Friday, December 20, 2013

Improving Seth Godin's "Understanding [of] Luxury Goods"

This is a somewhat tongue-in-cheek title, but a serious topic. I think Seth Godin is both brilliant and very good at what he does -- and he demonstrates a desire to learn.

A while back he wrote about "Understanding Luxury Goods". His writing is usually brief, bold, and right on the mark. This one rambles a bit, possibly because the nature of value is not as clear as we assume. This is my attempt to clarify the discussion. After you read "Understanding Luxury Goods" come back for a few clarifying ideas.

The value of luxury goods -- or any other goods -- is a combination of two categories of worth:
  • use value: the features and functions a good confers to a person.
  • generative value: the characteristics or experiences a good confers to a person.
Kevin Kelly came up with the idea of generatives a while back; it's a powerful concept. This kind of value can not be duplicated and mass marketed in the way that features can be, because generative value is about the individual, not the goods. A movie can be duplicated for free, but my experience of that movie can not be duplicated at all. This makes generative value harder to devalue or discount.

Our brains appear to treat scarcity and value as the same thing. It's not that something is scarce because it is valuable or valuable because it is scarce: value and scarcity are identical. Perhaps we should call it svacalruece?
But what is scarcity? It's not just that something is uncommon or rare; a rare meat has no particular value to a vegetarian. For something to be scarce it must be both rare and relevant. Relevance, in turn, exists when someone has a relationship to something.

This means that value is proportional to the rarity of the relationship between someone and something.* Value isn't part of the thing or the person: it is part of their interaction. This is the key to understanding the nature of luxury goods.** It's not, as Seth said, "The fact that others believe a good is overpriced is precisely why a certain segment of the market chooses to purchase it" or that "social proof among the wealthy is based on beauty plus scarcity plus expense." It's that luxury goods have a great deal of generative value, because they demonstrate a scarce characteristic, or provide a scarce experience. The $15000 handbag shows the world that the person carrying it is wealthy -- a characteristic that is not innately obvious. Front-row-centre tickets to the Stones are more expensive than back-row-to-the-side tickets because they provide access to an experience that is relatively scarce. Backstage passes cost more for the same reason, and only the most wealthy can afford a private concert.

Seth correctly identifies an opportunity for non-profits: " use their true needs as only part of the conversation about giving. The dreaded gala, for example, is best seen as a luxury good." Where he goes astray is thinking "... the time and coordination and busywork are actually providing utility... not to the charity, but to those attending." The value propositions are generative, starting with a scarce experience for the attendees that simultaneously demonstrates their wealth and power.*** A gala is also a way to experience a rare -- or at least rarefied -- community.

Seth is definitely on to something here. A deeper understanding of generative value and the way it relates to utility should help push these ideas forward.

* It could be 'someone and someone', but not 'something and something'.
** The 'law' of supply and demand is derived from this concept, but it's not the only law of value that can be derived, or even the most important.
*** There are other generative values that are powerful and private motivators. Anonymous gifts, for example, tend to be related to a sense of purpose and self worth. This can be prideful, as in "I'm better than you because I give." It can be humble too, as in "The world is better because I give." Knowing which experience a potential benefactor desires can affect the way you interact with that person - and their desire to give.

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