What is Trading Up, and Why It Matters for Marketers

To understand what the term "trading up" means, let's start with a scenario.

You wake up early and jog to the Starbucks on the corner of your street. There, you wait in line to order a pumpkin-spiced latte, as you skim emails on your iPhone.

Afterwards, you return home, put on your new Lululemon workout apparel, and hop on your Peloton for an at-home workout.

In this scenario, you've "traded up" in a variety of consumer categories: including coffee, technology, clothing, and even workout gear.

Why, for instance, did you feel the need to head to Starbucks and pay $6 for a drink, as opposed to making a quick pot of coffee in your Keurig? Alternatively, why not purchase workout apparel from Marshalls or Target?

(No judgment on any of these decisions: I've made them, too.)

Ultimately, trading up refers to a consumer's tendency to pay more for a higher-quality, more expensive product or service from a brand to which they've formed an emotional attachment, and feel a sense of loyalty.

But trading up doesn't just refer to a consumer's behavior in the marketplace at-large: it also refers to a consumer's decision to upgrade their product for a newer model with additional features.

As a marketer, it's critical you understand the concept "trading up" to discern how you might evoke brand loyalty in a crowded marketplace — or, how you might market a new version of your product to existing consumers.

Here, let's explore what trading up means, as well as what it means specifically for marketers.

What does trading up mean?

Trading up in the industry at-large.

There are two contexts in which you'll find the term "trading up" used: within a marketplace at-large, and within your company's own product suite.

To start, let's explore what trading up means within an entire marketplace.

In this context, trading up refers to a consumer's decision to purchase a more expensive product because of the brandvalue they feel it delivers. This is why consumers will purchase a car for 10X the normal price if it's marked with BMW, but why they might not make the same decision for a car from a lesser-known brand.

There are a few reasons why a consumer will trade up in the marketplace. For one, a consumer might trade up because the brand meets their aspirational vision of who they want to be. There is undoubtedly a different vision that comes to mind when a consumer thinks of Starbucks versus Dunkin' — in exchange for this vision, a consumer might be willing to pay more for a coffee.

These top-of-the-line brands often feel "premium" and luxurious, incentivizing consumers to pay more than they would for another version of that product in the marketplace from a lesser-known or lower-quality brand.

However, that isn't to say that consumers purchase products from certain companies entirely based on brand name alone. No matter how impressive Starbucks' brand image is, it doesn't do much good if the coffee is disgusting.

Ultimately, you can't have one without the other. A brand like Starbucks, BMW, or Apple rises to the top of their industries because they provide high-quality, well-engineered products — not just because they have a good brand image to match.

Additionally, these brands have built a good deal of trust with existing consumers, which leads to positive word-of-mouth marketing. Considering over 90% of consumers trust family and friends' suggestions more than advertising, this is important.

For instance, nowadays, Apple doesn't need to appeal to consumers with constant commercials and billboards — instead, they can trust their loyal brand advocates to do the heavy-lifting (just consider the jokes you find on Twitter when you search "green bubbles", which signifies a non-Apple user).

Suggestions from friends and family is the second powerful reason a consumer will trade up. Perhaps you've never considered purchasing a Peloton, until you heard your friends raving about the product.

Friends will only suggest a product if it's truly high-quality and meets their needs above all other competitors in the marketplace.

Which is why, ultimately, you need both a strong brand and a powerful product or service for consumers to feel they're trading up from the "status quo product" that exists in your industry.

Next, let's explore what it means for a consumer to trade up at your company in particular.

Trading up within a company's product suite.

The second context for trading up is within a company, and is also known as upgrading.

For instance, let's say you sell a starter version of your software, but you've just released a new professional version, with higher-quality features. If your consumers choose to upgrade to the new version of your product, they're "trading up".

In many ways, this mirrors the first definition. You might think of your starter version as a used car, and your professional version as this year's latest model.

To encourage consumers to trade up, you'll want to demonstrate how the new features of your product are powerful and necessary — not just "nice to haves" but "need to haves".

Take a look at Cross-Selling and Upselling: The Ultimate Guide for more information on this.

Trading Up in Marketing

Now that we've explored what trading up means for a consumer, let's explore what it means as a marketer.

Understanding the reasons a consumer might trade up can help you leverage your brand and products to incentivize consumers to feel they're trading up when they purchase your products or services.

How? Through good brand recognition (and a high-quality product, of course).

While I used some major brands in my examples, you don't need to be a large corporation for consumers to feel they're trading up. For instance, consider my new favorite coffee shop, the Bittersweet Shoppe, on Newbury Street. The cozy cafe is filled with sunflowers and offers fantastic customer service — now, when I go there, I feel like I'm trading up from Starbucks. Ultimately, I like the experience of entering their coffee shop, which is what a good brand image is all about.

If you work for a small business, there are plenty of strategies you might implement to create a strong brand, including building a brand strategy, prioritizing consistency, and using a strong mission or vision statement to guide all your decisions.

Additionally, encouraging consumers to trade up, or upgrade, from within your product suite involves strong messaging, sales and marketing alignment, and a true understanding of what your consumers need and how your newer version can meet those challenges, particularly as consumers out-grow your first product.

Ultimately, people don't trade up from brands and products they love. Ensure you're meeting your consumers needs, both through your brand and your products, and they'll tell their friends and family. Soon enough, you'll be the brand people trade up for.

Just consider this: I'm going on six years of owning an iPhone, with no interest in pivoting. Now that's the power of a good brand, and a strong product.