Colin, a loyal MR reader, writes to me:
My girlfriend and I were having dinner at a swanky place…and noticed everyone had essentially the same phones–either an iPhone or some version of a Blackberry–which are the same models I see all over campus…It seems to me that with most items like cars, handbags, or houses, there are always more expensive/prestigious items one can get to signal a new tier of wealth, but with phones this is not the case (iPhones and Blackberrys look to be the end of the line, and are not particularly exclusive to the wealthy). We were curious if you could come up with any other items or industries that plateau like this–the only other we could really think of was media/entertainment (plateau at the NYT/WSJ; everyone sees roughly the same new released movies or tv shows). Thanks for your consideration and thanks for keeping up the excellent blog!
Other than reading blogs, what are further examples? By the way, here is the world's most expensive cellphone (beware: the pop-up at the link offers audio), at 300k, but I think your wealthy friends will simply laugh at you. Only 28 of them have been produced.
Status plateaus may be profit-maximizing when large numbers of upper-middle class customers wish to believe that they are enjoying the truly cutting edge technology and they are willing to pay for it. Creating the "iPhone plus for billionaires" would lower the demand for iPhones proper.
I'm noticing that the really annoying people walking in New York while engaged in a cellphone or text conversation now tend to be poor people. It used to be yuppies.
Network products and products with network characteristics are the candidates from generation to generation. Add to that an advertising campaign that signals who you are by virtue of the purchase, and you have the trifecta of the perfect product. Insert Apple here, Facebook there.
How about signalling status by *not* having items (such as mobile phones) that used to signal status. I know of some people who don't carry around a mobile phone (at least not frequently) in an attempt to show that they are too important. Similarly, with facebook: some people deactiveate their accounts to show they are "above the fray."
Brian, You are correct in that there is a segment that reacts just that way, and are proud to be in the minority, which explains also why they cannot ever be in a majority. But, before you think that someone is not marketing to you as that resistant personality, think again, as there is always a businessperson marketing those bell bottoms and tie died shirts to the minority as well. Give up. You can't win.
@Brian
Don't forget the "I don't have a TV" people.
Brian, to make it clear, when I say marketing tie dyed clothes , I mean marketing to the countercultural, the non majority signalling products.
Oh come on Colin, you can get a VERTU.
For me, the WSJ/NYT plateau is lower than it used to be.
Back in the late 80s, when the WSJ started offering nationwide home delivery, I dropped my subscription to the Miami Herald in favor of the WSJ… because I couldn't stand the writing quality from the local rag any more. Also it didn't hurt to feel that I was part of a national elite, as I sat reading my WSJ at the lunch counter of Sam's Country Kitchen.
Internet, specifically Web 2.0, has ruined that fancy. Now that readers can leave comments on WSJ/NYT articles, I can plainly see how shallow and reflexive their thinking is.
The great thing is the iPhone is typical rather than exceptional — it has become more and more the case that the cost of new products is dominated by R&D, not the manufacturing, which means the need to sell in quantity, which means the coolest stuff is mass-market (at least after a brief initial 'early adopter' period where bugs are being ironed out and production is ramped up). This applies to (as others have suggested) electronics of all types and pharmaceuticals. But it also applies even to cars. There are still luxury autos, of course, but the things that distinguish them are not features that really matter for function (economy, reliability, safety) but rather leather, soft-touch surfaces, fancy wheels, extra chrome bits, etc. In fact, you could argue that pretty common for luxury features to make cars functionally worse for their typical use (e.g. over-sized alloy wheels, low-profile, high-speed summer tires, etc).
Bob, that's why I don't read MR much anymore.
I kid, I kid.
Actually, in terms of the iPhone or Blackberry, those are the technical cutting edge. There does not exist some mystical phone out there that is magically better than the iPhone on a technical level, no matter how much you are willing to pay for it (besides maybe getting your own R&D shop together and beating apple at their own game, in which case you should really consider selling the results to consumers). So unlike in the case of a car, your money won't get you a higher quality experience that you could argue you get from your Bentley. It would be pure signaling. I think most people at least like to think that they are buying something besides status with their high end consumption.
Surprised they let Blackberry people in.
Birthing techniques, emergency life-saving equipment, AA batteries, graphene.
The idea of making your own super (Batman) gadget is not completely out of hand. D. E. Shaw is now doing computational biology full time (as far as I can tell). He has designed and built (and paid for) special purpose computers with remarkable hardware and software that can follow molecules for a trillion time steps. This blows everyone else out of the water, even national labs. He gave one of the 4 most remarkable scientific talks on this I have ever heard.
Coca-cola.
I no longer use the internet and have someone who works for me write my comments.
You can do what some Chinese and oil types do: get a blackberry or iphone with a gold or jewel-encrusted case. The problem with this approach is everyone who knows what these devices are knows the electronics are identical to the factory version, so this would only impress people who don't already have an iphone.
How about houses, until the recession hit? Everyone in the middle class seems to have the same McMansion.
The most important status goods are always those in limited supply (rare paintings), positional (land in good locations), or special labor services (hence likely to go up in price as human wealth increases unless technology enables substitutes). Things easily produced by new tech are very weak signals of upper class status at best.
The R&D point is spot on. Most R&D-driven industries don't find it worthwhile to product luxury goods for a few people because it leaves money on the table – desktop software, pharmaceuticals, microprocessors, mobile phones, etc. So it seems like this phenomenon is a production-driven one, not a function of consumer preferences by category.
Having said that, Apple is probably leaving some money on the table by not offering cosmetically different collector's edition iPhones.
I utilized the services of a gentlemen from Guatemala for a few hours yesterday to do work in my yard. He didn't appear to own much, but he did own a Blackberry.
Just a sidenote the iPhone has distinctive revamps that create a subtle tiering effect. I mean yeah Joe Shmoe can walk in off the street and get the same iphone 4 as Larry Ellison but in 9 months Larry will have the iPhone 5 and Joe Shmoe will still be stuck in his iPhone 4 contract. I also doubt he can afford all the iApps, iBooks and iTunes songs Larry can though. And when he plays Ninja Wars his level 3 assistant pig tamer get's LOL ROFLstomped by Larry's level 800 micropayment-enhanced uberninja.
I don't think Apple is leaving money on the table at all, they keep a slim product line by design and that's part of what makes them successful.
The last non-smart phone to be in uber demand was when the phone stopped being a status symbol.
Remember the RAZOR when only Spring (I think?) had it? The guys on Entourage always made a point to display prominently, circa 2004.
Consumer electronics of every kind plateau early in this way. Although there are jewel encrusted mobile phones for the bling-obsessed, a really good mobile phone/TV may cost far more to design and develop than a poor one, but very little more to manufacture (soon a smart phone will cost as little as $1 more to make than a basic phone). To recoup the R&D costs most effectively you will eventually need to sell to a mass market.
It used to be that status in these categories consisted not of what you bought but how early you bought it. Consumer electronics manufacturers were masters of skimming – where digital watches went from $1000 to £5 over the course of a decade. However it may be that imitation and the pace of change is so rapid now that this approach no longer works.
"I thought the Financial Times outplateaued the NTY and the WSJ."
Or for that matter, _The Economist_.
Comments on this entry are closed.