it can be a reasonable treat. It’s another matter for marketing premium goods—and something Ho is also considering as she charts her business’s next phase of growth: Offering more rare plants at a sub-$200 “affordable luxury” price point. Her background in luxury goods has confirmed her confidence that even as the economy gets tougher, people will want to splurge on something special. “In times of recession, luxury brands still sell a lot of lipstick,” she says. “It’s something a little extravagant, but it’s not going to break the bank too much.”

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