In 2003, Michael Silverstein and Neil Fiske published the book Trading Up: Why Consumers Want New Luxury Goods…And How Companies Create Them.  As partners at The Boston Consulting Group, Silverstein, Fiske (now the CEO of Eddie Bauer Holdings, Inc.) and others worked to research the consumer purchasing trends in the United States and overseas.  The phenomenon that they identified was the willingness of consumers to pay a premium for certain goods even in times of economic downturns.  Identified as “trading up,” the researchers also identified that consumers often “trade down” in order to afford the items for which they “trade up.”  In fact, they state that the effect of luxury brands in a market segment is to cause that category to polarize where the growth and profits move to the high and low ends of the spectrum while “companies caught in the middle struggle to succeed and survive.”  The authors provide a historical perspective that the trend to trade up has been around for centuries and that economists from Adam Smith to Thorstein Veblen to John Kenneth Galbraith have observed the trend of consumers to buy goods that cost more than what most others can afford to pay.

Silverstein and Fiske believe that the trading up phenomenon is positive and is driven by middle class consumers who are aware of the price/value ratio of what they are purchasing.  Furthermore, they state that so many middle class consumers are able to afford premium goods that the conventional wisdom of “higher price, lower volume” does not follow the trading up phenomenon.  Instead, the middle class consumers have a stronger emotional attachment with their luxury purchases than with other goods.  That emotional attachment is why they choose to ignore the mid-price product.  Silverstein and Fiske believe that the consumers have no desire to purchase a product that offers “neither a price advantage nor a functional or emotional benefit.”

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Earlier this month, I posted an article on The College Board’s annual report, Trends in College Pricing.  There is a companion report to Trends in College Pricing, Trends in Student Aid.   Published since 1983, this year’s Trends in Student Aid report is only 20 pages long but is supplemented by a website that provides detailed information on all aspects of student aid.  As I mentioned in my article on the Trends in College Pricing report, The College Board encourages individuals like me to share the information in their articles as long as the College Board is given credit for the data discussed.

There are some interesting trends described in this year’s report that show positive government support of higher education.  For example, over the past decade, there has been a 78% increase in the use of federal Pell Grants to fund higher education.  Since Pell Grants do not require repayment, they offer an obviously ideal opportunity for students.  Unfortunately, many students do not qualify for Pell Grants and have to use federal and private loans to pay for their education.  The percentage of students at elite institutions who qualify for Pell Grants is often 10% or less.  A much higher percentage of community college students qualify for Pell Grants than at other institutions.  The report also calculates the benefits received from education tax credits.  These credits have increased 86%, from $3,791 per student during the 1998-1999 academic year (the program did not exist prior to 98-99) to $7,040 during the 2007-2008 academic year.

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